Novogratz Sees Brazil Dodging ‘Dark Period’ on Rousseff Loss

May 05, 2014 1:33 pm ET

(Updates with comments on U.S. banks in final two paragraphs.)

May 5 (Bloomberg) -- Brazil’s President Dilma Rousseff will lose her election bid, sparking a rally in the country’s stocks and bonds, said hedge-fund manager Michael Novogratz.

“There will be a major rally in Brazilian assets,” particularly equities, the principal of Fortress Investment Group LLC said at the 19th annual Sohn Investment Conference in New York today.

Rousseff’s electoral fortunes have dropped as her administration’s measures of higher public spending and tax cuts have failed to accelerate economic growth while fueling above- target inflation. Novogratz, co-chief investment officer for the firm’s Fortress Macro funds, said Brazil will face a “long, dark period” if she wins.

Speaking in a Bloomberg Television interview with Stephanie Ruhle after the Sohn presentation, Novogratz said the World Cup this year being held in the nation will spark inflation that will make electoral change more likely.

“It’s tough to be a president in a developing country like Brazil that’s had a history of hyperinflation when you can’t get inflation under control,” he said. “The spike in inflation will make her popularity go even lower. My guess is it’s so bad that you’re going to see regime change.”

Growth Moderating

Rousseff last week said her government would reduce income taxes and raise cash handouts to the poor as part of a strategy to support growth. Brazil’s tax revenue would fall by 5.3 billion reais ($2.4 billion) in 2015 and expenditures would increase by 1.7 billion reais this year and 2.7 billion reais next year under the measures, according to the government.

Analysts polled weekly by the central bank expect economic growth to moderate this year, to 1.6 percent from 2.3 percent in 2013. A poll conducted from April 2 to April 3 by public opinion research company Datafolha showed Brazilians are increasingly pessimistic about the economy and 72 percent want a change in government policies.

In the U.S., financial regulation following the 2008 crisis has removed most risk from the largest banks, Novogratz said. That has resulted in a movement of banking executives into less- regulated industries including private investment firms.

“Banks are going to slowly look more and more like utilities,” Novogratz said. “Banks are going to be in less sexy businesses. The money-management business, and certainly the alternative money-management business, is about talent, and we’re always looking to pick up talent.”

--With assistance from Matthew Malinowski in Brasilia.