Sizing up the opportunities in Brazil

Wed Aug 29, 2007



Is a more sophisticated hedge fund industry in Brazil better positioned to weather the wave of volatility?

By Eric Baum



The U.S. credit crunch finally spilled over to Latin America last month, putting an end - at least temporarily - to Brazil's five-year bull run. In the first 16 days of August, as investors pulled out and liquidity evaporated, the Bovespa Index fell 9.17% while emerging market currencies and bonds got pummeled. Some of Brazil's biggest hedge funds also lost ground, including the long/short Mauá Brasil Equities Fund, which dropped 8.89% through midmonth.

Still, the credit crisis, with roots in the U.S. subprime mortgage meltdown, took longer than expected to hit Brazil. That in turn fueled speculation that the traditionally high correlation between the United States and Latin America's largest economy was beginning to break down.

Whether or not that decoupling comes to pass, recent events...

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