Bank sees fiscal issue as worrying investors, but believes there is still a possibility of mood changing by the end of the year; understand
Last Wednesday (18) marked an event widely expected by global markets: the drop in the US interest rate for the first time since 2020. This movement traditionally benefits risk assets around the world, especially emerging countries, such as Brazil.
Despite this, after the announcement by the Federal Reserve (the central bank of the United States), the Ibovespa recorded three consecutive days of decline. Only this Tuesday (24), the positive mood returned to predominate among investors.
In a report released last Monday (23), BTG Pactual addressed the bitter feeling that has taken over the local market in recent days.
According to the bank, with the fall in 10-year nominal rates in the United States, it would be natural to expect that Brazilian long-term real rates would follow suit.
“However, long-term real rates in Brazil moved in the opposite direction, causing the premium between long-term real rates in Brazil and the US to increase to 4.8%,” the analysts emphasize.
Also according to the report, concern about the fiscal situation is the major driver of the increased premium in long-term real rates in Brazil compared to the US.
“Uncertainty among analysts about compliance with the fiscal rules for 2025 has increased, especially as the 2025 Budget sent to Congress at the end of August is overly dependent on uncertain revenue sources and no structural changes in expenditure have been announced”.
A trigger could lift the Ibovespa to 155,000 points, says BTG
BTG analysts also highlight that the cycle of falling interest rates in the United States and rising Selic rates should cause the real to appreciate.
“However, a sharper appreciation of the BRL (perhaps to 5 per USD) would only materialize if the government’s commitment to the spending cap becomes clear and concrete measures to control the growth of mandatory expenses are adopted.”
Changes in the perception of the fiscal issue may also be responsible for the return of the Ibovespa's good mood, assesses BTG.
The bank believes that additional structural changes to the 2025 Budgetafter the municipal elections in October, would be “received with enthusiasm by the market” and could raise the Ibovespa to 155 thousand points.
“Measures to make the budget more flexible, such as decoupling health and education spending from tax revenue growthalthough unlikely, could materially reduce the spread between Brazil's and the U.S.'s long-term real rates. If the spread returns to last year's average (4.1%), Brazil's long-term rates would fall to 5.7% (from 6.4% currently). If it returns to the low point reached in Oct/23 (3.2%), Brazil's long-term rates would fall to 4.8%, and the Ibovespa could jump to ~155 thousand points”, wrote the analysts responsible for the report.
How to invest in this scenario?
For investors who want to start in the stock market or even enhance their portfolio, BTG Pactual offers recommended portfolios for different investor profiles.
One of them is that of dividendswhich is being made available as a courtesy to Money Times readers.
The portfolio is updated monthly by the largest investment bank in Latin America with the best opportunities of the moment from the perspective of good dividend payments to investors.
In times of instability on the stock market, as is the case, shares with strong cash generation, a characteristic present in dividend payers, are a good option for reducing equity volatility.
In addition to knowing each of the recommended shares, you will know the ideal weight in the portfolio and a summary of the investment thesis for each of them.
It is worth noting that, from November 8, 2019 until September 1 of this year, the BTG's recommended dividend portfolio accumulates profitability of 70.3%, against “only” 26.4% of the Ibovespa. In other words, a return of 266.2% of the main Brazilian stock index.
The good news is that you can check out the recommended portfolio for September in a 100% freeas a courtesy of BTG Pactual to Money Times readers.
To access it, it's simple and quick: just click this link or the button below. Happy investing!
This material is not related to specific investment objectives, financial situation or particular needs of any specific recipient, and should not serve as the sole source of information in the investor's decision-making process. Before making a decision, the investor should carry out, preferably with the help of a duly qualified professional, a thorough assessment of the product and its risks in light of their personal objectives and risk tolerance (suitability).