Dollar drops to BRL 5.03 as oil rises attracting foreigners to Brazil

While the war between Russia and Ukraine caused drops in the main global stock markets this Thursday (3), investors returned to Brazil to seek opportunities for gains with the appreciation of basic materials with supply harmed by the conflict in Europe. The main reflection of this was the 1.56% drop in the dollar, which ended the day quoted at R$5.0280.

Reference index of the Brazilian Stock Exchange, the Ibovespa operated in the dark for almost the entire day, supported by the growth of companies producing oil, iron ore and steel. At the end of the session, however, the indicator closed close to stability. There was a drop of 0.01%, to 115,165 points.

The retreat of the Ibovespa followed the deceleration of oil in the late afternoon. After touching the highest price in almost 14 years this Thursday, the barrel of Brent, a reference for this raw material, fell 2.14% compared to the previous day, at US$ 110.51 (R$ 557.77) . The day before, there was an appreciation of 7.58%.

Russia is one of the main global producers of oil and natural gas. The current crisis has consolidated the price of the commodity at the highest level since 2014, when the surge was also caused by a decision by Russian President Vladimir Putin, who had ordered the seizure of Crimea, a peninsula to the south of Ukraine.

In China, the war generates expectations of increased demand for steel produced in the country. Part of the raw material for this is Brazilian iron ore, whose contract value rose 3.69% this Thursday.

With this new impulse in commodities, the foreign exchange and stock markets once again reflect the entry of international investors into the country.

Before the start of the war, Brazil had already emerged in the last two months as an attractive destination for foreigners looking for quick profits while stock exchanges in the main markets were returning gains made in previous years.

In the first two months of 2022, the balance of foreign investments on the Stock Exchange reached R$ 62.6 billion. A growth of 130% compared to R$ 27.2 billion in the same period in 2021.

Funds and financial institutions that allow investors of other nationalities to invest in Brazil are of great importance in the domestic stock market —they represent 53% of the volume traded. Brazilian institutions represent 26%. Individual investors (individuals) are 16%.

Developed countries are preparing to raise interest rates to try to curb global inflation caused by the disorganization of supply chains during the pandemic. A high interest rate takes money out of the stock market and into debt securities of countries, particularly the US Treasury.

While interest rates there don’t rise enough – the rise in the US should start this month, when the rate will leave zero to advance between 0.25 and 0.50 percentage point –, emerging economy countries are options for momentary gains.

In addition to the commodities sector and others with cheap shares on the stock exchange, Brazil also has a devalued currency against the dollar and an interest rate –10.75% per year– much higher than the estimated inflation of 5.6% for 2022. These conditions make the country even more advantageous for foreigners, who can take out cheap credit abroad and make profitable investments in the domestic financial market.

The effect of the war on commodities is also boosting other Latin American markets, senior analyst Ricardo Evangelista of ActivTrades told Reuters. “In this scenario, there is scope for new price hikes,” he commented, referring to the rise in oil.

In a comparison with 24 currencies of emerging countries considering the variation on this Thursday, four of the five debts with the highest appreciation in cash against the dollar were from South American countries. Colombian peso (2.1%), real (1.5%), Chilean peso (1.1%), South African rand (0.9%) and Peruvian sol (0.6%) topped the list compiled by Bloomberg. The Russian ruble held the lantern, down 4.9%.

Sanctions imposed by the United States and allied to the financial flows of large Russian banks, companies and oligarchs benefit, at this first moment, countries in a position to meet the increased demand for materials produced by Russia and Ukraine, in addition to offering a stock market similar to the Russian one. .

An example of this is the potential side effect of Russia’s exclusion from the MSCI Emerging Countries Global Equity Index. The index provider’s decision could result in a flow of approximately R$7 billion of foreign funds to Brazil, according to analysts at Itaú BBA.

These advantages, however, have a short validity period, warns Nicola Tingas, economic consultant for Acrefi (National Association of Credit, Financing and Investment Institutions). “There will be inflationary impact [no Brasil] in energy, fertilizer supply shock, high corn, wheat, soy, which affect protein prices”, he commented.

Overseas, markets had a volatile day as investors groped for the effects of economic sanctions imposed on Russia.

After a bullish open, the major US stock indices lost steam. The Dow Jones, S&P 500 and Nasdaq were all down 0.29%, 0.53% and 1.56%, in that order.

Inflation, now fueled by the war, continues to haunt American investors. Federal Reserve Chairman Jerome Powell commented on Thursday that Russia’s war in Ukraine could hit the US economy through a variety of channels, from higher prices to reduced spending and investment.

European stocks plunged into pessimism. London, Paris and Frankfurt, the most important in the region, closed with losses of 2.57%, 1.84% and 2.16%, respectively.

In Asia, China’s main index, which brings together companies from Shanghai and Shenzhen, fell 0.59%. The Tokyo stock market rose 0.70%. Hong Kong rose 0.55%.