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Mad Hedge Fund Trader

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John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

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Why You Should Buy Brazil's Petrobras

I often get asked why I haven't been more positive about Brazil (EWZ). The answer is twofold; an upcoming election was about to bring a regime change in the high growth country, and there was a huge supply overhang from the upcoming secondary equity offering from Petrobras (PBR), the largest in history.

That turned out to be a good call, with the main market dropping 6% so far in 2010, when most emerging markets were going to the moon.  PBR has been a great short, dropping 31% from its peak.

Now Petrobras issue is done, and it is time to review the space. The company raised a staggering $70 billion, with the Chinese government coming in a major participant. The issue was priced so low that success was assured, despite its gargantuan size. Hedge funds and institutional investors whittled down their PBR weightings, hoping to cover their underweight on the deal. As the issue was generously oversubscribed, they are now scrambling to cover these shorts.

Petrobras will use the funds raised to develop their enormous Tupi offshore field, which is estimated to have 50 billion barrels of recoverable reserves. That will double the company's production to 3.9 million barrels a day by 2014, which is equivalent to 20% of American consumption. The company is well on its way to becoming the next oil major.

I think oil is a great place for the long term, and now is not a bad time to get in, as it has been one of the few underperforming commodities this year. I usually say buy the dips, but the dip in PBR has been going on for the past six months, so just buy now.

By. Mad Hedge Fund Trader




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  • Oliveira Simões on May 13 2013 said:
    I read your article and I'm appalled by your use of the expression "regime change" in reference to the 2010 elections in Brazil. First, I think you need to get rid of your preconceived notions about Brazil. Your wording shows that you are very ignorant and politically biased to say the least. After over two decades of military dictatorship (supported by the USA by the way), Brazil finally became a democracy in 1985. The 2010 election signaled the continuity of the Worker's Party platform, thank God and thanks to Brazilians smart voting. While the USA has an anachronistic electoral college system, in Brazil we have "eleições diretas" for president, meaning "one man, one vote". Therefore, there's no question in my mind that we have a more democratic system of government. We also have one of the most reliable voting systems in the world. Remember the mess created in George W Bush's reelection when the courts had to pick the winner? This is unheard of in Brazil. I urge you to learn more about Brazil and Latin America for that matter (and the world, why not?) and stop referring to "regime change" in Brazil. We Brazilians are proud of our democracy. We won't let an ignorant gringo diminish its worth.

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