Brazil faces tougher challenges than other emerging markets in 2024

Increased fiscal uncertainty, significant company devaluations, instances of government interference, and rising U.S. interest rates are contributing to a challenging stock market environment in Brazil

04/19/2024

Thalles Franco — Foto: Silvia Costanti/Valor

Thalles Franco — Foto: Silvia Costanti/Valor

Brazilian stocks have experienced steeper declines than those of other major emerging markets this year, signaling that domestic challenges play a substantial role in the underperformance of local equities.

According to a Valor Data survey using MSCI stock indices—which measure the performance of stock exchanges across various countries and regions—Brazil’s stock market has seen a decrease of 14.89% in 2024. In contrast, the average for emerging markets has only dropped by 0.5%, while the global average has actually increased by 3.5%. These comparisons are denominated in U.S. dollars, highlighting that the recent appreciation of the American currency against the Brazilian real has further exacerbated the poor performance of Brazil’s index.

Several domestic issues distinguish Brazil from its peers, including fiscal uncertainty following the adjustment of next year’s fiscal targets, struggles with key stocks such as Vale on the local exchange, and the volatility spurred by governmental attempts to meddle in the affairs of domestic companies.

On a global scale, the anticipation of a more restrained U.S. monetary policy has impacted equities worldwide. Brazil, where foreign capital had been more heavily invested prior to changes in the U.S. economic outlook, has felt the pinch acutely, suffering from a more pronounced outflow of funds.

According to J.P. Morgan, the significant underperformance of variable income in Brazil this year can be primarily attributed to a sharp decline in Vale shares, persistently high interest rates, and a substantial devaluation of the real.

The bank’s report highlights that Vale has been a major contributor to Ibovespa’s—Brazil’s benchmark stock index—losses in 2024. “If Vale’s performance had remained stable this year, Brazil’s performance in local currency would only be 1% behind MEXBOL,” notes the bulletin from J.P. Morgan’s equity strategy team for Brazil and Latin America, headed by Emy Shayo Cherman. MEXBOL refers to the Mexican stock exchange.

Vale’s common shares, which make up 14.16% of the Ibovespa and 10.99% of the Brazilian MSCI, have fallen by 15.65% this year. This decline is largely due to the global decrease in iron ore prices despite some recent signs of recovery. For most of 2024, however, the price of the commodity has been on a downward trend. Additionally, the Brazilian government’s attempt to appoint former Finance Minister Guido Mantega as the CEO of Vale has introduced further volatility, according to local fund managers.

“The price dynamics of iron ore until last week were quite poor, significantly impacting Vale. Several factors have negatively impacted the company, including discussions involving the CEO and instances of government interference,” explains Thalles Franco, partner and manager at RPS Capital. “With Vale being such a pivotal component of the index, the stock’s downturn largely mirrors the overall performance of Brazil’s market.”

Managers are particularly concerned with the fiscal challenges that have resurfaced following the government’s recent revision of next year’s fiscal target from a primary surplus of 0.5% of GDP to zero. “The fiscal dilemma has consistently been the weakest link in Brazil’s economic discussions. It surfaces repeatedly, manifesting with varying degrees of severity across different administrations. This recurring issue sets Brazil apart,” explains Eduardo Carlier, co-managing director at Azimut Brasil Wealth Management.

The adjusted fiscal target has recently prompted a rise in future interest rates, casting a shadow over the stock market. This increase places downward pressure on stocks linked to local consumption and heavily indebted companies while simultaneously boosting the appeal of fixed-income investments over variable-income investments in the country. “The balance still favors fixed income over riskier assets. Brazil needs to redirect local financial flows to make the stock market seem more enticing. However, periodic debates over fiscal policies hinder this; they obscure the market’s trajectory,” Mr. Carlier notes.

Additionally, there has been a notable retreat of foreign investors from the Brazilian stock market. Data from B3, the Brazilian stock exchange, reveals that this year, sales of shares by non-residents have outstripped purchases by R$27.39 billion. Meanwhile, global stock markets, including Brazil’s, are feeling the impact of shifting expectations for the U.S. Federal Reserve. Robust economic indicators from the United States are postponing any anticipated reductions in interest rates, posing challenges for global stocks. The exception has been the U.S. stock market, which continues to draw support from robust performances in the technology sector.

