Did the Americans and their coup affect foreign investments in B3?

By joao • 1 year back

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According to data from the institution itself, contributions from outside Pau-Brasil surpassed the mark of R$ 100 billion last year. Non-residents invested R$ 100.8 billion in secondary market shares last year, the highest amount since 2016, when B3 went public with data.

However, foreign investors, who were previously more optimistic about the Brazilian domestic scenario, combined with the favorable macroeconomic scenario, have lost their sentiment in relation to the local capital market.

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Are the January 8 coups dubbed “Brazil's Capitol” and the rupture in Americana to blame? Yes. But so is the Lula government, according to investors interviewed by Financial Intelligence.

Although January was troubled, foreign investors still expect the international scenario to be favorable for shares listed on the B3.

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Foreign investment falls, but remains positive

So far, the balances of foreign investors at B3 in January have been positive. According to a report by analysis house Eleven, it raised R$ 4.97 billion on Thursday's eve.

But, since Lula's election, the positive volume of foreign contributions has diminished.

In 2022, foreign investments registered a higher annual inflow in the first months: in January, R$ 23.39 billion; in February, 24.310 million reais; and in March, R$ 21.36 billion.

Since the election, inflows have been positive in November and December, with B3 registering inflows of R$ 2.92 billion and R$ 15.22 billion, respectively.

The drop in foreign investment is due to a change in perception of the new Lula government. NCH ​​Capital partner James Guldbransen described the week after the election as "a long time". A complete disappointment.”

According to the assessment, the thermometer of American investor sentiment fell with Brazil, as did the anti-market speeches by Lula's economic team, and the ministers voiced unfavorable opinions on work and retirement.

The gringo in general has a positive inclination towards Lula because he was the one who led Brazil through some of the best years in the stock market”, says James.

But what happened to Lula to lose that shine? “Since the election, the news that has come out of the economic team and certain speeches [by Lula] have worried the investors I know”, says the NCH Capital partner.

How does the scam affect foreign investment?

So this moment is a wake-up call for gringos. The failed institutional coup attempt on January 8 was strongly responded to by the Three Powers.

With vandalism in the Planalto Palace, in the National Congress and in the STF (Federal Supreme Court) building, the quick response of the judiciary and the political class helped to appease the spirits of foreign investors when the invasions of Brasilia won the front pages of its main newspapers. country.next day.

Nobody outside considered the possibility of a drop in the entry margin, says Antônio Miranda, director of investments at Compass Invest. The market's calm reaction to the “result” of the invasion was surprisingly positive: the real did not fluctuate downwards against the dollar, which usually happens when the message is one of flight.

The dollar closed higher this Monday (9), a day after the Bolsonaros invaded Congress, the Planalto Palace and the STF. The US currency rose by 0.41 % on the 9th day, quoted at R$ 5.2570. Despite the attacks on institutions in Brasilia, there was no panic in the financial market. The quick response from the heads of Brazilian institutions increased investor reaction.

The case of Americans and gringos are insecure.

cases of account breaches in the united states of america continue to frighten foreign investors. Discrepancies in retailers' balance sheets were on the agenda at the Davos show. International investors question Brazilian bankers and managers about what happened to the listed company.

Behind Americanas, and in the legal appeal process, the case undermines the credibility of the investments, says Kevin Munier, head of private equity and performance development at management consulting firm Alvarez & Marsal.

Also because the case involved a stock market giant – before the hole was discovered by its former CEO, Sergio Real, the company had a market value of 10.82 billion reais. Today it is worth 640.8 million reais.

For the Frenchman who serves as a guide to the gringo to show him how to invest in Brazil, the “Brazilian Capitol” and the case of Americanas show the volatility of the Latin American market. “The biggest challenge for Pau-Brasil now is to create credibility”, reiterates Munier.

“It can show the world that Pau-Brasil can grow within certain criteria, but with a sophistication similar to that of developed countries. There are fixed rules and what happened in the last few days cannot happen [an attack on democracy and a violation of Americans],” he says.

Meunier believes that some sectors of the Brazilian market, such as education and health, are developing. It is a powerful attraction for foreign investment.

Did the Americans and their coup affect foreign investments in B3?

Will the Brazilian b3 stock market improve from now on?

The risk of a more interventionist Lula mandate in the economy has yet to be assessed by foreign investors, James said. The local investor is more specialized in valuing assets based on changes in national policy.

The American investor assesses that Brazil is going through a “wait and see” moment, in which the political risk can make the shares plummet. “It's hard to say that the risks of 'Dilma 3' are priced by an outsider. Because they are terrified of “Dilma 3”, says James Guldbranssen.

What should favor the B3 in the first half is the reopening of the Chinese economy, more controlled inflation due to the central bank's interest rate hike cycle and the expectation of the Fed's (Federal Reserve) interest rate hike cycle that will end in the next six months. months.

Mounier, on the other hand, thinks it is too early to criticize the new government. For the executive, those who should have more control over the formulation of policies in the government are the second and third level ministries. This is a name that can bring more stability to Brazilian politics. “These are not just ministers, but people who run ministries day in and day out.”

However, the biggest problem in attracting foreign capital is the stability of public accounts. In this sense, says Meunier, the expected change in the fiscal anchor, with the end of the spending ceiling as a reference for the trajectory of the public debt, can be seen with suspicion by the gringo.

“Changes in the assessment criteria for foreign investors are a question mark. ' Why did you change the criteria? Do you want to cover something up? Were there any problems with the previous model? It also brings instability and loss of credibility”, says the director of Alvarez&Marsal.

Fall in foreign investment affects B3?

Questions about stocks to buy? See the experts' top 10 picks for January. Country-level situation analysis profiles are different. Brazilians have much more experience in assessing the microeconomics of their own exchange, just as foreigners have a more holistic view of the market.

But the fall in foreign investment has mainly affected the stock market.

“When foreign investors enter the B3, most of the time they buy commodities and banks, if the entry [of foreign capital] drops, the market has little liquidity, the prices of subsecurities skyrocket”, explains Reinaldo Oliveira, partner at Renova Invest Corretor, remembering that individual investors are not as strong as foreign [institutional] investors in terms of transaction volume on B3.

“This happens a lot on holidays in the United States of America. Liquidity will decrease,” he added.

He uses as an example the economic volume of January 16, known to Americans as the Martin Luther King holiday. As of that date, trading for B3 totaled approximately R$ 14.5 billion. On a typical day, trades turn around 22 to 25 billion reais.

What about domestic investors?

Local investors are already pessimistic about the Lula government. With some crises erased and conversations in the economy that generate tensions in the assets, the Brazilian investor now cools down criticism, amidst “pro-market” accusations from executives. The market awaits news on reforms such as labor and social security.

However, the balance between institutional investors and individuals is negative in January, says Reinaldo.

As of now, B3's January institutional investor status is listed for sale at negative R$ 5 billion. Retail investors extract R$ 617 million from the exchange since the beginning of this month.