Understand why foreigners withdrew R$32 billion from the Brazilian Stock Exchange and when they can return

After four months, the outflow of foreign money from the Brazilian Stock Exchange in 2024 already exceeds R$ 32 billion, marking a strong reversal compared to last year, when there was a net inflow of R$ 45 billion – which led Ibovespa, in last days of 2023, recording its record number of points, surpassing 134 thousand.

This exit, basically, is explained by external factors, especially due to the direction of US monetary policy. At the end of 2023, most investors were betting on the start of interest cuts by the Federal Reserve in March. This not only stopped happening, as expected, but has been postponed – now it is expected for September.

On the internal front, however, there are also reasons for this outflow of money from the B3 secondary market. Fiscal concerns were heightened with the government changing the target to 2025, as well as distrust over reaching zero fiscal deficit this year, without the government’s commitment to cutting expenses and difficulties with Congress.

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Furthermore, part of the outflow of foreign money is attributed to attempted government interventions in companies such as Petrobras (PETR4) and Vale (VALE3), where the Union continues to influence decisions. Especially in the mining company, which has the largest individual weight on Ibovespa, the investment scenario has become more complex, due to China’s weak economic activity.

If it is any relief, this movement of resources leaving the stock exchanges is not something exclusive to Brazil, and is also observed in other countries, with similar characteristics. This is because, structurally, global investment in stocks suffers competition from American fixed income, with the Treasury (US government bond) paying high yield, without risk.

Below, check out what six experts consulted by the InfoMoney outline perspectives and explanations for the foreigner’s departure from B3 and when these resources may return to the Brazilian Stock Exchange.

What explains the outflow of foreign flows from the Stock Exchange?

US Monetary Policy

“I believe that the explanation for the strong outflow of foreign capital from the Brazilian stock market is a combination of external and internal factors. But the first point was the big change that there was in market expectations regarding the fall in interest rates in the United States”, says Lucas Lima, analyst at VG Research.

According to Sidney Lima, an analyst at Ouro Preto Investimentos, uncertainties regarding American monetary policy have had a significant impact on capital flows. Lima reinforces that, in a context of instability and high interest rates, “it is natural for investors to opt for more conservative investments, migrating a large part of their resources to the USA, due to the greater security of the local currency, in addition to the attractive profitability of North American debt securities. American.”

Geopolitical uncertainties

For XP’s stock strategist, Jennie Li, the flow of foreign resources from the stock exchanges is a global macro movement, since in months when the yield on American treasury bonds rises, there are outflows of foreign resources from the stock exchanges. However, she also points to conflicts in the Middle East, involving Israel and Iran, as the cause. In addition, there is the war between Russia and Ukraine, which has been going on since February 2022.

“There has been some calming of geopolitical tensions in recent weeks, but it remains a factor of concern, something that could put pressure on inflation again”, says Jennie.

It is worth noting that the rise in oil prices increases global costs in several chains. To combat this rise in prices, the main remedy is high interest rates, which discourage investment in the stock market.

“The perception is evident that, with higher interest rates, the attractiveness of riskier assets decreases”, reinforces Alexandre Reitz, head of variable income at Julius Baer Brasil. “Optimism with Brazil, and with emerging markets in general, appears to be lower in a scenario of ‘higher for longer’ interest rates globally”, adds Jennie.

Chinese economy

Representing more than 13% of the composition of Ibovespa, every bump in China’s economy impacts Vale and, consequently, the Brazilian Stock Exchange. Doubts about the pace of expansion of Chinese activity are reflected in the price of iron ore, which has weakened, which affects Vale’s revenues, with its main raw material.

“Doubts about China’s performance help to explain part of this flow (foreign outflow), remembering that in the first quarter, mainly the fall of Vale accounted for around 50 percent of the fall of the Ibovespa”, says Bruno Benassi, analyst at Monte Bravo Variable Income.

Government intervention

Still regarding Vale, there was a movement, at the beginning of the year, of an attempt to remove the current CEO, Eduardo Bartolomeo, and the entry of a name indicated by the government. Especially the attempt to nominate the former PT Finance Minister, Guido Mantega, alienated investors.

However, the “hand of the government”, which remains influential in corporate decisions, due to its shareholding, also affected the shares of Eletrobras (ELET3) and Petrobras. In the case of electricity, the government is trying to increase its power to influence decisions, reduced after the company’s capitalization process, in 2022, in court.

Meanwhile, at Petrobras, investors feel uneasy due to initiatives to control fuel prices. However, the last turn occurred with the attempt to change the extraordinary dividend policy, in which the government reversed itself, after negative repercussions, and internal fights between ministers and the CEO of the oil company, Jean Paul Prates, which almost cost him his departure from the office.

Concern about fiscal stability

Still regarding the government, the deterioration of the fiscal situation also helped the outflow of foreign resources in these first four months of the year, affecting investor confidence in the government’s ability to contain the public account deficit and bring it to zero.

According to Beto Saadia, economist and investment director at Nomos, in Brazil, the fiscal issue is always on investors’ radar, but his concern has increased with the change in the fiscal target to 2025. “We are still going to have a conversation about the 2024 target , which should also probably be changed”, he states.

“The fiscal risk and expenses (of public accounts) end up scaring a good part of investors at times, when they look at the risk versus return relationship, in a country like Brazil, where it is often not known whether the government will be able to honor commitments given the high level of expenses (which increases rates and risk premiums)”, adds Lima, from Ouro Preto.

According to Reitz, from Julius Baer Brasil, despite contributing to the exit of foreign investors, the fiscal issue interferes less, at this moment, than external factors – such as the situation in China and the prospect of higher interest rates, for longer, in USA.

When can foreign investors return to Brazil?

As the main factor in the exit of foreign investors has been the high interest rate in the USA, the general expectation is that this return will occur as American economic indicators show greater accommodation.

On Friday, payroll data – American employment – ​​came in lower than expected, which led to an upward movement in global stock markets. With a more “normal” payroll in April, hopes of a US interest rate cut in September were rekindled.

“The clearer it is in which month the interest rate reduction in the US will take place, the more foreign flow may return to Brazil, more quickly, with investors activating the ‘risk on’ mode”, assesses Lucas Lima, from VG Research.

“A series of more positive economic indicators in the United States, indicating more controlled inflation, could be the trigger for a reversal in the flow of foreign capital to the Brazilian stock exchange”, adds Reitz, from Julius Baer Brasil.

Finally, Sidney Lima, from Ouro Preto Investimentos, adds that the resumption of foreign investment here also involves a more robust economic recovery in Brazil.

“A stabilization of the global political and economic scenario, with an improvement in Brazil’s risk perception, and monetary and fiscal policies that favor investment, could attract investors again”, he concludes.