Dollar drops to R$5.05 with Brazil more attractive after Russia sends troops to Ukraine

A day after Russia’s decision to send troops to Ukraine caused a drop in the Brazilian Stock Exchange, the same scenario of potential war in Europe results in a strong recovery of the Brazilian stock market this Tuesday (22).

At 12:30 pm, the Ibovespa rose 1.27% to 113,148 points. The day before, the benchmark index of the Stock Exchange fell 1.02%. The fall was consolidated in the late afternoon, shortly after Russian President Vladimir Putin announced his decisive step on the route of conflict with the neighboring country.

War threats did not affect the appreciation of the real against the dollar, which fell 0.86% to R$5.0540. Earlier, the currency had retreated to a low of R$5.0490. If it maintains this level, the foreign currency will end the day with the lowest price since the beginning of July. It is worth noting that the exchange rate had also dropped 0.70% this Monday (21).

Investors who already saw the country as an alternative to the declines in the stock markets of developed economies, may now also be evaluating Brazil as a refuge from potential losses in the Russian market, as the country may face economic sanctions.

Similarities between the two emerging economies tend to position this flow towards Brazil, according to Pietra Guerra, stock specialist at Clear Corretora.

“We would be an alternative to withdrawing capital from Russia,” says Guerra. “By exposure to commodities [ambos são produtores de petróleo, por exemplo] and some similarity in the level of economic development”, he comments.

The most obvious gains in the Brazilian market amid the geopolitical crisis come from oil, which rose 1.76% this early afternoon, quoted at US$ 97.07 (R$ 498.28). In addition to being at its highest price level since mid-2014, analysts say the commodity will break $100.

Petrobras shares rose 0.59%. The most traded shares of the state oil company have already risen almost 19% this year.

But it is not just due to commodities that Brazil remains in the spotlight. The package of attractions also considers a still undervalued real against the dollar, cheap shares on the stock exchange, and especially a very high basic interest rate (Selic) in relation to the main global economies.

The interest rate in Brazil is 10.75% per year, with an expectation of exceeding 12% in 2022. As the expected inflation for the country is around 5.5% for this year, the difference between these two indicators provides high gains with financial investments.

In the United States, where inflation at around 7% per year is the highest in four decades, interest rates remain close to zero and should only begin to gradually increase from next month.

While waiting for more favorable conditions abroad, investors may be taking cheap credit abroad to invest in the stock exchange and in the Brazilian financial market as a whole. This is what in business parlance is often called a “carry trade.”

The Bloomberg index that tracks this type of business points to an increase of 5% this year, considering the global movement of money towards less developed economies.

The Brazilian stock market accumulates a positive balance in the flow of capital from foreign investors above R$ 50 billion this year, according to data from B3, the Brazilian Stock Exchange.

In the United States, the main indicators operated mixed after the stock market closed the day before due to the national holiday of Presidents Day.

Reference of the American market, the S&P 500 hovered around stability. The indicator on the Nasdaq technology exchange rose 0.28%. The Dow Jones, the index that brings together the highest value companies with shares traded in New York, fell 0.33%.