Global rise in interest rates affects investors in Brazil; know how and what to do

The turn of the year brings additional challenges for investors. The world’s main central banks have confirmed monetary tightening to contain global inflation, while the Covid-19’s omicron variant raises questions about the economic recovery.

Uncertain winds led US and European stock exchanges to operate aimlessly. Analysts are still groping an unusual environment in the recent history of finance in developed countries.

At the same time, there is an unstable internal scenario for Brazilians who are on the stock exchange because of next year’s electoral dispute, which, in different aspects, is already negatively contaminating the spirits. .

Stock exchanges in emerging countries, such as Brazil, are doubly harmed by the two moves announced on Wednesday (15) by the Fed (Federal Reserve, the US central bank).

The first of these movements is the acceleration of tapering, which means the faster tapering of the flow of billions of dollars that the government has been putting on the market through bond purchases since the beginning of the pandemic.

The program will end in March and no longer in June, as planned.

This reduces the amount of resources for investment or, as they say in the market jargon, reduces liquidity. Less money means less willingness to invest in riskier markets.

The second measure is to raise interest rates, which are expected to take place in three stages from March onwards. This means that the safest investment in the world, the US Treasury bond, becomes more profitable.

Stock exchanges around the world will become less attractive — and those from developing countries tend to lose more, explains Marcos Mollica, manager of Opportunity Total. “The approaching interest rate hike will increase volatility, especially in the stock market and in emerging markets,” he said.

In summary: “The prospect of higher US interest rates earlier than the spurred one generates a flow of capital to the United States, worsening the scenario for emerging markets”, says Étore Sanchez, chief economist at Ativa Investimentos.

The effect of a high interest rate cycle abroad also corrects distortions caused by the inverse process, as was the boom in technology stocks and cryptoactives, according to João Beck, economist and partner at BRA.

“The very low interest rate, and for a long time, encourages investors to turn to technology and cryptoactive companies in search of profitability. We may see a reversal of this trend for a while,” comments Beck.

Once the new market dynamics are understood, it is advisable to calibrate the investment basket.

Although analysts recommend some reinforcement in fixed income, to take advantage of the upward trend in interest rates, which in Brazil began to rise sharply before the movement took place abroad, it does not mean zeroing out positions in variable income.

“It is necessary to avoid binary decisions. We are going to have fixed and variable income all the time”, recommends João Vitor Freitas, an analyst at Toro Investimento.

Beaba from the financial analysts booklet, the diversification of applications is indicated to reduce volatility in these times of doubts. But not only that. Sophisticating the portfolio by introducing assets that better reflect the trend of global markets can put even conservative investors in line with the opportunities brought by the crisis

Considering that variable income in Brazil faces multiple challenges, a well-structured exposure to assets abroad has advantages.

Participating in investment funds that facilitate the application in indices of the main global markets through ETFs (Exchange Traded Funds) listed on B3, the Brazilian Stock Exchange, is the simplest and most accessible option.

By replicating the S&P 500 index, which brings together the top 500 companies listed on the New York Stock Exchange and Nasdaq, the IVVB11 has a certain presence in almost any portfolio that seeks a balanced participation in the global stock market.

Consolidated companies tend to suffer less impact from the rise in interest rates, unlike what happens with small companies in the technology sector with great growth potential whose expectation is of future cash formation. That’s why Nasdaq, the market that concentrates this type of company, fluctuates more in view of the expectation of a rise in interest rates.

Giving up high-growth companies, however, could mean missing out on earning opportunities due to a new shift in US monetary policy. The worsening health crisis could change plans to raise interest rates, as Fed Chairman Jerome Powell made clear.

The Investo USTK ETF, which follows the MSCI US Investable Market Information Technology 25/50 index, is the option recommended by Freitas for Brazilian investors to maintain their participation in the American technology market.

The advantage of this index is the participation of small, medium and large companies, which increases their ability to fluctuate less in unstable periods.

Freitas warns that the composition of the variable income portfolio must be done simultaneously with the construction of an emergency reserve based on fixed income.

Midway between fixed and variable income, multimarket funds with exposure to US Treasury bonds are simplified options for diversification focused on high interest rates in the United States. “In this case, it is necessary to know the fund’s profile and policy well before investing,” warns Freitas.

Investments abroad still bring a layer of protection against exchange rate fluctuations, which should continue to be pressured by the expectation of an increase in fiscal risk in 2022.

Long-term reserve for wealth protection, gold is also accessible through an ETF listed on B3, the GOLD11.

“In moments of instability in different parts of the world, investors flock to the US Treasury and gold”, comments Freitas.

Five tips to face rising interest rates

1. Investment in the stock market must be thought of in the long term. Avoid liquidating stocks you believe due to momentary fluctuations
2. ETFs are simplified ways to invest in funds abroad, allowing protection against internal risks and against the rise of the dollar
3. The commodities sector gains from the high dollar and this offsets the increase in operating costs due to higher interest rates in Brazil
4. Geographic diversification with shares of companies with operations in different parts of the world helps the portfolio to absorb local shocks
5. Invest according to your profile. Conservatives who greatly increase their exposure to risk tend to lose money when the stock market falls