Welliam Wang, head of equities at AZ Quest, noted a shift in market expectations regarding disinflation in the United States. “Initially, the market anticipated a scenario where the U.S. could achieve disinflation without major sacrifices. Now, it appears we are moving toward a situation where, as the textbooks say, sacrifices are necessary,” Mr. Wang explained. Initially, Fed funds futures at the start of the year hinted at the beginning of monetary easing in March. However, current forecasts have adjusted this expectation to September.

Mr. Wang added, “With the U.S. entering an election period in September, the likelihood of interest rate cuts could further diminish, depending on the electoral frontrunner. The market perceives former President Donald Trump, who is seeking reelection, as potentially more inflationary due to his proposals to increase tariffs on China and restrict immigration, thereby reducing the labor force in the U.S.”

Thalles Franco, from RPS, highlighted how external movements have affected Brazil’s stock market. “Foreigners had significantly increased their investments in Brazilian stocks at the end of last year, drawn by attractive pricing. However, as U.S. interest rates began to divert investment flows away from emerging markets, Brazil, having seen substantial foreign investment, was particularly hard hit. The retraction of these funds around the turn of the year has been a major factor in Brazil’s underperformance,” he remarked.

In the final two months of 2023, non-residents injected a net R$38.49 billion into Brazilian stocks, accounting for the majority of the net R$44.85 billion that flowed into the country’s equity market throughout the entire year.

J.P. Morgan suggests that conservative expectations regarding the Federal Reserve’s actions may curb significant capital flows into the Brazilian stock market, even as U.S. interest rates begin to decline. The firm questions the impact of the Fed’s cautious stance: “Will a more restrained approach by the Fed be sufficient to support ‘high-beta trades’ [potentially higher returns] like those in Brazil? It might, eventually, but the potential gains from such a scenario are now less compelling than they were prior to the Fed’s temperance,” according to the report.

*Por Augusto Decker — São Paulo

Source: Valor Inernational

https://valorinternational.globo.com/

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Privatization of Sabesp will be carried out in two stages

The first step is to choose potential primary shareholders

04/18/2024

Natalia Resende — Foto: Silvia Costanti/Valor

Natalia Resende — Foto: Silvia Costanti/Valor

The São Paulo state government released on Wednesday (17) information on the model for the privatization of water utility Sabesp. However, some points are yet to be defined. The plan is that the offer will occur in two stages. First, a competitive process will be carried out between groups with the potential to be the primary shareholder, holding 15% of the company and having greater control over management. At this stage, the two groups offering the highest prices will be selected. In the following stage—which will be part of the same process, but not necessarily will take place on the same day—there will be a dispute between the two groups previously selected. In this stage, other investors will choose the winner.

In this second stage, two book-building processes will be carried out with the broad market, meaning that investment intentions will be collected for each of the potential primary shareholders. In the dispute, the bookbuilding with the highest total value will be the winner. However, detailed rules for this selection are yet to be defined as there should be a combination of criteria between price and volume. If there is a potential primary shareholder who, in the market’s view, is more qualified to lead the company, this group will have an advantage in the competition.

More detailed information about the model of the offer will be disclosed in the coming weeks. It remains unclear, for example, whether the price paid by the primary shareholder will be equal to the value of shares acquired by the broader market. According to people familiar with the matter, this possibility is currently being studied, but it hinges on legal and regulatory analyses.

The Sabesp privatization model was unveiled to the press by Natalia Resende, São Paulo’s secretary of environment, infrastructure, and logistics.

The concept of having a primary shareholder was introduced by the state government to ensure that the sanitation company will have a partner with a longer-term vision and the capacity to carry out the necessary changes in the company’s management following the privatization.

This primary shareholder should comply with a lock-up period of up to five years, in which the acquired shares cannot be sold and the universalization of services must be implemented.

After that period, the primary shareholder will be allowed to sell the shares but the government included a rule to try to keep the group in the company. If this partner reduces its stake to less than 10%, the shareholders’ agreement—to be signed with the government to set the governance rules—will be terminated. The terms of the shareholders’ agreement will be finalized before the offering.

