“I don’t understand how I could believe that there would be fiscal seriousness in a PT government.”
Luis Stuhlberger, founder of Verde, repeated variations of this phrase during the manager’s annual event, this morning in São Paulo.
For him, the Brazilian economy is “not bad”: inflation has decreased, the drop in interest rates has improved the credit cycle, external accounts are in excellent condition.
The big problem is the increase in fiscal risk. The fiscal framework was easily changed, the budget became a “piece of fiction” and it was clear that “the government will do whatever it takes to beat inflation,” he said.
Given this, and the scenario of high interest rates abroad, the space to cut the Selic rate has decreased (Green projects 9.75% by the end of 2024, and the maintenance of this level throughout 2025, while Focus estimates point to 9 % to the next year).
The “unwritten rule”, said Stuhlberger, is that the Selic is, at least, between 4 and 5 percentage points above the Fed funds: today, this difference is at 5.4, a number that should fall after the Copom’s decision to tomorrow: the average market forecast is for another 0.25 pp cut in the Selic.
The current scenario has led to important changes in Verde’s portfolio. The manager zeroed out investments in NTN-Bs – which accounted for 27% of assets – and started investing around 40% of assets in TIPS, American bonds indexed to inflation (5 and 10 years).
“Once in a lifetime opportunity,” Stuhlberger said of TIPS. The return on these bonds rose – the 10-year bonds pay inflation plus 2.25% per year – and the differential in relation to the NTN-B improved.
At the same time, exposure to Brazilian stocks fell from 15% to 10%. “The Brazilian stock market is cheap, but there is a lot outflowapart from the fiscal risk.”
Investments on the stock market abroad were 5% of assets. The fund also has pre- and credit investments in Brazil, is purchased in the currencies of India and Mexico and also in dollars.
Stuhlberger recalled that American inflation fell quickly at the beginning of the monetary tightening cycle, but “stuck” at around 3.5%. As a result, the market began to predict that American interest rates could remain high – around 4% – for longer. “If this is true, the way we invest will have to change permanently”, as the return on risk-free assets will be higher.
Giuliana Napolitano
