Brazilian stock market: After a positive May, perspectives remain optimistic for June

RIO DE JANEIRO – May proved to be a month of recovery for Brazilian risk assets and for the Brazilian Real – the Ibovespa closed the month up 3.22%, at 111,351 points, and the commercial dollar fell 3.85% against the Brazilian currency, trading at R$4.752.

The advance occurred after some news, coming mainly from abroad, dissipated investors’ pessimism. For June, the perspective is that the global scenario continues to be positive, with the most significant risks for Brazilian stocks being local.

In general, the perspective of some analysts is that the sixth month of the year will be calmer, precisely due to many of the reasons that weighed against the performance of the world’s stock markets.

In the United States, the Fed’s directors stated that the next two hikes in the official U.S. interest rate should not exceed 50 basis points. With this, they minimized the fear of an acceleration of monetary tightening – which is seen as negative for risk assets.

“A good part of the risk assets have already fallen a lot and are at very low levels. There is not so much room to pull back, only even if recession expectations firm up,” comments Kaue Franklin, a specialist in variable income at Aplix Investimentos.

“On the other side, we have an alignment regarding inflation and interest rate expectations, causing markets to have more appetite for risk.”

Still, on this front, some American indicators brought that the world’s largest economy may be slowing down but not yet going backward. The April PCE, the main inflation index in the United States, came in at 0.2%, within the consensus and lower than the 0.9% in March.

Gross domestic product (GDP), released last week, fell 1.5% in the first quarter, more than the 1.3% expected, but still a small decline after strong growth of 6.9% in the last quarter of 2021.

“U.S. GDP shrank, and inflation readings came in weaker than expected. This brings a more positive outlook for risk assets,” says Caio Tonet, founding partner and head of equities at W1 Capital.

Despite being counter-intuitive, at the moment in which the world finds itself, the fact that the performance of the American GDP is worse than expected ends up being positive for the capital markets.

Heavily heated economies lead, with people consuming and buying, to price increases that prompt more substantial monetary tightening.

According to Tonet, the market will watch these indicators in June, weighing on the Federal Reserve’s following decisions.

BESIDES THE UNITED STATES, CHINA SHOULD ALSO BRING MORE STABILITY

Between April and May, China was also the fruit of uncertainties for investors that now, in principle, are also decreasing.

In Shanghai, one of the country’s major cities, the lockdown imposed by the zero Covid policy was ended on June 1 after two months of the enclosure.

Restrictions on movement in the Asian giant directly impact the international market since there is a breakdown of the entire production chain.

Furthermore, there are also direct effects, and of great weight, on the Brazilian economy since China is the largest trading partner and the largest buyer of national commodities.

On this last front of commodities, specialists show some optimism since China should bring new economic stimuli to contain the impacts of the lockdowns.

“The basic materials sector will stay in the function of the measures released in support of the Chinese economy and the performance data,” argues Luiz Adriano Martinez, portfolio manager at Kilima Asset.

“We think it will be positive, at least in the short term, with the economy recovering with the new announcements.”

On Monday, the Communist Party of China announced 33 measures covering fiscal, financial, investment, and industrial policies to revive its economy. According to a Bloomberg survey, the government may inject up to US$5.5 trillion into the local economy.

“For June, our scenario continues with a positive bias for the Brazilian stock market due to the continuity of the rise in commodity prices, especially in the iron ore sector, with the improvement of the Chinese economic scenario due to the easing of restrictions on the Covid-19 fight,” says Matheus Pizzani, an economist at CM Capital.

IN BRAZIL, UNCERTAINTIES INCREASE

If there are fewer “clouds” on the way in the international scenario, managers point out that the trend may be the opposite in Brazil.

With the approach of the elections, investors are starting to keep a closer eye on what the leading candidates are saying – and the statements, so far, are not favorable to a good performance of the capital market.

“The election cycle should start to enter prices in the coming weeks,” Martinez points out.

The two main candidates for the presidency of the Republic have been making statements that weigh on the performance of the Ibovespa.

The current president, Jair Bolsonaro, declared that Petrobras (PETR3; PETR4) “cannot continue using international price parity” and criticized shareholders. Former president Lula, the current front-runner in the polls, defended “abbreviating” fuel prices and criticized the oil company’s “billionaire dividends”.

With this, Petrobras’ shares, which correspond to about 12% of Ibovespa, have not moved recently, even though the oil price has advanced.

Analysts also affirm that the oil company is not the only one feeling the weight of the elections. Other state-owned companies, such as Banco do Brasil (BBAS3), should also be impacted.

Even out of the spotlight and polemics – which are currently on fuel prices – the change in government tends to bring discontinuity to the management of these companies.

Gustavo Akamine, an analyst at Constância Investimentos, also pointed out that the market should closely monitor the discussion of the Complementary Law Project (PLP) 18, which limits the ICMS levy on energy, fuel, telecommunications, and public transportation.

“The discussion can greatly influence inflation, public bonds, and the stock market itself,” he explains.

IS THE DOLLAR LESS VOLATILE?

If there are no significant surprises on the international front, the perspective is that the dollar will also register less volatility in June.

“The expectation is that the improvement in the stock exchange, if materialized, will maintain the flow of dollars towards the country via foreign investment, strengthening the current position,” explains Pizzani.

“On the commercial front, the maintenance of commodity prices at high levels tends to benefit the performance of the trade balance, which should continue presenting a surplus even amid a period when seasonally the country does not present such a robust performance.”

In the scenario, fiscal policy threats can also generate some weakening of the real – decreasing the ICMS tax, in the long term, is seen as a threat to fiscal health unless there are counterpoints with spending cuts.

When the subject is interference in the state-owned companies, the dollar, if there is a measure such as interference in the pricing policy of Petrobras, also tends to advance.

The American currency, for comparison purposes, when former Petrobras president Roberto Castello Branco was fired, in February of last year, advanced more than 1.5% over the real. Changes in the direction and how the company is governed are seen as legal uncertainties.

Finally, when the subject is intervention in fuel prices, there are still, in the end, impacts on the government’s fiscal situation – which either subsidizes the product or, at least, stops billing.

With information from InfoMoney