Major Brazilian hedge funds hit by market rout

A one Brazilian real coin is backdropped against a 100 US dollar bill in Rio de Janeiro, Brazil, on Thursday. (AFP)
Updated 20 May 2017
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Major Brazilian hedge funds hit by market rout

SAO PAULO: Several Brazilian hedge funds suffered their worst one-day losses in at least a decade after Brazil’s financial markets were slammed by a corruption scandal threatening to topple President Michel Temer and his reform agenda.
High-risk Alaska Black lost 28.02 percent on Thursday, after turning in the top performance among Brazilian hedge funds tracked by Reuters in 2016 with a 129 percent return.
Manager Henrique Bredda said around half of the losses in the fund, formally known as Alaska Black FIC FIA — BDR Nível I, came from transactions involving different maturities in the yield curve.
Brazilian markets took a beating on Thursday on reports Temer had been caught on tape condoning bribes to silence a witness the biggest graft case in Brazilian history, fueling calls for his removal from office. Temer strongly denies any wrongdoing and has said he will not resign.

Volatility
Yields on interest-rate futures spiked, with all contracts hitting a daily oscillation limit. The volatility in the fund’s holdings worsened because longer-term interest rate futures have wider limits than shorter-term ones, Bredda said.
The fund returned between 8 and 9 percent on Friday, Bredda said, partially correcting the slump as Brazilian assets rebounded from Thursday’s plummet.
According to data from securities regulator CVM, Alaska Black held 371 million reais ($114 million) in assets under management at the market close on Wednesday.
Manager Adam Capital Gestão de Recursos Ltda unwound all of its positions in Brazil, swallowing an 18.2 percent loss in its high-risk Adam Advanced Master FIM CP IE vehicle and a 6 percent loss in lower risk Adam Macro II FIC FIM.
“We’ll wait until the dust settles before getting back to Brazil,” founding partner André Salgado said. “Even if the scenario improves, it’s better to miss out on the start of the rally than to remain exposed to so much uncertainty.”
Salgado said many investors had found themselves over-exposed to Brazil after a rally that made its local currency and stock market among the world’s best performers last year.
Traders had cheered efforts by the center-right’s Temer, who replaced ousted leftist President Dilma Rousseff, to pass austerity measures and pro-business reforms.

Limited losses
A few major players managed to limit the damage from this week’s losses, having hedged their bets in recent months.
Verde Asset Management SA, Brazil’s largest hedge fund, saw its holdings shrink by just 3 percent on Thursday, according CVM data. Reuters had reported the figures earlier on Friday.
That compares to an 8.8 percent drop for Brazil’s benchmark Bovespa stock index and an 8 percent slump in the Brazilian real that day.
Verde had repeatedly warned that investors were too optimistic about Congress passing Temer’s ambitious pension and labor reform agenda, calling markets “complacent” in a monthly letter on May.
Performance data obtained by Reuters from market sources showed that 11 percent of the holdings of the Ibiuna Hedge STH FIC FIM cross-asset fund were wiped out on Thursday, the biggest daily decline since it opened in 2012.
If confirmed, that nearly erased the fund’s gains this year, which had reached 12.6 percent by market close on Wednesday, when it held a total of 1.2 billion reais ($363 million) worth of assets, according to CVM figures.

Deep recession
Representatives for Verde and Ibiuna declined to comment.
This week’s losses came as Brazil’s hedge fund industry was clawing its way back from a years-long slump, as a deep recession and sky-high interest rates dampened the allure of active investment strategies.
Contracts pegged to Brazil’s benchmark CDI rate have yielded 4.4 percent so far in 2017.


Global carmakers show off SUVs, electrics as China promises reforms

Updated 5 min 4 sec ago
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Global carmakers show off SUVs, electrics as China promises reforms

BEIJING: Global carmakers touted their latest electric and SUV models in Beijing on Wednesday, as China promises a more level playing field in the world’s largest auto market where domestic vehicles are making major inroads.
Industry behemoths like Volkswagen, Daimler, Toyota, Nissan, Ford and others are displaying more than 1,000 models and dozens of concept cars at the Beijing auto show.
Thousands of Chinese auto enthusiasts are expected to wander the halls of the mega exhibition center this week, with electric cars and gas-guzzling sport-utility vehicles grabbing the spotlight.
Nissan presented its first Made in China electric car produced for Chinese consumers, the four-door Sylphy Zero Emission, with a drive range of 338 kilometers.
“The new Sylphy Zero Emission is the next step in our electrification strategy for China,” said Jose Munoz, Nissan’s chief performance officer, adding that the company will unveil 20 electrified models over the next five years.
Auto executives may have their minds on the boiling trade war between Beijing and Washington, with every twist and turn fanning fears that it could bring their plans for China to a screeching halt.
But last week Beijing announced it will liberalize foreign ownership limits in the sector, a move seen as a possible olive branch to President Donald Trump, who has railed against China’s policies in the sector.
China currently restricts foreign auto firms to a maximum 50 percent ownership of joint ventures with local companies.
The changes will end shareholding limits for new energy vehicle firms as soon as this year, followed by commercial vehicles in 2020 and passenger cars in 2022.
Foreign automakers who account for more than half of vehicle sales in China have cautiously welcomed the changes, with VW saying it has “strong” local partners in their joint ventures.
“This will have no impact on our JVs. But the overreaching principle is important. Hopefully, liberalization will as well help for fair competition, and having a level playing field,” Jochem Heizmann, CEO of Volkswagen Group China, told reporters.
The show comes as China’s market hits a transition period — the explosive growth in car sales seen over the last decade slowed last year and data from early this year point to a continued slump for many vehicle types.
Chinese consumers are following their American peers toward SUVs while policymakers in Beijing push an all-electric future.
Ride-sharing is also on the up. On Tuesday Didi — China’s answer to Uber — announced it had joined forces with some 30 partners, including Renault and Volkswagen, to develop vehicles and products specifically tailored for ride-sharing.
Accounting for some 28.9 million car sales last year, the Chinese market could soon match those of the European Union and United States combined.
General Motors sold over four million cars here last year, more than in the US. Volkswagen sold more than three million, roughly six times its home market.
But domestic firms are outselling foreign firms in the SUV segment.
In the electric car market the figures are even more lopsided, as Beijing has heaped money on projects to dominate what it sees as the future.
At the auto show, the domestic upstarts have a separate exhibition hall mostly to themselves — 124 of the 174 electric car models on display are homegrown.
Government subsidies help consumers purchase the green cars, while policymakers are planning a quota system to force producers to build electric vehicles, with plans to one day phase out gas vehicles altogether.
Volkswagen announced Tuesday investments of €15 billion in electric and autonomous vehicles in China by 2022.
“China is our second home,” recently installed chief executive Herbert Diess said at a Beijing press conference, with its market set to be “the biggest” worldwide for electric cars.