RIO DE JANEIRO, BRAZIL – While the progress in vaccination is the main pillar on which the optimism of Brazilian investors and businessmen about the future development of the economy and the markets is based, the increase in inflation is seen as the main reason for concern.
According to a survey conducted by Swiss bank UBS between June 23 and July 9 with about 200 investors and business people in Brazil, 74% of the participants were optimistic about the outlook for the domestic scenario, an increase of 10 percentage points compared to 64% in March.
In addition to immunization, which will allow a return to pre-pandemic routines, the impact of commodity exports and the strong growth of Brazil’s gross domestic product (GDP) in 2021 also help maintain respondents’ positive views.
In the latest Focus report, the projection of economists surveyed by the Central Bank (BC) indicates that the local economy will grow by 5.27% this year.
In this context, 61% of investors who responded to the survey indicated that they intend to increase their allocation in variable income. Only 9% intend to reduce their allocation in the stock market, while 30% plan to leave their portfolio unchanged.
PROTECTION AGAINST INFLATION
On the side of concerns, higher inflation and higher interest rates are the main issues on the radar of Brazilian investors and entrepreneurs, who also mentioned the risk of energy rationing due to low water levels in reservoirs.
Although inflation has already come under pressure – the nationwide consumer price index (IPCA) peaked at 8.35% in the 12 months to June – 79% of survey respondents expect price increases to continue at the same pace or even higher in the next 12 months.
In Focus, economists forecast inflation, as measured by IPCA, at 6.31% this year, slowing to 3.75% in 2022
MORE EQUITIES AND REAL ESTATE ASSETS GLOBALLY
In a global excerpt of the survey, UBS notes that about half of the agents surveyed also expect inflation levels to accelerate over the next 12 months.
U.S. consumer inflation (CPI) rose 5.4% year-over-year in June, the highest level since 2008, compared with the 4.9% increase expected under the refining consensus.
In this scenario, the UBS survey shows that increased buying of equities and real estate assets has emerged as the main strategy of global investors.
“While we expect the recent rise in prices to lose momentum, the inflation outlook remains uncertain, and therefore adding inflation protection to portfolios is an appropriate move,” Tom Naratil, president of UBS Americas and co-chairman of UBS Global Wealth Management, said in a statement.
The expert listed commodities, infrastructure, and equities among investors’ investments to protect themselves from rising prices over the medium and long term.