For those who thought that “Brazil risk” was a thing of the past, the 10% drop in the Ibovespa, the main indicator of our stock market, in the last 90 days must be a bucket of ice water. Before they use the pandemic as justification: the S&P 500, which brings together the main stocks in the US, rose more than 7% in the same period.
And it is not possible to say that the pandemic is over there. Americans fully vaccinated against Covid-19 make up 53% of the population. In relation to those who took at least one dose, it is 62%.
Here is the summary of the national nightmare: Inflation erodes consumers’ purchasing power; there is a water and energy crisis that brings increases in the productive sector’s bill and chances of rationing; the president of the republic is campaigning in the open and threatening not to hand over his position if he is defeated in the next elections; and a piecemeal tax reform hits the distribution of dividends squarely, signaling the government’s unwillingness towards entrepreneurship. Dividends, it is worth explaining, are the companies’ way of making a profit, rewarding those who agreed to take the risk of investing in them.
The Ibovespa is traditionally more volatile than the S&P 500. In other words, our valuations are stronger, our falls more abrupt. However, indices tend to follow the same trends. That is why it is said that the market abroad “pulled” the stock market.
But that’s not what happens since June this year. The indices changed sign. While the Ibovespa went from its record of 130,000 points to a meager 116,000, below what it registered before the start of the Covid-19 pandemic. The S&P definitively surpassed its pre-pandemic score in November of last year.
To understand where the problems and opportunities may lie, it is worth comparing the performance of different sectors. An important point to emphasize is the low presence of technology companies on our Stock Exchange. They have arrived now, in the latest wave of IPOs, but they are still unrepresentative.
On the American stock exchanges, the technology sector took off in the crisis, consolidating the leadership of players who managed to make life easier for citizens around the world to reinvent their own routines and their businesses during isolation.
To credit the difference between stock markets solely to the resourcefulness of technology companies, however, would be to ignore the real problem plaguing the national market: the flood of uncertainty.
In addition to the drastic reduction in the purchasing power of Brazilians, the prospect of an increase in interest rates also affects financed purchases. From June to August, the XRT, ETF (exchange traded fund) that brings together the largest companies in the American retail sector, had a gain of 3.30%. Icon, the Brazilian index that shows the performance of the consumption sector, plummeted 7.48%.
The water crisis weighed on the IEE, our indicator for the electricity sector, which ends the same period with a drop of 2.50%. The ETF, which brings together shares in the American electricity, water and sanitation sectors (with the acronym XLU) rose by 6.62%.
Making these comparisons serves much more than just lamenting the situation. It is important to show how essential it is to have a balanced investment portfolio that is protected against local weather.
This doesn’t mean leaving all your money out there. But don’t be hostage to a single market. Today, there are more than 100 ETFs from 24 countries traded on our Stock Exchange. These are assets that accompany the variation of stocks, fixed income securities, gold and other metals and even cryptocurrencies. They are a good start for those who want to reduce their exposure to “Brazil risk”.
But don’t forget to keep an eye out for options in our market. Even with Jair Bolsonaro’s threats of interference in fuel prices, Petrobras shares (PETR4), here, rose more than the ETF with the largest US oil and gas producers (XLE) in the last three months.
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