Brazil: managers review projections for Ibovespa in view of increased fiscal risks

By Mariana d’Ávila

The increase in uncertainties and fiscal risks in Brazil, in the context of an external scenario that remains challenging with higher interest rates in the United States, has led investors and financial market managers to revise downwards their projections for the Ibovespa in the next year.

A Bank of America (BofA) survey of 34 managers shows that, given the greater concern with public spending, the percentage of investors who see the Ibovespa ending 2023 above 130,000 points dropped from 45% in November to 12% in this month’s publication.

Conducted by Bank of America, the “Latam Fund Manager Survey” was carried out at the beginning of December with managers whose assets under management add up to approximately US$79 billion.

The assessment is that the main variable income index of the Brazilian stock exchange is pricing a “confused scenario, with significant expenses outside the ceiling, but with some kind of fiscal anchor”.

The survey also shows that 35% of respondents expect a downward revision of corporate earnings in Brazil, which was not seen in the previous survey. Most (45%), however, continue with the expectation that the estimates will be maintained.

According to BofA, most investors expect the Ibovespa to be between 120,000 and 130,000 points at the end of 2023, which implies a potential increase of at least 17% compared to the close of Friday (16).

Today, the biggest risk for markets in Latin America is political discussions in the region, according to managers, followed by higher interest rates in the United States and a slowdown in the world’s largest economy.

UNCUT SELIC IN 2023 GAINS SUPPORTERS

Most of the managers consulted by BofA expect GDP growth of less than or equal to 2% in 2023, which would represent a slowdown compared to 2022, in which market projections, for example, point to a 3% increase.

For the basic interest rate, the Selic, expectations point to higher levels for a longer period of time. Now, the biggest bets are concentrated, according to the BofA research, on a Selic between 13% and 13.75% at the end of next year – today, the rate is at 13.75% per annum. In the previous survey, estimates for the range of 11% to 12.75% prevailed.

In view of the increase in fiscal risk and its effects of pressure on inflation, one third of the interviewed managers no longer expect the Central Bank to be able to cut interest rates in 2023, only in the first half of 2024. Another two thirds are still working with the Selic reduction scenario, currently at 13.75% per year, at the end of 2023.

Estimates also point to a real that should not appreciate in the next year, with half of respondents seeing the dollar traded between R$5.11 and R$5.40 at the end of 2023. The exchange closed at R$ .29 on Friday (16).

With information from Bloomberg Línea

More: Brazil news in English, every day from The Rio Times.