The real ended this Wednesday (23) with a new appreciation against the dollar. Contributions from foreign investors in the Brazilian market are largely responsible for the fall in the exchange rate. Brazil is temporarily attractive to capital while uncertainty hovers over major global economies due to inflationary impacts that could be exacerbated by the conflict between Russia and Ukraine.
The dollar retreated 0.95% this Wednesday, at R$ 5.0030. It is the lowest price for the American currency since June 30, when it closed at R$4.9720, according to data from the CMA agency. Also during this Wednesday’s session, the currency dropped to R$ 4.9940.
Since reaching its peak this year, which was R$5.71 on January 5, the dollar has already dropped 12.4%.
The Brazilian Stock Exchange was heading for a slight correction at 17:20. The Ibovespa dropped 0.70% to 112,100 points. Data indicating that the country will have the highest inflation for February since 2016 prevented another day of gains in the stock market, according to a note from Ativa Investimentos.
“After rising at the opening, the index changed direction with the release of the preview of February inflation, measured by the IPCA-15, which advanced 0.99%, surpassing the consensus of 0.85%”, wrote analysts at Ativa.
In the accumulated result for 2022, however, the benchmark index of the local stock market advances by around 7%.
Foreign 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 will suffer economic sanctions.
US President Joe Biden has announced measures that will prevent the Russian government from making financial transactions involving its debt securities with US and European companies.
Similarities between the two emerging economies tend to reposition towards Brazil part of the capital flow that would previously go to Russia.
In a list of 24 emerging market currencies, the real posted the best spot return against the dollar on Tuesday, while the Russian ruble ranked third from last, according to data compiled by Bloomberg.
The main stock index on the Moscow Stock Exchange rose 1.58% on Tuesday, but with that it recovered only a small part of the 10.5% drop registered the day before.
The most obvious gains in the Brazilian market amid the geopolitical crisis come from oil, which rose 0.01% late this afternoon, quoted at US$96.85 (R$485.57). In addition to being at its highest price level since mid-2014, the commodity could break $100 this year, analysts say.
Brazil’s package of attractions for foreign investors also has the real still undervalued against the dollar, cheap shares on the stock exchange and, especially, a very high basic interest rate (Selic) in relation to the main global economies.
The interest rate in Brazil is 10.75% per year, with an expectation of exceeding 12% in 2022. As the expected inflation for the country is around 5.5% for this year, the difference between these two indicators provides high gains with financial investments.
In the United States, where inflation at around 7% per year is the highest in four decades, interest rates remain close to zero and should only begin to gradually increase from next month.
While waiting for more favorable conditions abroad, investors may be taking cheap credit abroad to invest in the stock exchange and in the Brazilian financial market as a whole. This is what in business parlance is often called a “carry trade.”
The Bloomberg index that tracks this type of business points to an increase of 5% this year, considering the global movement of money towards less developed economies.
The Brazilian stock market accumulates a positive balance in the flow of capital from foreign investors above R$ 50 billion this year, according to data from B3, the Brazilian Stock Exchange.
A situation opposite to that of Brazil occurs in the main financial center of the planet. The main indicators of stocks traded in New York accumulate losses this year.
On Tuesday, the S&P 500 index hit a low of 10% from its record score achieved on January 3 this year. When an indicator retreats from this percentage in relation to its highest level, it enters the so-called “correction zone”.
It is the first time that the New York Stock Exchange’s benchmark indicator has gone into correction since February 2020, when news that Covid would result in a pandemic shook markets.
“Investors are shrinking [posições em aplicações de] risk according to the crisis [na Europa] increases uncertainty,” said Lindsey Bell, head of markets at Ally Invest. “Markets are likely to be on edge in the coming weeks,” he commented in an interview with The Wall Street Journal.
Before tensions escalated in Eastern Europe, the US stock market was already in decline due to expectations of higher interest rates.
With the confirmation of Russian military action in Ukraine, in addition to uncertainty about the course of the conflict, investors are also turning their eyes to the possibility of an even stronger acceleration of inflation.
Consequently, expectations of a higher-than-expected rise in the cost of credit also increase, an instrument that the Fed (Federal Reserve, the American central bank) has already warned that it will adopt to contain the rise in prices.
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