The Brazilian stock market is on its way to the worst global performance in 2021

A sharp deterioration in the fundamentals of the Brazilian economy has cleared the way for the Brazilian stock exchange to end the year in light of the lantern among major indicators worldwide. NS Ibovespa (IBOV), the main indicator of b 3 (B3Sa3), it is down 12% so far, while there is an increase in other emerging markets, such as exchanges in China (2%) and India (29%).

With soaring domestic market interest rates, a direct effect of high inflation, investors who over the past year have increased their bets on variable income, in search of more returns, change direction, and return to what is already known (and safer) fixed income. The reading is also that this scenario should intensify with the arrival of a fierce and polarized presidential election, which should bring a lot of volatility to the markets.

negative turn

The mood of investors mainly reversed direction in the past three months, after the expected recovery of the national economy did not materialize. This has been reflected in the ongoing revisions to GDP forecasts by financial institutions. Last week, the announcement of a technical recession after negative third-quarter GDP confirmed the reasons for the pessimism.

“In June, when the stock market peaked at 130,000 points, there were expectations of strong economic growth, transitional inflation that would not force interest rates to rise much, as well as an expectation of progress on reforms. Since then, it has deteriorated on all fronts,” he says. Chief Strategist at XP, Fernando Ferreira.

The executive claims that distrust of the federal government’s fiscal commitment makes the scenario worse, exacerbated by loosening the public spending ceiling.

Ibovespa’s performance is a sign of weaker GDP growth expected compared to other emerging markets next year. According to International Monetary Fund (IMF) data, Brazil is expected to grow by 1.5% in 2022, compared to 2.5% in South Africa and 2.5% in Chile, for example. However, the fund’s forecasts are much more optimistic than those of other financial institutions. In the Central Bank’s Focus bulletin, the forecast for GDP growth in 2022 has already reached 0.58%.

about to leave

Investors’ flight from the stock market is already evident in numbers. Data from the Brazilian Association of Financial Entities and Capital Markets (Anbima) shows that equity funds registered recoveries of more than R$8 billion in October and November, reflecting the positive sequence that has been in progress since February. On the other hand, fixed income funds recorded inflows of more than R$50 billion in the same period.

As a result, since the beginning of June, when Ibovespa scored its highest score in its history, the market capitalization of all B3 companies has fallen by 1.33 trillion R$, according to data from Economática.

Trafalgar partner Igor Lima noted that companies’ performance remains positive, with good implications for third-quarter results due to higher demand after the period of social isolation has ended. “But 2022 will be a more complex year, the financial and macro risks have increased so much, calling into question the fundamentals of companies,” Lima says.

other markets

At Wealth High Governance (WHG), which invests globally, Brazil’s share of the portfolio, which reached 10% of the total in April, has fallen and is now less than 5%. In the opposite direction, China, which also did not perform very positively this year due to Chinese government interventions in the economy, is growing, says WHG co-director Daniel Goyer.

Investors are seeking above-market growth in emerging markets. If you slow down, says Gewehr, you lose this trait. According to him, putting only on the table the shares that the director considers to be of good quality, there are more attractive prospects than those currently offered in Brazil. Information from the newspaper State of Sao Paulo.