Opinion – Marcos de Vasconcellos: After saving the stock market, commodities sink and require a new strategy

For 522 years, the interest of Europeans in metals and Brazilian plantations has dictated the course of our economy.

“Until now we have not been able to know whether there is gold or silver in it, or anything else of metal, or iron. […]. She is so graceful that, wanting to take advantage of her, everything will be given to her; because of the waters it has”, reports, by the way, the first written document in the history of Brazil, the letter from Pero Vaz de Caminha to King Manuel I of Portugal.

The letter, dated 1500, seems to have sealed our fate. Oil was only discovered in 1859. If it weren’t for that, I can bet that it would appear in the Portuguese correspondence.

You must have learned, perhaps in high school: Brazil exports raw materials and imports manufactured goods. And it was these commodities that held the sway in the financial market in recent months. Yet.

I say so far because a siren sounded in the market, and it’s time to carefully define the next steps.

A Bank of America (BofA) report released last week points out that large European funds are shedding their positions in Brazilian steel, mining and pulp. Metals and plantations, desired, precisely, by the first Europeans to set foot on national soil.

In 20 meetings with major investors, say the bank’s analysts, few said they maintained interest in companies that until then were at the “crest of the wave”, such as Suzano, Klabin, Gerdau, Usiminas and Vale.

This is not an isolated impression. The Bloomberg Commodity Price Index (BCOM) dropped 18% between June 9 and July 6. The price of a barrel of Brent oil, a reference for the Brazilian, plummeted 18.7% in the analyzed period.

And that is where the problem of concentrating our market in commodities becomes crystal clear. The Ibovespa, the main indicator of the Brazilian stock exchange, dropped 7.8% in the same period. The S&P 500, the main gauge of US-traded stocks, dropped 4.3%.

As should be a mantra in the minds of those who operate on the Stock Exchange: prices are set by major international players. And, if they are moving out of commodities, at a time when economic growth (translated by GDP) is expected to be minimal, it’s better to tighten their belts, for more turmoil.

The crisis in supplies has left much of the world out of stock. And Brazilian production is breaking records. But industry prices are suffering as money shifts to less risky assets. These are the investment cycles.

For those who invest thinking about the growth of companies and their markets, analysts see a good time for purchases ahead, due to the cheapness of shares. For those who want to win in the short term, some bets on falls, such as short selling operations, should become increasingly common.

In this strategy, you rent a stock for a period and sell it to someone else. If the price of paper drops, you buy it again and “give it back” to the people you rented it from. So you pocket the difference between the price you sold it for and the price you bought it back for, minus the price you paid for rent. If I sell for R$10 and buy back for R$8, I earn R$2 per share. If the rent costs R$1, there will be another R$1 in profit.

It is something high risk, but with good possibilities of gain and that tends to conquer more space with the falling market. Anyone who wants to know more details about these operations to earn in the stock market crash can download this free ebook from Market Monitor.

The change in trend is commonplace for those who invest in variable income. The most important thing is to have a strategy that allows you good yields and protection in the ups and downs.