The Brazil Ibovespa, the São Paulo Stock Exchange's flagship index of the country's 100 largest caps, the Brazil IBrX, the Brazil Broad Index and the Brazil IBRX 50 all gained more than 10% over the past month. What's driving this rise?
International investors account for more than half of the country's annual trading volume, and several factors have facilitated their return to Brazilian markets. The country's economy is showing signs of recovery and economic indicators (GDP, unemployment rate) are improving, boosting investor confidence. Rising interest rates have made Brazilian assets more attractive, and the reforms undertaken by the Brazilian government have encouraged investment. Last but not least, rising prices for iron ore and soybeans, two of Brazil's most important export products, have supported companies in the sector.
If you're invested in the markets, you won't be surprised to learn that the chart is also dominated by technology stocks, which played the role of locomotive in the second half of the year. The Nasdaq 100 and Nasdaq Composite both gained more than 10% over 30 days, buoyed by the artificial intelligence craze, among other factors. They are joined by their small German counterpart, the TecDax, made up of Berlin-based technology stocks such as Deutsche Telekom, Teamviewer, Siemens Healthineers, Siltronic, SAP and others.
China remains a laggard
In October, global fund managers sold Chinese stocks significantly, despite measures implemented by Chinese authorities to stimulate the economy, according to a Morgan Stanley report based on data from fund flow tracker EPFR. There was a combined net outflow of $3.1 billion of China and Hong Kong stocks from active long-term mutual funds, marking the third consecutive month with net sales in excess of $3 billion. These outflows are mainly attributed to the rebalancing of regional funds away from China, led by European funds, leaving foreign long-term investment managers more underweight in China since 2018. Investor caution over China's economic recovery, accentuated by the unexpected contraction in manufacturing activity in October, contributed to the 4.3% drop in the MSCI China index and 3.2% drop in the CSI 300 last month. It highlighted sell-offs in stocks such as JD.com, Xiaomi and China Construction Bank, while there were bets on internet giants such as Alibaba and Baidu, as well as insurer AIA. In addition, the yuan hit a 10-month low, requiring state bank intervention to support the currency, and MSCI China is near a 13% drop since the start of the year.