In a scenario of high “real” and nominal interest rates, with no prospect of a reversal in the short term, and still suffering from shareholder withdrawals, institutional investors – in this case, basically investment funds – have progressively reduced their participation in the Brazilian stock exchange.
After reaching a peak, accounting for a slice of 35.2% of business in 2019, the category saw its share reduced to 23.7% on the 11th, the lowest percentage in 12 years, shows a survey by Valor Data.
The movement is opposite to that of the international investor.
More optimistic with Brazil and with emerging countries as a whole, due to the reopening of the Chinese economy and the weakening of the dollar with a possible end of the Federal Reserve tightening cycle closer, foreigners now register 55.8% of participation in the stock market, the highest level since the beginning of the historical series in 1994 – in 2019, this share was 42.6%.
The balance of contributions by non-residents in the secondary segment of B3 (listed shares) in the year was already R$1.54 billion up to the 11th, while institutional withdrawals accumulated R$965.9 million.
Last year, the balance was positive by R$100.8 billion for foreigners and negative by R$142.5 billion for the second group.
Part of the movement in institutional funds is explained by the performance of the domestic fund industry last year, when there were redemptions in all modalities – R$158.1 billion in multimarket and stocks, and another R$48.9 billion in income fixed.
That is, managers had to move in the face of this scenario.
Institutional investors rehearsed a return to the stock exchange in the third quarter of 2022, precisely when the expectation of cuts in the Selic from this year was more priced.
But this was completely reversed after the first signs of the new government, whether in the fiscal area, with the Transition PEC, or in the assembly of the economic team, more political than the market wanted.
“I believe that the current position reflects what was already being drawn in the election, with foreign investors preferring the new president and locals wanting re-election [of Jair Bolsonaro]. The formation of the economic team and the first fiscal measures did not help either. Now, Brazilian funds have developed this more cautious view, even though it is still too early to say that we will not have fiscal anchorage or something along those lines”, says Joaquim Kokudai, director of Somma Investiments.
The executive claims that, if the new government had taken advantage of “the start” a little better, the environment would be more conducive to listing on the stock market now.
Without that, market agents now expect more robust fiscal signals to price a possible reduction in the Selic rate.
The attractive prices of the shares do not attract the attention of local investors, evaluates Fábio Spinola, founding partner and manager of Apex Capital, due to the high interest rates in Brazil.
For the outside investor, it is different. “The foreigner does not have an opportunity cost of 13.75%, which is the Selic rate. His opportunity cost is US interest,” he says.
“We were expecting interest rate cuts in the middle of the year, now we believe it will be at the end of the year, but on a small scale and subject to review,” he adds.
According to the manager, however, when the Minister of Finance, Fernando Haddad, begins to clarify the fiscal framework with which he will work, this should reduce risk premiums, which are high due to uncertainties.
He also points out that this effect may be smaller for foreigners, who keep in mind the pragmatism of the two previous governments of Luiz Inácio Lula da Silva (PT).
Spinola also says he approves of the stronger presence of international investors on the Brazilian stock exchange – although he highlights the difference between foreign investors, who study companies closely, and traders, who usually buy indexes or more liquid companies.
“I see investors with good eyes. It’s like he’s saying that the location doesn’t have to be so negative. And you have to be careful, because the market is so pessimistic that there could be an increase and the place not participate,” he says.
Luiz Alves, manager of Versa Asset, believes that interest rates will need to fall due to the recession that, he projects, should occur this year.
“Our projection is that there will be a sharp drop in activity in the fourth quarter and, as much as there is an idea of maintaining rates, the recession will contain inflation and interest rates will have to fall. Then, if there is fiscal convergence on the part of the Treasury, which is not that difficult, and the tax reform advances, we will have a propitious environment for the stock market to move”, he says.
However, even if earnings are revised in 2023, reflecting the projected recession, Alves believes there is room for the much-vaunted repricing of local equities to occur, with investors projecting better numbers for 2024.
He says he currently operates with almost no cash. in cash and maintains a strong position in retail, despite having increased its exposure to the financial and commodities sectors.
At Apex, the “long only” funds (which always bet on the appreciation of the shares they invest) are well allocated, with low cash: “I think there are a lot of cheap things, so I have little cash”, says Spinola.
The “long shorts” (who seek to gain both in the rise and fall of certain assets) are “half tank, with room to increase if there is good clarity”.
Momentum allocations, he says, are more defensive. “If it enters a more credible fiscal path and a stronger possibility of a drop in interest rates, we can enter more into cyclical companies, sectors such as retail. We don’t have that today. We are more exposed to commodities, something in the financial sector.”
With no mandate to invest in the stock exchange, Rodrigo Melo, chief strategist at ASA Hedge, a multimarket fund from ASA Investments, says that the positioning in the modality is not just below the historical level, but negative.
In the local market, it has what it calls a “double carry” position, in which it operates long (bet on the rise) in the real, which has been helped by the interest rate differential, and short (bet on the fall) on the stock exchange.
In the US, it is taken (predicting a rise) in interest and sold on the stock exchange.
Not even to expose itself to the commodities sector, one of the few that walked on the Brazilian stock exchange in 2022, the house has resorted to companies listed on B3.
“Before, we even made directional investments in companies, now we are operating products directly. After the recent correction, we added oil to the portfolio,” he says.
“Our vision does not mean that no multimarket manager has a stock exchange, but we don’t think it’s a very favorable environment to make that move now”, he says.
With information from Valor Econômico