Hedge funds are cautious on the money-making opportunity in Brazil, despite continued hopes for the policies of recently-elected president Jair Bolsonaro.

Man Group’s emerging markets desk issued a warning in a recent note, while Edward Misrahi’s Ronit Capital, which posted a double-digit gain last year partly after correctly predicting Bolsonaro’s election, has taken risk off the table.

“Life for emerging markets populists is typically easier before they take office,” said Man Group’s managers. Bolonaro was elected in October and Brazilian assets began to surge once his initially unexpected triumph started to look likely.

Optimism has continued into the new year, with the Ibovespa index up almost 10%.

“The honeymoon will not last for ever,” added Man group’s note, which says Brazil’s Congress could block the implementation of his key policies. “Though they support him on his social policies, support for his fiscal reform (pensions and labour reform) is not guaranteed. Crucially, Bolsonaro’s pension reform plan looks far-reaching. This may require constitutional amendments, which need a two-thirds majority in both houses. That’s not a given.”

“The pension reform they are discussing could be a big deal, but I’ve been hearing this for 25 years,” added Misrahi, whose Brazil trades formed the biggest part of his portfolio last year as it rose 11.4%. It rose 13.4% in October alone, the month of the election.

The money-making opportunity has since reduced, he told EuroHedge in a profile interview to be published in the February issue. “The market has repriced materially, so it is no longer such a big trading opportunity. I am still constructive on Brazil but it is no longer such a unique opportunity.”

Hedge funds cautious on Brazil despite faith in new president on EuroHedge.