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Bounce or burden: managers on Brazil’s Olympic legacy

Bounce or burden: managers on Brazil’s Olympic legacy

With the 2016 Olympic Games in full swing in Brazil, providing a stream of sporting highlights, the longer-term legacy of hosting such a major event remains in question.

While London has seen positivity in the wake of its 2012 hosting duties, Montreal and Barcelona were burdened for years with the cost of putting on the competition.

This led Citywire Selector to question leading EM and multi-asset managers to find out if already under-fire Brazilian economy will receive a much-needed boost or be left burdened by its efforts.

Plus and minuses

Vontobel’s head of emerging market bonds, Luc D’Hooge, said the Olympics will have little influence on Brazil’s finances. That is even if it ends up with derelict stadiums like previous Olympic hosts Athens and Beijing.

D’Hooge, who runs several funds at Vontobel, including the Vontobel Fund Emerging Markets Bond fund, said the Olympics could be a good way for Brazil to gain some positive exposure.

‘It can be a good way to make publicity for Brazil, especially as many people have a negative view of emerging market countries. But the timing for Brazil is not optimal as the Olympics also magnify its current political and economic problems.’

Short-term surge

Contrary to this, Fidelity’s Ayesha Akbar who runs several funds including the Fidelity Multi Asset Open Growth fund said Brazil may have short-term rebounds, but cannot hide the fact it faces longer term problems.

Akbar said growth in the country would depend on the economy being relatively competitive internationally. ‘Clearly, not everything about Brazil’s current situation is bad.’

‘Although the country depends heavily on China as an export destination, it does still have plenty of room to grow exports as a percentage of the economy.’

‘Brazilian equities have outperformed, the hope is now that Brazil’s new government can deliver the structural reforms the economy needs; to rebalance away from an overdependence on commodities with more favourable macro tailwinds in place.’

Olympic legacy

Charlemagne’s Julian Mayo, who runs the Charlemagne Magna Global Emerging Markets fund, said Brazil looks good as an overall investment, but cannot hide the political questions over whether they were right to allocate capital to large projects in the first place.

‘I think as far as the Olympics are concerned, they unfortunately always have an effect on the economy, resulting in a miss-allocation of resources,’ said Mayo.

‘Whether it’s the South African World Cup or the Olympics in LA, it tends to make little difference to those sorts of economies. But for an emerging market like Athens, Beijing or Brazil, it results in a small negative for the economy. However, broadly speaking, the Olympics are irrelevant to Brazil.'

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