Brazilian stock market still shows after-effects of pandemic

Wednesday’s trading session marked the second anniversary of when Brazil’s benchmark stock index Ibovespa reached its lowest point during the Covid-19 crash. Since then, the global economy and the capital market have gone through several cycles that helped to distorted the prices of several stocks in the Brazilian stock market.

A survey carried out by Valor Data found that, two years after Ibovespa reached its lowest level, of 63,569 points, and its strong recovery – it closed at 117,457 on Wednesday – some companies are still strongly depressed, in some cases with a market capitalization below the one seen on that low point.

This is the case of retailer Magazine Luiza, which on Wednesday had a nominal market cap R$8.6 billion lower than the one seen two years ago. Or developer Eztec, which shrunk by R$2.1 billion in the period. Construction company MRV, toll road operator EcoRodovias and BR Malls have recovered from losses recently and posted a positive balance of R$728 million, R$363 million and R$675 million, respectively.

Since the index almost doubled in score, there are also clearly positive highlights, mostly blue-chip companies. Among banks, Itaú grew R$51 billion, Bradesco advanced R$58.5 billion, Santander gained R$44.8 billion and Banco do Brasil is worth R$36.6 billion more now. Oil giant Petrobras and mining company Vale, which start from a higher base given their size, gained R$279 billion and R$302 billion in market cap in the period.

But despite the snapshot, the Ibovespa could not have been in a less static way in the last two years. The volatility caused by the pandemic gave rise to several small cycles in the capital markets, making stocks gain and lose attractiveness quickly.

Alexandre Sabanai, a manager at Perfin, recalled that in March 2020, while the stock markets crashed, the market spent a few days without a reference. At that point, six circuit breakers were triggered in eight days between March 9 and 18.

“Agents price risks and returns well, but they don’t know how to deal with uncertainty. We didn’t know how lethal the virus was, how long it would take for infections to stabilize, so the start was difficult. When the initial panic passed, investors started to evaluate the sectors that would suffer the most.”

So while part of the assets showed a first sign of recovery, mainly from essential sectors such as supermarkets, pharmacies, sanitation and energy, others had a harder time, such as shopping centers, airlines, highway concessions and street retail.

Phil Soares, head of equity analysis at Órama Investimentos, recalls that the race for technology assets emerged at that point, while there was talk of the “new normal.” In the international market, the big techs emerged as natural winners, while in Brazil, with no companies on the technological front, the beneficiaries were companies that already had or accelerated their digital presence. Via Varejo rose 200% between March and September and the newcomer Locaweb jumped 450% in the period.

The market experienced a more generalized rally in late 2020, reflecting some hope with the beginning of mass vaccination, until the second wave of Covid-19, and a second lockdown, generated again a few more months of volatility in early 2021.

However, with a new reopening of the economy in April and government stimuli taking effect, economists revised activity data upward and companies again delivered great results, taking advantage of the low base of comparison of the previous year amid a buyer appetite, said Fernando Bresciani, an investment analyst at Andbank. On June 7, 2021, the index closed at 130,776 points, reaching 131,190 during the session.

China, which stimulated its economy after the crisis, also stimulated the metallic commodities, making iron ore reach the $220 level. But it was short-lived. Inflationary pressures began to trigger interest rate hikes and, in addition, the country was still dealing with a water crisis and uncertainties linked to the fiscal situation and elections. Thus, the local market suffered in the second half of 2021.

At the beginning of 2022, amid higher oil prices and the recovery of minerals, local assets started to call the attention of international investors. By March 21, R$81 billion had been invested, with a focus on blue-chip companies.

Agents expected the flow to trickle down to assets linked to the local economy, but as the Russia-Ukraine war again affected inflation, there is no longer a consensus. For now, the Ibovespa is on the rise. On Wednesday, the index gained 0.16%, to 117,457 points, its sixth consecutive advance, with local shares testing the thesis that some companies are trading at a discount here.

“We still can’t see strong growth, since there are many uncertainties around interest rates and inflation. But volatility drives these movements,” Mr. Bresciani said.

Source: Valor International

https://valorinternational.globo.com