Top DoubleLine investor sees opportunity in Brazil amid tariff threat

Julia La Roche

Luz Padilla, the director of DoubleLine Capital's International Fixed Income team, sees an opportunity in Brazil heading into 2020, even amid the latest tariff threat from President Donald Trump.

On Monday, markets were roiled by the Trump administration’s decision to slap surcharges on steel and aluminum from Brazil and Argentina, two of Latin America’s biggest economies. The decision stoked new fears of a global trade war already underway with the fight between the U.S. and China.

However, Padilla's view is that these particular tariffs are more retaliatory, as countries like Brazil have become an alternative provider of soybeans and other crops to China.

In addition, one of the things Padilla's emerging markets team focuses on the most when looking at emerging market sovereign debt is political leadership. Despite fears emanating from American trade policy, Padilla said things there are relatively encouraging.

Steel beams sit outside the Arena de Sao Paulo in Sao Paulo, Brazil, Sunday, Dec. 8, 2013. Six matches of the 2014 soccer World Cup will be played in Sao Paulo. (AP Photo/Ferdinand Ostrop)

"We gravitate toward sovereigns making structural reforms,” the firm’s top portfolio manager told Yahoo Finance. “And for that, you need a really good management team if you will, and so you need good politicians and especially policymakers that are going to provide that."

DoubleLine’s Emerging Markets Fixed Income (DBLEX) is positive on Brazil heading into 2020, mainly because the country is "making difficult structural reforms." Padilla told Yahoo Finance that “we think they will be able to benefit from that in the upcoming year.”

Even still, trade continues to be one of the most prominent themes for emerging markets, and the expectation is that it will remain in the year ahead. Even if the administration follows through on its threat, Padilla expects the impact of those tariffs to be "rather measured."

She added: "When you think about how much steel Brazil and Argentina export to the U.S., it pales in comparison to how much they've gained in terms of trade they've gained for China.

Looking ahead to 2020, she expects those two countries, and emerging markets generally, are poised for a modest rebound in growth.

Julia La Roche is a Correspondent at Yahoo FinanceFollow her on Twitter.

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