The Central Bank’s Monetary Policy Committee (Copom) once again reduced the Selic, this time to 12.25%, the third cut since August. Despite this, the Stock Exchange has not felt the positive effects of the drop in interest rates, having accumulated a decline of almost 5% since then.
According to Fernando Ferreira and Jennie Li, both from XP, the cycle of monetary easing in Brazil was overshadowed by the increase in global interest rates, with emphasis on the increase in yields offered by American Treasury bonds (Treasuries).
At the beginning of October, for example, the interest paid on Treasury paper maturing in ten years exceeded 5.00% — something that had not been seen since 2007.
The view that rates in the United States could remain high for longer there affected American stock exchanges and also generated a repricing of assets around the globe. After all, the American rate usually guides investments around the world.
The Brazilian Stock Exchange was not left out and ended October with a drop of almost 3%, driven by falls in the shares of retailers and construction companies.
Constructives with actions
Although the contraction may have scared some investors, XP experts consider that they continue to have a constructive view for the Stock Exchange, given the discounted price.
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In the house’s calculations, Ibovespa was trading at a price/earnings ratio — which measures how much investors are willing to pay for the profits of a company or index — of 7.5 times, which would be the lowest multiple among global peers.
The analysis is based on two factors. The first is the increase in geopolitical tensions, which could benefit Brazil. Professionals remember that the country is seen as having low geopolitical risk and neutral in relation to the latest conflicts.
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The second factor involves the interest rate cut cycle. Experts reinforce that lower rates represent a lower cost of capital for companies, which tends to be positive for companies.
Furthermore, they highlight that a lower Selic reduces the discount rate of shares, increasing the “fair value” of shares.
Managers increase neutral position on the Stock Exchange
On the other hand, macro multimarket managers have adopted a more cautious stance with the Stock Exchange. The number of houses that have a neutral vision has grown. In October, the percentage reached 59%, above the 41% seen in September. The data is part of a survey carried out by XP with 18 managers between October 18th and 27th.
From September to October, the percentage of managers with a positive view of Brazilian shares also decreased, from 41% to 24%. The number is the lowest since May this year.
Caution with the scenario also has repercussions on allocation: in surveys carried out in August and September, 100% of managers with positions on the stock exchange in Brazil were long (betting on the rise). Now in October, the percentage fell to 77%.
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Likewise, more managers (23%) reported that they have short allocations (which benefit from the fall) in Brazilian shares.
