By Vinod Sreeharsha
RIO DE JANEIRO -- Since the coronavirus pandemic hit, many Brazilians have fled to a place they don't normally go: the country's stock market.
Markets are up around the world despite the pandemic and economic concerns, buoyed by low interest rates. When Brazil's central bank pushed interest rates down to a historic low of 2% amid Covid-19, it sparked a particularly large shift among Brazilians, who are swapping their dwindling fixed income investments for stocks for the first time.
Fueling the trend are social-media stars who have boosted the market by giving younger Brazilians -- lots of them -- the confidence to try their luck with equities.
A million new investors entered Brazil's stock market since March and there are now three times as many investors in the market as there were two years ago. The new interest in the market has paved the way for a flurry of public offerings, with 25 companies going public so far this year, the most in 13 years. The São Paulo-based B3 exchange's benchmark index, the Ibovespa, is up more than 60% since its March low.
"The growth surprised us a lot," said Gilson Finkelsztain, chief executive of the B3.
Brazil's stock market has long struggled to attract local investors. With interest rates as high as 14% here only four years ago, investors had little reason to abandon profitable fixed-income investments to venture into stocks. The stock exchange has also traditionally offered little diversity, with miner Vale SA and oil company Petrobras accounting for a little more than a fifth of all shares in the Ibovespa.
But a combination of low inflation and law that capped federal government spending have allowed the central bank to gradually chip away at the interest rate, transforming Brazil's investment culture. The pandemic accelerated that trend, prompting the central bank to cut the rate to 2% in August. In 2016 it was 14.25%, then one of the world's highest.
Despite concerns about Brazil's deteriorating fiscal health, the government has rolled out stimulus amid the pandemic, amounting to 8.3% of output, which has helped buoy the economy and injected confidence into the stock market.
Many new investors are getting their information from social-media accounts centered on finance, with fund managers, academics and amateur investors offering guidance from tips on the latest stock to how to invest for the first time.
Thiago Nigro, 30 years old, who goes by the social-media handle Rich Cousin and is a partner at the São Paulo brokerage XP Inc., has amassed four million followers on YouTube covering themes such as whether a stock is cheap or not. Wearing a T-shirt and seated in front of a laptop, he walks viewers through financial scenarios while performing calculations on spreadsheets. In one 21-day series of videos, tens of thousands woke up at 5 a.m. for a sort of investing boot camp.
Another XP partner, Ana Laura Magalhães, who is 29, takes on topics that may sound impenetrable -- from defining debentures to how to analyze corporate balance sheets. Prospective investors so value her advice that she has nearly a combined 250,000 followers on Instagram and YouTube.
"Talking about money was a taboo before," said Ms. Magalhães, who is so well known that organizers at a rock concert last year upgraded her to the VIP section upon recognizing her. "Brazilians are not used to investing their money."
Investing in stocks is riskier and more volatile than bonds, since their returns are closely linked to the health of the economy. Right now, equity returns are soaring -- not just in Brazil, but globally, boosted by countries' pandemic stimulus packages.
Yet Brazil's initial package was "so high it's not something you can sustain," said Claudio Ferraz, an economist and Brazil expert at Canada's Vancouver School of Economics.
There is also the risk of fraud and misinformation, with a largely novice investing class and brokerages and banks bombarding people with commercials and social-media content.
"Sometimes individual investors can't separate what is very good content from what is an advertisement," said Claudia Emiko Yoshinaga, a finance professor at the Getulio Vargas Foundation, a research institution in São Paulo. "I am a bit concerned about this."
Aline da Silva Ferreira, 34, a professional wrestler who lives in São Paulo and first invested in March, said newcomers to the market need to be discerning.
"For people just starting out, it's difficult to know who's a serious professional and who isn't," said Ms. Ferreira. She has tried to avoid pitfalls by studying online with friends she trusts, allowing her to grow more sophisticated about the market.
In April, Jocilmar Dornelas, a 36-year-old civil servant who lives in Santos outside of São Paulo, put $6,228 into stocks and other investment funds for the first time.
"Fixed income returns were awful because interest rates had fallen so much," he said, adding the stock market also offered opportunity after stocks tanked in March. "I thought it was the moment to take some risks."
Six months later, returns are up 200%.
"I smile when I look at my accounts," he said.
Brazil is also seeing a shift in the culture and mechanics of investing. Historically, equity investing had been for the elite. Opening accounts and trading securities was prohibitively expensive. The large banks that dominated often limited investments to their own products.
The number of younger brokerage firms has been growing, however, making investing more accessible with technological innovation, such as the use of online trading platforms.
Many of the new investors are young. Nearly half of investors on the stock exchange this year are between the ages of 25 and 39, up from 28% in 2017, according to the B3.
Marcelo Flora, head of the online platform of the São Paulo-based investment bank BTG Pactual, compared Brazil today to the U.S. in the 1980s and 1990s, when firms such as Charles Schwab and Fidelity popularized investing. The trend will continue, he said, if interest rates remain in single digits.
Ms. da Silva Ferreira, the wrestler, said she started small, with an investment of $1,779. By May, she had $2,313.
"I want to really be able to invest my money, multiply it, and gain some wealth," she said.
(END) Dow Jones Newswires