Escape of foreigners puts B3 at the forefront of global markets

The net outflow of R$21.2 billion from B3 – the Brazilian Stock Exchange – since the beginning of the year made its main stock index have the worst performance among global markets in the first quarter of 2024.

From January to the end of March, the Ibovespa accumulated a drop of 4.53%, the worst performance in a list of 41 indices from just over 30 countries. The data comes from a survey by Elos Ayta Consultoria in partnership with the Investing.com platform.

The behavior of markets around the world was affected by the change in the path of falling interest rates in the United States – the American rate is the main reference for international players to choose where to invest their resources.

Even so, many markets have managed to attract investors thanks to the dynamics of local economies. Of the total indexes computed, only eight had a negative result. Even in emerging countries there were positive performances: in India, for example, the Nifty50 reached an increase of 2.74% since the beginning of the year; in Russia, at war, the MOEX increased by 6.75%. Indices in eight countries, plus the European Euro Stoxx 500, rose by more than 10%. The leader of the ranking was BIST100, from Turkey, with an appreciation of 21.55% in the year.

Interference by the Lula government in state-owned companies and private companies weighs against

In Brazil, the negative external vector was heightened by the attitudes and statements of the Luiz Inácio Lula da Silva (PT) government, in particular the repeated attempts to interfere in state-owned companies, such as Petrobras, and private companies, such as Vale.

In the case of the oil company, the pressure on the board of directors to withhold the distribution of extraordinary dividends caused the company to lose more than R$55 billion in market value in one day, on March 8.

In addition to the bad mood in the financial market, the issue mobilized opposition to the government in Congress. The Senate’s Economic Affairs Committee (CAE) even approved an invitation to the president of Petrobras, Jean Paul Prates, to provide clarifications on possible government interference in the company.

In relation to Vale, privatized 27 years ago, the imbroglio involving succession and the government’s insistence on placing Guido Mantega as president of the mining company or at least on its board of directors contributed to the volatility of its shares.

The company’s board decided to extend the mandate of the current president, Eduardo Bartolomeo, until the end of the year, in an episode that led to the resignation of a board member – he left the board talking about “political influence” and “manipulation” in the process.

Year to date, the company’s shares (VALE3) fell around 22%, also affected by the relatively low prices of iron ore, and was responsible for more than 50% of the entire devaluation of the Ibovespa.

Eletrobras is also in the government’s sights

The government’s attacks on Petrobras and Vale increased suspicions about the shares of Eletrobras (ELET3). Since taking office, Lula has said he is willing to reverse the privatization established by law 14.182/21, of the Jair Bolsonaro (PL) government.

Considering the portion of the National Bank for Economic and Social Development (BNDES), the government still holds around 40% of the company’s shares. However, thanks to the design of the privatization law, no shareholder has voting power greater than 10%.

The device was approved to shield the company from political interference. To acquire more than half of the shares and regain control of the company, the government would have to pay an amount equivalent to R$100 billion, which is considered unlikely by economic agents.

Even so, Eletrobras is not shielded from political noise. Common shares fell 4.11% in the trading session on February 7th. “The government still has room to regain its influence in Eletrobras,” he told e-Investor the head of variable income at Levante, Flavio Conde. “The company has a much greater state and national reach than Vale,” he said.

Last week, a report from the investment bank Goldman Sachs recommended that investors exit Brazilian state-owned shares, considering that the scenario refers to “cases of greater involvement” by the government in said companies. “Such events typically led to a higher risk premium for Brazilian assets,” says the report.

American interest rates affect stock market performance

In addition to Brazil’s internal problems, investors considered the change in the outlook for US interest rates.

Since last year, bets on a rate cut in March of this year have grown, which favored higher risk and higher yielding assets. B3 benefited from the movement especially in the last quarter of 2023, when foreign investment totaled R$45 billion, leading the Ibovespa to break its historical nominal record.

However, the resilience of the American economy in the first quarter has affected the most optimistic projections about the reduction. With consistent economic activity numbers, the Federal Reserve (Fed, American central bank) will probably be more cautious in lowering interest rates, under the risk of inflation.

At its last meeting, the board decided to maintain the rate between 5.25% and 5.50% per year. The initial projection of six cuts during the year fell to three. The expectation of financial agents is that the first of them will only occur in the second half of the year.

In a scenario in which the US takes longer to cut the remuneration of its bonds and large Brazilian companies remain in the sights of the Lula government, foreign investors tend to prefer to allocate their resources – or a large part of them – in the safest market in the world.

Stock exchange profitability in the 1st quarter of 2024

Source: Elos Ayta Consultoria, in partnership with the Investing.com platform