Foreign flows help exchange rate and stock market in Brazil amid uncertainty

RIO DE JANEIRO, BRAZIL – The exchange rate and the stock market show resilience, despite internal uncertainties, sustained by the inflow of foreign funds.

The flow is assured by the favorable seasonality of the trade balance, driven by the rise in commodities, and by the inflow of investors attracted by the relatively low stock prices. The billion-dollar offer of debentures by Vale (VALE3) also contributed.

The dollar closed above R$5.70 on the first day of the month and has accumulated a drop of around 1% since then, even with all the fiscal apprehension generated by the impasse in the Budget and the opening of the CPI in the Senate to investigate the government in the pandemic – amid record deaths from Covid-19 in the country. The Ibovespa stock market index returned to the 120,000-point level.

“The positive flow may lead to a reversal of the excessive negative movement of the Real,” says Gustavo Medeiros, deputy head of research and portfolio manager at Ashmore Group. The Brazilian currency is still the second worst performer among emerging economies for the year, behind only the Argentine peso.

“The fundamentals of the balance of payments of emerging countries in general are much better,” says Patricia Urbano, portfolio manager at Edmond de Rothschild Asset Management in Paris.

Brazil accounts for a positive balance between trade and financial flows of US$8.7 billion this year, against a net outflow of US$13.9 billion in the same period of 2020. The trade balance is positive by US$3.5 billion in the month, until the 11th.

The flow generated by soybean exports helps the exchange rate to have a relative relief despite the uncertainties, says Italo Abucater, manager of the foreign exchange desk at Tullett Prebon. In May, it is corn’s turn, although not as strong as soybeans. “The rate is attractive. With an exchange rate above R$5.70, the exporter enters.”

The sale of R$11.5 billion of Vale’s equity debentures by the government also moved the foreign exchange market this week. “The yield of the paper close to 10% called the attention of local investors and, mainly, foreign investors, which contributed to the entry of dollars in the country,” says Estela Panzeri, fixed income broker at Renascença.

About half of the offer was bought by foreigners, with an impact of about US$1 billion, said two people with knowledge of the matter, who asked not to be identified because the information is not public.

On the Brazilian stock market, after outflows of R$4.6 billion in March, foreign investors poured in R$1.3 billion last week, according to B3 data compiled by Bloomberg.

“I think Brazil is still discounted if we look in dollar terms and the forecast of commodities rally favors the stock market to be at these levels, despite the challenging local scenario,” says Jerson Zanlorenzi, head of BTG Pactual Digital’s derivatives and equities desk.

Source: Infomoney