Three reasons for Brazil’s Ibovespa’s highest weekly rise in 10 months

RIO DE JANEIRO, BRAZIL – After months of losses and negative news, Ibovespa closed the week with a 4.1% appreciation, its best performance in 10 months.

It was once again a divergent movement from Wall Street, but this time for the better, as the indices in New York fell during the period amidst lower than expected indicators in the economy and banks.

On Friday, January 14, the shares of the banking sector and Petrobras were the main drivers for the Ibovespa, which rose 1.33%, to 106,927.79 points. This is the highest level in almost a month, since December 17.

In the week, the index accumulated a 4.1% rise, the best performance since the period ended March 5 last year. Of the 93 stocks or units that make up Ibovespa, 75 rose in the week.

THE 3 REASONS FOR IBOVESPA’S HIGHEST WEEKLY RISE IN 10 MONTHS

1. STOCK ROTATION

The performance of Ibovespa in the last trading sessions against the U.S. stock markets can be explained by a stock rotation trend: investors cut their positions in growth companies, such as technology, to allocate in value companies, such as banks and exporters, said Genial Investimentos strategist Filipe Villegas.

The trend is due to the growing expectation for higher interest rates in the United States, which affects companies that depend more on capital to grow. As Ibovespa has a relevant participation of banks and companies related to commodities, the local index is most benefited, he explained.

HIGHLIGHTS OF THE WEEK IN THE FINANCIAL SECTOR

2. SHOPPING MALLS: POSITIVE NEWS

The recovery of the Ibovespa was highlighted by the rise in shares of real estate developers and shopping malls, amid positive news such as Multiplan’s heated sales and above expectations in the fourth quarter. Developers also began to release their operating forecasts for the last three months of the year.

BrMalls shares jumped on Friday on news of the rejection of the merger offer presented by Aliansce Sonae (ALSO3), following an understanding that the competitor may improve its proposal to shareholders.

The week’s highs exceeded 10% for 3 shopping mall companies.

On the other end, the unusual absence of negative political news, such as government leaders attacking public spending control, also helped the positive performance among investors, according to Genial’s analyst.

Retail sales in Brazil rose 0.6% in November compared to the previous month, the IBGE (Brazilian Institute of Geography and Statistics) reported on Friday. Analysts had expected a 0.2% decline. The service sector also performed better than expected.

Nevertheless, a warning is warranted, according to Villegas: he pointed out that these “data seem to be lagging,” given that since November the SELIC rate has risen once again (from 7.75% to 9.25% per year), which should affect both sectors, and the spread of the Omicron variant, also with potential impact on economic activity.

3. RUSSIA VS THE WEST TENSIONS AND RISING OIL PRICES

Oil futures hit its highest in 2 1/2 months at the close of the week, at US$85 a barrel for both Brent and WTI, amid escalating tensions between Russia and the major powers in the West.

The threat of an invasion of Ukraine by Vladimir Putin’s government caused concern among investors and led them to take positions on potential disruptions in the global supply of the commodity and of natural gas.

In Brazil, companies in the sector were among the week’s highest risers.