Brazil has attractions for flow, but assets from Russia do not come now

RIO DE JANEIRO, BRAZIL – Brazil has some advantages and attractions as a capital destination for international investors. But a reallocation of assets invested in Russia should not occur in the short term, said Anatole Kaletsky, founding partner and chief economist at Gavekal Research, one of the world’s most influential analysts. The reason is that investors will not be able to liquidate their positions in the Russian market, and if they try, prices will go to zero.

Kaletsky observes that, as the crisis in Ukraine had been brewing for at least three months, some investors had already been changing the destination of their funds. And Brazil received additional flows, influenced by being a commodity-producing economy, which benefits from the new global scenario. Another attraction is that prices in the domestic market were depreciated compared to other emerging markets.

If in the short term risky assets benefit, in the medium and long term, the reallocation needs to be into real value assets, Kaletsky said. Purely monetary assets, including cash, will lose value faster ahead than they have in the past.

Asked what the US Federal Reserve (Fed) will do in this war environment, Kaletsky said the institution would avoid provoking new shocks. Thus, it will not raise interest rates by 50 basis points, as previously predicted. What is more likely is a 25 point increase and the indication of further hikes at this level for the next meetings. “The Fed is now more predictable than before the conflict”, he stated in a BTG Pactual event.

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