SAO PAULO – The discouragement of the financial market with the country’s economic situation – be it due to the resurgence of the pandemic and slow vaccination, government interventionism in state-owned companies such as Petrobras and Banco do Brasil or the halted reform agenda – is already reflected in the main assets at the beginning of year.
At the tip of the pencil, government interventionist ravings were expensive. This year alone, the combined market value of Petrobras, BB and Eletrobras – whose president Wilson Ferreira Junior resigned in January due to the delay in privatization – shrank by R $ 97 billion.
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In addition, the future interest curve for ten-year contracts increased from 7.19%, at the beginning of January, to 9.32%, at the end of March. In the same period, the country risk, measured by Credit Default Swap (CDS), a kind of default insurance in Brazil, jumped from 143.5 points to 231, an increase of 87.5 points.
– We ended 2020 with more positive estimates for Brazil, with the hope of advancing vaccination and a super cycle of commodities, with the recovery of China’s economy. With excess resources around the world, it was expected that investments would come by osmosis to the country – says Matheus Spiess, economist and investment specialist at Empiricus Research.
– But these expectations were deteriorating at the beginning of the year, and the main assets reflect this movement.
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The entry of foreign capital on the stock exchange withered from February, when President Jair Bolsonaro, annoyed by the increase in fuel prices, announced the change of command at Petrobras.
Until February, the balance between purchase and sale of shares at B3 was positive at R $ 28 billion. At the end of March, this balance is still positive, because Brazilian assets are cheap in dollars, but fell to R $ 11.8 billion.
Since the troubled announcement of the change of command of the largest company in the country, the balance has never been more than R $ 20 billion, analysts remember, which signals the distrust of foreign investors.
– Intervention in Petrobras and Banco do Brasil, which led the institution’s president to resign, raised the risk perception of state-owned companies, brings legal uncertainty and puts the privatization project in check – observes Gustavo Bertotti, chief economist at Messi Investments.
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The R $ 97 billion that “evaporated” from the market value of the state-owned companies is equivalent to the sum of the market value of Braskem (R $ 31 billion), Gerdau (R $ 48 billion) and BRF (R $ 20 billion).
– The year is marked by frustration with the government, with little adherence to the liberal agenda, interventionism and a false dilemma between saving lives or the economy, with a delay in vaccination. The watchword now is uncertainty, and the market wants predictability – says Maurício Pedrosa, strategist at Arena Investimentos.
Pedrosa notes that there are two main thermometers of investor uncertainty regarding the direction of the country: the dollar and interest rates. The long-term future interest curve has been “rising” more and more since the beginning of the year. And while in other countries, the rise in the American currency was moderate, here it was stronger.
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Last year, the dollar rose more than 30% against the real. In the first quarter of 2021, the currency appreciated 6% more.
– These are the thermometers of the uneasiness of the market with the government, which reflect foreigners leaving the stock exchange – says Pedrosa.
One of the biggest ghosts on investors’ radar is the country’s deteriorating fiscal situation. They understand that the pandemic has brought the need for extra spending to the government to help the poorest Brazilians and keep the economy thriving.
But the approval of an unfeasible budget, full of fiscal maneuvers, was very bad in the market.
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The ministerial reform itself, even though it brought names more aligned with the leaders of Congress, who were supported by the government and defend more liberal guidelines, was carried out in a cluttered way by the Planalto Palace and created friction with the military. These abrupt movements cause discomfort for the investor.
– Politics and the economy are linked, and risky assets are more sensitive to future prospects in the face of these movements – recalls Spiess, from Empiricus.
Early election debate
Another factor that causes concern is the anticipation of the 2022 electoral debate. This, in the view of analysts, shortens the time to move forward in important privatizations later this year and also in the approval of structural reforms.
As the market is pricing everything all the time, there is a possibility that this scenario will change. If vaccination gains momentum, the economy reopens fully with the control of the pandemic, unemployment retreats, reforms go ahead and the president does not take a more populist path to try to re-elect himself, the market’s perception tends to shift to a more positive scenario.
– Brazil continues to have very attractive assets and is cheap in dollars. It can resume a more sustainable growth path, with the return of investment and with the productivity and fiscal agendas entering the agenda – Spiess comments
Signs that drew attention quarter
Future interest hikes
The future interest curve for ten-year contracts went from 7.19%, at the beginning of January, to 9.32%, at the end of March, as a sign of the market’s discouragement with the country’s economy.
Worsening country risk
Country risk, as measured by Credit Swap Default (CDS), a kind of default insurance in Brazil, jumped from 143.5 points in January to 231 points in March, an increase of 87.5 points.
Drop in the stock market balance
Until February, the balance between purchase and sale of shares at B3 was positive at R $ 28 billion. March still closed with a positive balance, because Brazilian assets are cheap in dollars, but R $ 11.8 billion.
Loss of market value of state-owned companies
This year alone, the combined market value of Petrobras, BB and Eletrobras shrank by R $ 97 billion. These funds are equivalent to the sum of the market value of Braskem (R $ 31 billion), Gerdau (R $ 48 billion) and BRF (R $ 20 billion).
While in other countries the rise in the dollar was moderate, in Brazil it was strong. Last year, the dollar rose more than 30% against the real. In the first quarter of 2021, the currency appreciated 6% more.
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