Larissa Quaresma believes that the Brazilian stock market has the potential to move forward in October and investors can buy quality companies at a “discount”
In September, the markets' most anticipated event of the year took place, the beginning of the cut in American interest rates.
Thanks to this movement, stock exchanges around the world increased in value. And, after reaching a historic high in August, it was believed that the drop in interest rates in the US would bring more impetus to the economy. Ibovespa. But that wasn't what happened. In September, the Brazilian stock exchange closed in remains -3.08%.
Given the negative Ibovespa scenario last month, many investors may have started October with a more pessimistic feeling.
However, Larissa Quaresmaan analyst at Empiricus Research, makes the following warning: There is a lot of “noise” in the markets at this moment and the investor needs to be careful, as there is still “potential for the stock market to move forward”.
Has the Brazilian stock market lost its timing? It's not quite like that…
According to the analyst, the poor result of Brazilian risk assets in September is linked to two factors:
- The loss of credibility of the tax policy; e
- One “perfect storm for inflation”which caused the increase in Selic.
In an interview with the program Where to Invest of October, produced by Seu Dinheiro, a partner portal of Money Times Larissa pointed out that the dry climate influenced the country's inflation.
Since last month, droughts have been affecting part of the planted areas, which has pushed up food prices.
Furthermore, the lack of rain was also responsible for the reduction in the availability of electrical energyleading to a increase in tariffs in September and October, which are currently red flagged. According to Quaresma, these factors increased the “upward pressure” on inflation.
But despite the setbacks, Brazilian GDP continued to grow above potential.
When this happens, what experts call inflationary growth. That is, growth above productivity which, therefore, ends up putting pressure on prices.
In other words, it means that the Brazilian economy is growing due to inflation and not due to economic activity. In this sense, the analyst points out that the rise in Selic in September it was a necessary adjustment.
Another factor that weighed on the Brazilian stock market was the tax issue. At the end of September, the government released the bimonthly income and expenditure report, which negatively surprised the markets.
During the period, the government presented extraordinary expenses of around R$40 billion. In contrast, the expense blocking was well below expectations.
A blockage of R$5 to R$10 billion was expected with discretionary (non-mandatory) expenses, as mandatory spending exceeded the projection. However, that's not what happened.
In August, the government carried out a blockade of just R$2.1 billion e, at the same time, reverted to zero the R$ 3.8 billion contingency in July.
In other words, in practice, there was a defreezing of R$ 1.7 billionwhich generated a loss of credibility fiscal which impacted the stock market.
In the analyst's view, the loss of credibility regarding fiscal policy was the main cause for the spike in future interest rates.
Therefore, due to these factors, the risk premium to invest in Brazil remained practically at the same level, despite the fall of the Ibovespa in September.
In other words, this means that “the bag became even cheaper”points out Quaresma. In other words, for the investor who believes that Brazilian risk assets have lost the opportunity to enter the end of year rallythe analyst points out that the October scenario could be more positive than September.
'I see potential for our stock market to move forward'
According to the analyst, in addition to the factors that put pressure on the Brazilian stock exchange last month, it is important to remember that the Ibovespa reached an all-time high in August. Therefore, a correction is no reason to despair.
Furthermore, she sees positive triggers for the recovery of risky assets. The first of them is still linked to American interest rates.
She explains that, although the stock market did not perform well after the cut made by the Fed, “the cycle (of monetary easing) is more important than a specific decision”.
Larissa also points out that the process of change in investors' portfolios is something that tends to happen gradually. In other words, the inclusion of risky assets in portfolios should continue to happen in the coming months, as the Fed reduces the American interest rate. This movement can still be taken advantage of by the Brazilian stock exchange.
She also adds that the level of 132 thousand points of Ibovespa already prices the tax issue and the rise in Selic, in addition, the index trades at a multiple of Price/Profit of 9.5xwhich is a standard deviation below average.
Thus, faced with a cheap risk assets with little room for devaluation“I see potential for our stock market to move forward”, stated the analyst.
On the other hand, she highlights that on Brazil's part, it is necessary the minimum fiscal adjustment so that the stock market can surf this wave. In this sense, the house made some changes to the Portfolio 10 Ideas.
Where to invest in October: see the 10 stocks recommended by Empiricus
For October, she decided to keep 85% of the portfolio focused on domestic economics. Furthermore, given the rise in the Selic rate, it was even more selective regarding companies' leverage. And you can have access to this complete portfolioin a way free.
During her participation in Onde Investir, Larissa provided a link for investors interested in learning about Empiricus Research's recommendations on where to invest in October.
In the material, the analyst explains in more detail what is at stake for the Brazilian stock market this month and reveals the 10 most recommended shares, as well as their respective theses.
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