Foreigners increase investments in the stock exchange and Brazilians migrate to fixed income

As Brazilians trade the stock exchange for fixed income investments, foreigners seek profits from shares in some of Brazil’s top companies, an XP analysis of recent data from the country’s stock market shows. Commodity appreciation, rising interest rates and a correction trend in the main global exchanges are the engines of this carousel.

The balance of foreign investments in the country’s stock market this year is approximately R$ 47.3 billion, according to data from B3, the Brazilian Stock Exchange. The result is 74% higher than the accumulated volume of January and February last year, which was R$ 27.2 billion.

Brazilian investment funds, however, reduced their positions in shares by R$3.7 billion in December, the latest data available. The outflow had been higher in November (R$ 20.5 billion) and, mainly, in October, when there was a negative flow of R$ 57.1 billion.

Jennie Li, stock strategist at XP, attributes this rotation of foreigners and Brazilians on the stock exchange to the troubled world economic scenario. As central banks around the world adjust interest rates to deal with global inflation generated by the disruption of supply chains during the pandemic, investors are swapping assets in their portfolios in a bid to smooth out losses and cash in on opportunities.

“We’re seeing a lot of rescues [na Bolsa, realizados por meio de fundos de investimento]mainly in retail, which are probably from local investors trying to protect themselves after a difficult performance of the stock exchange in 2021”, comments the analyst. The Ibovespa closed last year down by 11.93%.

The main investors on the Brazilian stock exchange are foreigners. They represent 53.2% of the invested capital. Financial institutions (26.2%) and individuals (15.7%) are the other major groups of market participants.

“We see foreigners enter [na Bolsa], rotating between stocks from growth to value. Outside technology stocks are falling a lot and, inside, value companies, such as commodities and banks, are valuing pulled by foreigners”, says the XP strategist.

While the stock market fell, the Central Bank promoted a strong acceleration of the basic interest rate (Selic), which went from 2% to 9.25% from January to December 2021, reaching the current level of 10.75% in 2022. per year. The measure, adopted to tame double-digit inflation, is “making fixed income increasingly attractive” for Brazilian investors, says Li.

For international investors, however, the situation is different. They had extraordinary profits in the main global markets in 2021, highlighting the results in the United States. The S&P 500 index, the benchmark for the New York stock market, delivered gains of 28%.

Virtually zero interest and injections of money into the market through the purchase of assets were the yeast used by the Fed (Federal Reserve, the American central bank) for this cake to grow so big.

In 2022 the situation is different. The S&P 500 dropped 6.8% from the beginning of the year to this Wednesday (16). Nasdaq, an exchange that concentrates technology companies and has the greatest growth potential, has already sunk 10.7%.

The declines in the US market occur due to the expectation that the Fed will be forced to promote a strong monetary tightening to control the country’s highest inflation in 40 years. The adjustment is scheduled for March, but the monetary authority has not been clear about how much and at what speed it will raise interest rates.

While waiting for a definition on the size of the adjustment, investors liquidate assets made more expensive by the recent rises in the main exchanges and look for devalued and promising papers in emerging markets.

Brazil stands out among the options due to the favorable moment for its higher value companies, mainly in the basic materials sector. Strengths of Brazilian commodities, oil and iron ore are on the rise.

Also attractive to foreigners, the solid banking sector is rated as promising. In an environment of high interest rates, investors expect to increase profits with shares in this segment.