The week was one of peculiar euphoria in the Brazilian financial market. The Stock Exchange ended its third consecutive trading session on a high this Thursday (27), with the Ibovespa, the main indicator of our market, above 112 thousand points. Something that hasn’t been seen since October of last year.
In October, the scenario was the pandemic cooling down with the advance of vaccination around the world and an optimism with the return to “normality”. Is today? What makes investors believe in the Brazilian market?
An improvement in the world stock market is not. While our Ibovespa has risen 7.09% since the year began, the S&P 500, which includes the largest companies on the US stock exchanges, has sunk 9.8%.
The US market is reacting to the Fed’s decision (Federal Reserve, US central bank) released this Wednesday (26). In short, the world’s largest economy has announced that it will stop injecting cash into the market (made by buying bonds) in March. And he indicated that he intends to increase interest rates from then on.
The most obvious result of this is investment flight from the US. As you may already know, US government bonds are considered the safest assets in the world. If they pay minimally well (as interest rates rise), there would be no reason to risk your pocket on anything else. Except for those who take a much greater risk, in exchange for the possibility of high returns.
This has been the case for large foreign investors — the ones who effectively drive the pace of our stock market. From the 3rd to the 25th of this month, foreign investors increased their position on the Brazilian stock exchange by R$22.9 billion. They were responsible for 27.8% of stock purchases in the period — and for 25.5% of sales.
To get an idea of the weight of foreigners in our market, it is enough to understand that institutional investors (such as banks, brokers and pension funds) are in second place in the ranking of financial transactions, whose share of purchases this year was 12.1% .
But this does not mean that the owners of the world’s money suddenly saw beautiful prospects for the Brazilian economy. With a budget providing for the lowest public investment in history —not to mention the exponential increase in the amount allocated to parliamentary amendments—, the election year promises very little for the real economy. The explanation lies in the rest of the world.
The proximity of an increase in US interest rates rocked the world’s economies. The bloodletting immediately affected the technology, retail and large import sectors.
In addition, the threat of an outbreak of war in Ukraine generates a lot of insecurity in Russia, an important emerging market, and raises the prices of oil, whose barrel has just reached the highest value in eight years.
It is also necessary to take into account the expansion of China’s economy (with lower interest rates), the main destination for our exports. And what do we export? Soy, iron ore and oil, practically.
So, looking at the bigger picture, you can see why investing in oil and iron in Brazil seems like a good idea. This is how the shares of Vale (VALE3) and Petrobras (PETR4) rose, respectively, 8.3% and 16.47% this year.
This rise in two assets can give the impression that our market is booming while the world is sinking, because, you see, more than 27% of the Ibovespa are shares of Vale and Petrobras. With the current rise of the two stocks, even if all other stocks in the index were down, it would leave it positive. And this is the index that we use to say whether the market is doing well or badly.
So, despite the consecutive highs, the time is for caution. A survey carried out by Bloomberg recently shows Brazil more vulnerable to the tightening announced by the Fed than other emerging countries, such as Mexico, Chile and India.
It is worth noting that, while foreign investors left almost R$23 billion more here this year, institutional investors (our banks and brokers) took more than R$20.5 billion from the market. Whoever looked from the outside wanted to enter, but whoever is from the inside, left.
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