Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Indexes  >  Bolsa de Valores de Sao Paulo  >  Ibovespa    IBOVESPA   BRIBOVINDM18

IBOVESPA

(IBOVESPA)
SummaryQuotesChartsNewsHeatmapComponents 
SummaryMost relevantAll NewsNews of the index componentsMarketScreener Strategies

Brazilian Stocks Attract Outside Investors, Despite Pandemic Slowdown

07/09/2020 | 11:44am EST

By Paulo Trevisani and Jeffrey T. Lewis

More people are dying from Covid-19 in Brazil than anywhere else in the developing world, and the local economy is shrinking at the fastest pace in at least a century. Yet foreign investors are putting more money into Brazilian stocks than they are taking out for the first time in months.

As the country's currency plummeted during the coronavirus crisis, foreign investors put a net 343 million Brazilian reais ($65 million) in local stocks in June, the first month to see a net inflow since December, according to the local stock-market operator B3. That left foreign investors holding 47% of shares traded in Brazil, B3 said.

The Bovespa index is down 14% since January, compared with a decline of 6% in the MSCI emerging markets index -- a slide spurred by foreign investors selling emerging-market assets and seeking refuge in the dollar. June's net inflow is relatively small and comes amid a volatile time for global stocks. But it ends a rare six-month string of outflows and demonstrates investors' renewed appetite for potential bargains.

"One thing we do know is that (Covid-19) shall eventually pass," said trader James McDonald, CEO at Hercules Investments in Los Angeles. "If you buy a great asset for 30 cents on the dollar because it's temporarily experiencing a price shock, you eventually end up with a 300% plus return when the shock fades and the valuation returns to normal."

Mr. McDonald expects the health crisis to weigh on most Brazilian stocks through the second quarter of 2022. His fund has about $3 million in Brazilian shares out of around $200 million under management, and he plans to keep adding shares of local blue-chip companies. Those include beer giant Ambev SA (a unit of Belgium's Anheuser-Busch InBev SA/NV), airline Azul SA, shopping mall developer BR Malls Participações SA and university operator YDUQS Participaçoes SA.

Another major factor in investors' calculations: the Brazilian real has lost more value than any of its Latin American peers. It trades now at 5.26 per dollar, much weaker than 4 to the dollar in January.

As recently as 2016 a dollar bought only 3.10 reais. At the time, the Central Bank of Brazil's benchmark interest rate was 14.25%, attracting droves of yield-seeking investors. But as inflation got under control, the bank lowered rates to 2.25%.

The pandemic aggravated the Brazilian currency's trend, making the country's stocks look a lot cheaper in dollar terms. Some investors say Brazilian shares are even less risky than stocks in many developed markets.

"One can be quite convinced about Brazil," says Jerome Booth, chairman at New Sparta investment firm in London. He argues Brazilian assets are less likely to be inflated than those in developed countries, where large amounts of money were injected into the economy by central banks and governments to help ease the impact of the pandemic. "In that environment, emerging markets are reasonably well placed to be resilient sources of value."

Despite those investors' optimism, some analysts said they could be in for a bumpy ride.

Like its peers in the developed world, Brazil's central bank has slashed its benchmark rate and increased funds available for loans. But the scale in Brazil is much smaller. The Fed's balance sheet of $7 trillion is multiple times more than Brazil's entire gross domestic product.

Brazil's GDP will shrink 6.4% this year according to the central bank's most recent forecast, and will recover only partially in 2021. Unemployment and public debt, both already high even before the pandemic, are expected to show only limited improvement over the next few years.

"This is not enough growth for foreign investors," says Reinaldo Lacerda, a partner at Hieron Patrimônio Familiar e Investimento, an asset management firm in São Paulo that has clients in the U.S. and other countries. Mr. Lacerda doubts that June's net inflow into the stock market has legs. "Foreign investors won't have a sustainable return for now."

The devalued currency, however, seems to have a strong pull on global investors.

"There's a lot of bargain hunting on B3 now," said Marcos Casarin, Latin America economist at Oxford Economics.

He says until the currency strengthens past 4.26 per dollar, a level he doesn't see coming for several months, foreign investors should be able to find Brazilian assets at knockdown prices.

"There's an expectation of low interest rates for a long time," he said.

Write to Paulo Trevisani at paulo.trevisani@wsj.com and Jeffrey T. Lewis at jeffrey.lewis@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
IBOVESPA -1.52% 108893.32 Delayed Quote.-4.40%
MSCI EM (EMERGING MARKETS) (STRD, UHD) -2.08% 1205.068 Real-time Quote.10.41%
All news about IBOVESPA
11/24Vaccine Hopes Send Record Funds to Emerging Markets
DJ
11/23Carrefour Brasil shares plunge as Brazilians protest killing of Black man at ..
RE
11/06Brazil's BRF, JBS grapple with higher feed costs, lower export premiums in Q3
RE
10/29Brazil's Petrobras says major divestments nearing finish line
RE
10/15Steelmakers set to hike prices in Brazil, BTG says
RE
08/26Brazil's Bolsonaro and economy minister split over welfare spending
RE
08/18Brazil's Magazine Luiza eyes wide range of potential acquisitions
RE
07/31Brazil's Petrobras forges ahead with downstream, midstream divestments
RE
07/28Carrefour Brasil sees e-commerce pick-up; shares jump after results
RE
07/10Latam FX subdued by virus fears; Brazil stocks eye 4-mth closing high
RE
More news
News of the index components IBOVESPA
04:47pJBS : Brazil's JBS concludes deal to buy Bunge's margarine, mayonnaise business
RE
04:31pPETROBRAS DISTRIBUIDORA S A : Notice to the Market - Receipt of Amounts Related ..
PU
03:38pBRF S A : After COVID-19 outbreak, BRF plant in southern Brazil cleared to resum..
RE
02:23pWEG S A : among the best companies on the Stock Market in 2020
PU
11:33aMAGAZINE LUIZA S A : Notice to the Market - Highlights of Black Friday
PU
11:11aBANCO BRADESCO S A : Institutional Presentation - 3Q20
PU
08:15aPETRÓLEO BRASILEIRO S A PETROBRAS : Petrobras Day 2020
PU
More news
Chart IBOVESPA
Duration : Period :
Ibovespa Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends IBOVESPA
Short TermMid-TermLong Term
TrendsBullishBullishNeutral
Heatmap :