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PIMCO skips Brazil for ‘reform play’ as pension revamp fails

That didn't last long. Less than a year after PIMCO praised Brazil's financial overhaul agenda, the fund manager doesn't rank it on a list of "reform stories." Why? The government's decision to delay a comprehensive revamp of the nation's bloated and inefficient pension system.

"We're not particularly bullish on pension reform rollout in the near term," said Yacov Arnopolin, a Pacific Investment Management Co. money manager in London who includes South Africa, Mexico and Argentina as places where reform is progressing. "Our shortlist is focused on places where we can see favorable momentum."

Brazil gave up on putting the pension bill to a vote this month after it called in the military to restore order in the state of Rio de Janeiro, home to the violence-plagued city that is the country's marquee tourist attraction. By law, changes to the constitution such as those envisaged by the unpopular bill can't take place during a military intervention.

Aiming to reassure investors, the government did create a new priority agenda, including economic proposals such as the independence of the central bank independence and tax simplification measures. That wasn't enough for PIMCO, which nine months ago cited Brazil's improving fundamentals, a stable currency and an ongoing reform agenda.

Mr. Arnopolin said PIMCO does remain overweight in Brazil's external debt, focusing on corporate bonds and so called quasi-sovereigns. During the past 12 months, Brazilian corporate debt returned about 7.6%, outperforming the emerging-market average of 4.8%.

While Brazilian stocks surged after the vote was put off on Monday, the real and U.S. dollar bonds fell and credit-default swaps widened.