Brazil manager allays fears over protectionism

Threats made by Brazilian finance minister Guido Mantega to take on a more protectionist stance should be taken with a pinch of salt and are unlikely to impact investment in the country, according to RCM Allianz’s Carlos DeLeon.

The appreciation of the real against the dollar began to harm the Brazilian economy last year and Mantega recently told the Financial Times: "We are not going to just sit by and watch while other countries devalue their currencies to give them a competitive advantage." He also limited imports of Mexican cars into Brazil in an attempt to boost domestic manufacturing.

However DeLeon, who manages RCM Allianz Brazil, says that the Latin American country tends to take a responsible approach to monetary policy and that the situation with the Mexican imports is likely to be the limit of any protectionist activity.

"I think you need to put his [Matenga’s] comments in context. He is quite verbal and you need to take what he says with a pinch of salt," DeLeon explained.

"What the government wants to prevent is an excessive appreciation against the dollar, and every time the real reaches 170 a dollar it starts to get nervous."

DeLeon says that Brazil usually only uses interventionist policies if inflation begins to get out of control, but this is unlikely to be a problem this year.

"Up until this month inflation had been in the single digits. It is expected to hit 5.3 per cent in 2012 and 5.5 per cent in 2013. If it continues to be in the central bank’s target band then it isn’t a problem. Markets only get worried when it threatens to go through the roof."

According to FE Analytics DeLeon’s RCM Allianz Brazil fund has lost 10.49 per cent since launch in September 2010.