08/19/2023 – 8:00 am
Foreign investors are frankly withdrawing funds from B3 in August, which may be the worst month of 2023 in terms of external capital flow. Without having recorded a single high session on the Ibovespa so far, the Brazilian Stock Exchange accounted for a net outflow of R$ 7.378 billion in this segment up to last Monday, the 14th. The numbers, although partial, already cancel out all inflows from July and far exceed the R$ 4.28 billion withdrawn in May, the month with the highest negative balance so far in the year.
In the evaluation of analysts consulted by the Broadcast (Grupo Estado’s real-time news system), the justifications for this behavior do not lie in the bad reputation of the month of August, but in a conjunction of internal and external factors that have been influencing the market for a longer time. The negative news is that most of the reasons for this movement come from the international scenario.
It is impossible to analyze the eleven consecutive falls of the Ibovespa in August without mentioning China, given the importance of commodities in the domestic market – Vale, for example, is the stock with the greatest weight in the index (12.314% share). “While there was enthusiasm for China, Brazil was also doing very well. Today, the scenario is quite negative in the second largest economy in the world and investors are looking for lower risk assets”, says in a first analysis João Piccioni, analyst at Empiricus Research.
For Andre Fernandes, head of variable income and partner at A7 Capital, part of the departure of foreign investors is linked to the perception of risk aversion and that the Federal Reserve should increase interest rates in the United States again, while the Brazilian BC should maintain more moderate cuts in the Selic rate.
“When a foreigner enters Brazil, the attraction is the carry-trade. He manages to benefit greatly from this interest rate differential between Brazil and the US. When that differential drops, foreigners start trying to take their foot off the emerging country a little and flee to safety”, says Fernandes.
For Marcelo Boragini, partner and variable income specialist at Davos Investimentos, the departure of foreign investors gives a yellow signal, but it is still not scary, as the carry-trade spread remains “ok”.
However, “foreign investors have been the great differential for our Stock Exchange, because Brazil has registered redemptions of investment and multimarket funds in every month of the year. It was only in July that investment funds registered a positive balance”, assesses Flávio Conde, an analyst at Levante Investimentos.
The investment fund industry accumulates losses of BRL 124.9 billion and that of multimarket funds total redemptions of BRL 61.1 billion in 2023, with data up to July from the Brazilian Association of Financial and Capital Market Entities (Anbima) .
For Piccioni, from Empiricus, there is still a technical factor contributing to the outflow of foreign capital on the Brazilian stock exchange: the increase in bond issues by the United States Treasury. To help close accounts in the US, the Treasury announced on the 2nd the expansion of debt issuance to raise funds from private investors. The new issuance represents an increase of US$7 billion, compared to the total issuance of US$96 billion of the same bonds announced in May.
The announcement took place one day after the risk rating agency Fitch announced the downgrade of the US government’s credit rating, justifying the expectation of fiscal deterioration ahead. In this environment, the investor also started to demand higher remuneration to carry the shares.
“The US Treasury auctions end up draining liquidity all over the world, and Brazil is not shielded against this search for security. This migration movement is happening even in the American exchanges”, says the Empiricus analyst.
To give you an idea, on the morning of Wednesday, the 16th, the exchange coupon – an indicator that shows the return in dollars on investments made in Brazil – pointed to a yield of approximately 5.2% per year for investments lasting one month in the country. The rate is lower than the interest offered by US Treasury bonds with the same duration – 5.53% per year, according to data released by the US government.
Conde, from Levante, also says that foreign investors were able to foresee in June and July some factors that contribute to the Brazilian thesis: the Central Bank waited for inflation to drop before starting to cut the Selic rate; the fiscal framework was approved by Congress, and the tax reform by the Chamber. “The sale by foreign investors is purely for profit-making, for having managed to anticipate the rise in the stock market well. It has nothing to do with ceasing to believe in the fiscal framework or tax reform around here,” he says.
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