BLK BlackRock Inc

SÃ O PAULO—Global investment firm BlackRock is betting the change in government in Brazil will lead to a gradual economic recovery and give shares more room to rise.

The company, whose managers began the year negative on Brazil, started increasing its investment in the country in March on expectations President Dilma Rousseff would be removed from office for an impeachment trial, according to Will Landers, portfolio manager at BlackRock´ s Latin American Investment Trust.

That expectation proved correct as Brazil´ s Senate voted on Thursday to try Ms. Rousseff on allegations she manipulated the country´ s budget to hide a growing deficit. As a result, she has to step down for up to 180 days while the trial takes place. Ms. Rousseff denies the charges against her.

BlackRock wasn't alone in betting on a trial. Brazil's benchmark stocks index, the Ibovespa, has gained about 23% since the start of the year and the real has strengthened about 14% against the dollar—a sign investors wanted to see Ms. Rousseff removed from office.

Markets blame Ms. Rousseff´ s policies for Brazil´ s deep recession. The country's economy shrank 3.8% in 2015, the steepest decline in 25 years, and economists expect a similar contraction this year. Unemployment has hit double digits and all main credit companies have downgraded Brazil's debt rating to junk.

When the Senate voted against Ms. Rousseff, Vice President, Michel Temer became acting president. He'll serve out the rest of her term, through the end of 2018, if she is convicted and removed from office.

Mr. Temer's new finance minister, former central bank chief Henrique Meirelles, said in a news conference Friday that specific measures to address the economy are still in the early stages of development.

Mr. Landers said the broad outlines the minister has provided are "giving us a chance to build a case on why Brazil may be doing better over the next year."

Since March, BlackRock has bought shares in Brazilian large caps in sectors such as mining, energy and banking. Brazil represents about 50% of the firm's Latin American portfolio, which is around $2 billion, Mr. Landers said.

Mr. Meirelles said he plans to cut government spending and move ahead with pension and labor reforms. He is also a former president of BankBoston who is well liked by investors.

"We know what we are getting with him and we know what he is trying to get done," Mr. Landers said.

Getting Brazil's finances in order by shrinking the budget deficit over the next years is essential, the BlackRock portfolio manager said. Pension reform is also necessary but could come later, he added.

He acknowledged that expectations for Mr. Meirelles are high, and the minister, while experienced and qualified, "doesn´ t have a magic wand."

"Brazil's not going to start growing 5% a year any time soon, " Mr. Landers said but noting that turning expectations around is crucial to sparking a recovery.

Mr. Landers said he expects Latin America investors to keep increasing their exposure to Brazil, but investors with a less-focused portfolio might still opt to wait to see the outcome of Ms. Rousseff´ s trial -- which could take six months or more.

If the Senate finds her innocent of the charges, or takes longer than six months to reach a decision, Ms. Rousseff could return to power before the end of the year.

But Mr. Landers said he believed the chances of Ms. Rousseff coming back are minimal.

He said Brazil also faces international risks, along with the threat of new developments in the massive corruption investigation centered on oil firm Petró leo Brasileiro SA.

Mr. Temer has been cited in the plea bargains of some of the people in the case, but Brazil's attorney general hasn't asked that the acting president be investigated.

Despite the risks, Mr. Landers said Brazilian markets have probably already hit their low point, and the economy might be close to a turnaround.

"I think we are getting close to (hitting bottom)," he said. "The positive adjustment… should allow us to think about growth and about getting confidence back."

Write to Luciana Magalhaes at Luciana.Magalhaes@dowjones.com

(END) Dow Jones Newswires

May 13, 2016 18:15 ET (22:15 GMT)

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