Goldman Sachs Says Buy Brazil’s Real Following Tumble

Goldman Sachs Says Buy Brazil’s Real Following Tumble
Feb. 1 (Bloomberg) -- Goldman Sachs Group Inc. recommended investors buy Brazil’s real, saying the country’s “strong” economic growth will spark a rebound after it posted the worst rout among major currencies last month.

“Brazil’s growth has remained strong and is accelerating,” currency analysts including London-based Thomas Stolper wrote in a research note to clients. “Together with cyclical assets moving back to a more constructive view of the world, a more hawkish central bank stance could support a return of the Brazilian real towards the lower end of the recent trading ranges.”

Goldman Sachs, which called the real the world’s most “overvalued” currency as recently as Dec. 15, recommended clients buy it at 1.8870 per dollar, predicting the real will advance to 1.75. Investors should exit the trade if the real were to slide to 1.94, the Goldman Sachs analysts said.

The real plunged 7.9 percent in January following a 33 percent advance in 2009 amid concern China, the biggest buyer of Brazilian exports, will curb bank lending to slow economic growth and keep inflation in check. That slide was more than all 171 currencies tracked by Bloomberg except for the Venezuelan bolivar and Madagascar ariary.

The real jumped 2.5 percent today, the most since Oct. 29, to 1.8482 per dollar after ending last month at 1.8950.

Brazilian policy makers signaled after their Jan. 27 policy meeting that they may be preparing to raise interest rates soon when they removed language from their statement that said the current rate was adequate to contain inflation. The central bank has held the rate at a record low of 8.75 percent since July.

Economists expect policy makers to raise the rate to 11.25 percent by year-end, according to the median forecast in a central bank survey of about 100 financial institutions published today.

To contact the reporter on this story: Ye Xie in New York at +1-212-617-2768 or yxie6@bloomberg.net"
February 01, 2010, 04:43 PM EST