Inflation worries more than Covid; see impact on investments

The omicron variant of the coronavirus brought down stock exchanges around the world as it reminded the market that it is still not possible to rule out the risk of a new shutdown of the economy. After signs that the strain may be less lethal than others, inflation remains the pandemic’s most worrisome effect on finance, analysts say.

Shortages caused by the disorganization of supply chains in the most acute phases of the global health crisis should continue to pressure prices and interest throughout 2022.

This will require investments that are more focused on fixed income, but without neglecting opportunities in risky markets. Diversification and caution will be frequent words in the vocabulary of those who intend to prepare for a year that promises a lot of volatility in the markets.

Analyzes by infectious disease specialists and virologists about the direction of the pandemic became part of the daily readings and dialogues of Daniel Miraglia, chief economist at Integral Group, especially after the emergence of omicron.

It is based on these analyzes that he assesses that the market will likely put the virus aside in 2022. “The concern about asset prices will be much more focused on the inflationary process that is taking place in practically all countries”, he says.

Real estate assets are manager bets in periods of instability. “Among real assets, real estate is heavily discounted and, at the same time, tends to perform well in economic growth environments or when interest rates stop rising,” he says.

Exchange rate fluctuations are also more than expected in 2022, when the temperature of politics promises to rise even more with the dispute for the Presidency of the Republic. In the composition of the portfolio, assets linked to hard currencies will be an asset. “I suggest at least two, but the ideal is to have three: dollar, euro and yen,” says Miraglia.

Also considering a scenario of rising inflation, Rachel de Sá, head of economics at Rico, highlights shares of companies linked to the commodities sector. With real assets and dollarized revenues, these companies “can be great alternatives for a diversified portfolio”, says the analyst.

Future interest curves point to double-digit rates in the coming years and, therefore, make certain selections of short-term post-fixed securities linked to the Selic rate.

Investors averse to fluctuations can allocate up to 90% of the portfolio to fixed income assets, advises Jansen Costa, a partner at Fatorial Investimentos.

“The fluctuation is what is killing investors, but with interest rates reaching double digits, the conservative will make money,” says Costa.

For the remaining part of the portfolio, the distribution of variable income in shares of Brazilian and foreign companies, in addition to the dollar, tend to smooth the rise and fall of the market. “When the dollar falls, the stock market rises, so this ends up neutralizing it”, he comments.

The expectation of maintaining an open economy and normalizing consumption places some of the most discounted sectors during the pandemic as the main options in the stock market, according to Nicolas Borsoi, chief economist at Nova Futura Investimentos.

“With the reopening, the strategy should consider actions from sectors linked to logistics, car rental companies, travel companies and airlines,” he says. “The health sector too, because people will go back to elective surgery.”

Retail companies, however, may still be considered risky because they are sensitive both to any closures needed to contain new waves of Covid, as to rising inflation and interest pain. “A very benign scenario was priced in for these companies,” says Borsoi.

Expert recommendations

What investors should consider when composing the portfolio for 2022:

fixed income

• Floating bonds can offset part of the losses from inflation and guarantee an emergency reserve
• Some examples are Treasury Selic, Trend DI Simples or CDB that yield 100% of Selic, with daily liquidity
• A smaller part of fixed income must consider fixed rate bonds linked to inflation, such as the Treasury IPCA

Stock Exchange

• The stock market fluctuates, but shows consistent long-term gains (ten years or more, for example)
• Prefer solid companies and essential sectors increase investment security
• Companies in the infrastructure, telecommunications and energy sectors are among the nominations

Commodities

• Commodities and raw materials also fluctuate with the taste of global markets, but are quoted in dollars, which is an advantage for the coming months of predictable exchange rate volatility
• Companies with distributed production, and especially those that export to various regions of the world, more easily support specific problems, such as a local outbreak of Covid

reopening

• The actions that suffered most in the pandemic should gain momentum with the reopening
• There are opportunities in the travel and air transport sectors, for example

No exterior

• ETFs (Exchange Traded Funds) are investment funds that facilitate the application in indices of the main global markets
• The simplest and regularly recommended option is for a fund that follows the S&P 500, a benchmark in the American market
• In a scenario of rising interest rates in the United States and falling stocks, the strengthening of the dollar against the real can ease bumps

real assets

• Investments in securities backed by the real economy, such as real estate, are options for diversification as they are able to remain valued in a scenario of falling interest rates
• In the specific case of real estate funds, the expectation is for appreciation in a future scenario of greater inflation control and lower interest rates