Why BTG Pactual’s Head of Equity Prefers Mexico’s Stocks to Brazil’s

Will Landers is turning to more expensive stocks in Mexico as US companies transfer production away from Asia and closer to home

“We like Mexican companies that have a greater exposure to the country’s Northern region” that borders the US," says BTG Pactual's Will Landers.
By Vinícius Andrade
July 05, 2022 | 09:55 AM
Reading time: 2 min.

Bloomberg — Brazil’s stock market is posting some of the cheapest valuations in more than a decade, but one of Latin America’s best-known investors is shifting funds out of the nation’s equities amid growing fears over the outlook for raw material prices.

Instead, Will Landers, the head of equity strategy for the region at Banco BTG Pactual SA’s asset-management unit, is turning to more expensive stocks in Mexico as US companies transfer production away from Asia and closer to home.

“We’ve recently moved to a neutral position on Brazil given short-term concerns about the outlook for commodities, especially iron-ore prices,” Landers said in an interview. “We prefer Chile and Mexico, our sole overweights in the region.”

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It’s not an immediately obvious decision. Mexico outperformed its regional peers last year and its stocks currently trade at an average of about 12 times their estimated forward earnings -- almost twice the multiple for Brazil’s benchmark Ibovespa index. Last month, Brazil P/E ratios hit their lowest since 2008.

Even with Mexico’s stocks selling at more expensive prices, the country remains attractive. The political environment is quieter, money from remittances is helping boost the domestic economy and trade tensions between the US and China are prompting companies to expand their Mexico footprint, according to Landers.

“We like Mexican companies that have a greater exposure to the country’s Northern region” that borders the US, said Landers, who worked for almost two decades at BlackRock Inc. and started at BTG in 2019.

Chile has been a favorite for Landers for longer, on the view that its economy is slowing down at “a more reasonable pace” and because it’s home to Sociedad Quimica y Minera de Chile, the world’s largest lithium company, which benefits from the global electrification theme. There is also a political element as the country prepares for a referendum on a controversial new constitution.

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“Polling has been showing that the Constitution currently being drafted should be rejected, which would be positive for assets prices,” Landers said.

The money manager is neutral on Brazil for the first time since the onset of the pandemic in March 2020 and turned underweight miner Vale SA amid a “frustrating and bumpy” economic reopening in China. Iron-ore prices plunged 25% in the second quarter, amid growing stockpiles and fears that China will mandate steel-output curbs.

Within Brazil, Landers has been piling into consumer staples and utilities. He built a “relevant position” in Eletrobras -- the power company that was recently privatized through a gigantic share offering. Consumer stocks focused on high-end consumers in Latin America’s largest economy are also among his bets.

While Brazil’s October presidential general election should add to political volatility, Landers says he doesn’t foresee any major rupture in the nation’s fiscal policy from 2023 onwards.

“We expect the winner of the presidential race to keep a certain level of continuity in economic reforms that kicked off in 2016,” said Landers. “Once we know the winner’s economic plans and team, there should be some relief

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