Top Brazil Trader Jakurski Says Real’s Best Days Are Behind It

Bloomberg — Brazil’s hedge-fund pioneer says the euphoria in the nation’s financial markets is starting to wane.

Andre Jakurski, 73, says the rally in the real (USDBRL) already went too far. While the nation’s soaring interest rates limit room for depreciation, he says the currency is more likely to decline back toward 5.40 per dollar, where it was three months ago, than to strengthen to pre-pandemic levels around 4.20 per dollar. The fact that foreigners have been net sellers of local equities in the past weeks also isn’t helping it, he says.

“It was a virtuous cycle, but it has now stopped,” said Jakurski, who helped found JGP Asset Management, one of Brazil’s first hedge fund firms, which oversees over 26 billion reais ($5.2 billion). “The real shot up like an arrow, but every time there’s such a strong move, it needs a breather,” he said in a video interview.

Read more on Brazil’s funds and traders:

VIEW +

‘In Bald Guy We Trust’: A Currency Analyst Goes Viral in Brazil

Robin Brooks speaks in the sober monotones of a PhD economist who’s dedicated much of his career to calibrating fair-value models for foreign-exchange rates

VIEW +

Downfall of Star Hedge Fund Reveals Brazil at Tipping Point

Marcio Appel made a splash in the high-flying world of hedge funds five years ago and quickly became the poster child for a revolution in Brazil’s capital markets.

VIEW +

Brazil Hedge Funds Cash In Big on Mistake by U.S. Bond Traders

Brazilian traders know inflation. After decades of dealing with wild bouts of it, they consider themselves experts on the topic. Their American counterparts, they say, got complacent

A “corrective wave” -- as Jakurski puts it -- has already started, with the Brazilian real weakening more than 7% in the past three sessions. The 5.00-per dollar level it’s now approaching could limit losses in the short term, but on a longer horizon much will depend on the path for U.S. rates and global economic growth, he says.

Known for having traded for George Soros and mentoring a generation of Brazilian traders, including billionaire Andre Esteves, Jakurski sees little reason for optimism with Brazil ahead. Whoever wins the presidential elections in October is likely to loosen fiscal laws and boost public expenditures, he says. Although he doesn’t expect a big rupture in the country’s economic policy, chances of sweeping reforms are low.

“Reforms are exceptions in Brazil,” he said. “Privatizing a state-owned company will obviously contribute in the longer run, but there are other items that could change a country’s trajectory including better education, a well-prepared labor force and greater trade opening.”

Jakurski is skeptical that more moderate presidential candidates -- which have been dubbed “third way” candidates -- will get enough support to defy incumbent President Jair Bolsonaro and leftist former President Luiz Inacio Lula da Silva. Lula is the front-runner so far, but his lead has narrowed as Bolsonaro gets a boost from his administration’s additional stipend to the country’s poorest.

Here are Jakurski’s views on other topics:

• Crypto: “I personally dislike it. It’s valid as an speculative instrument, but to think that one will have savings in crypto and sleep peacefully, the recent rout in Bitcoin just shows that’s not true.”
• Global stocks: “We had a long period of generous growth for stock indexes in general and now they tend to trade sideways, so stock picking gotta be quite accurate. But valuations are high and I’m not quite excited with equity markets.”
• Inflation: “The inflationary process has erupted across the globe. The last time I saw something similar was maybe about 40 years ago.”
• U.S. dollar: “A reversal in the dollar’s trajectory could take place at any moment. There are reasons for the currency to trade at strong levels now, but usually when a rate outlook is well priced in, a rate decision doesn’t necessarily make the currency appreciate. The U.S. has a gigantic fiscal deficit, an enormous deficit fiscal, so at some moment the currency may reverse its trajectory.”
• Petrobras: “Big changes at Petrobras are unlikely until the end of the year. That risk has been allayed for now, but no one knows what the firm’s fuel-pricing policy will look like after the elections. If it weren’t for that, Petrobras shares would be trading at higher levels.”