The issue of governance involving future partners is regarded as crucial for potential primary shareholders, who want to learn what type of control mechanisms they will have. Several groups are mentioned as potential primary shareholders, including Equatorial, Aegea, Cosan, Votorantim, Veolia, and IG4 Capital, among others. However, they await the definition of governance, which will be central to the decision.

On Wednesday (17), an important step was taken in the process. The São Paulo City Council approved, in the first vote, the bill for the company’s privatization. The proposal allows the maintenance of the municipal government’s contract with the company after privatization. The project had 36 votes in favor and 18 against in the first vote. The City Council will hold public hearings until the end of the month, before the second and final vote. The date for the final vote has not been scheduled.

*Por Taís Hirata, Cristiane Agostine — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Power industry mergers, acquisitions projected to yield R$30bn in 2024

Operations are mainly driven by asset recycling and portfolio reduction

04/18/2024

Leonardo Cabral — Foto: Leo Pinheiro/Valor

Leonardo Cabral — Foto: Leo Pinheiro/Valor

In the operations portfolio of the big banks, transactions linked to the electricity sector have represented a significant weight, especially in terms of financial volume. Financial institutions estimate that the sale and purchase of companies (M&A) will generate at least R$30 billion in 2024 and could reach up to R$40 billion over 18 months.

If this expectation is confirmed, the financial volume has the potential to almost double that recorded in 2023, when mergers and acquisitions in the sector reached around R$20 billion in a year that was lukewarm for transactions in Brazil.

Of the operations that are already on the table, one of great importance is Eletrobras’s thermal power plant package, a process that has already entered its second phase with three interested parties and could be worth around R$8 billion, as anticipated by Valor. Another important one is that of AES Brasil, which has decided to leave the country. One of the interested parties is Auren (controlled by the Votorantim group and CPPIB), which owns 5% of AES—the company even made a binding offer, but it didn’t please AES Corp.

Portugal’s EDP adds to the list. It is trying to sell its hydroelectric plants in Amapá and, at the beginning of the year, re-engaged Bradesco BBI in the process. In the last attempt, the Canadian fund CDPQ made an offer to buy the assets, but the group did not find what it classified as “fair” conditions for the sale.

For the head of Citi’s investment bank in Brazil, Eduardo Miras, the energy sector continues to occupy an important place in the bank’s pipeline in typical portfolio asset recycling operations. “In the electricity sector, unlike other segments, asset recycling is common, even among strategic assets.” That means that companies and financial investors, from time to time, sell assets to look for other opportunities that can bring more return.

In 2023, the bet was on a busier market for the sector, but in the end, the mergers and acquisitions scenario was less than expected in general. As a result, some transactions were postponed due to values that were lower than those anticipated by the sellers. The weaker environment also came in the wake of low electricity prices and a drop in activity across the industry, primarily due to the still high interest rate environment and the local stock exchange having been closed to IPOs for more than two years, damaging financing fronts. Even so, major billion-dollar operations came off the drawing board and marked the year, such as the sale of a 50% stake in eight Neoenergia transmission assets to GIC. Another deal was closed by EDP Brasil, which sold transmission assets for R$2.7 billion to the Actis infrastructure fund.

Given the scenario of lower inflation and interest rates for this year, M&A operations are back on the table and could boost transactions in 2025. According to market sources, there is another impetus. The recent privatization of two giants in the sector, Copel last year and Eletrobras, has put two more companies on the table that were previously practically left out of the M&A scenario but now have no more strings attached to the sale of assets or even new investments in companies. Copel, for example, is receiving proposals for the sale of Compagas, another transaction expected to be completed in 2024.

Mr. Miras, from Citi, points out that the recent fall in the price of energy has acted as an impetus for new conversations since companies are now weighing up options between new investments (greenfields) or M&A strategies, which may make more sense in such a context. The Citi executive also mentions deals involving the oil and gas industry, which are gaining momentum and should accelerate throughout the year.

The breakthrough in this segment came at the end of 2023, when the J&F Group, owned by the Joesley and Wesley Batista brothers, entered the oil and gas sector with the acquisition of Fluxus. In April this year, Azevedo & Travassos bought fields in the Potiguar Basin and returned to oil exploration. More recently, Enauta and 3R signed a merger agreement.

The same heat is felt in Santander. There, operations involving energy and utilities are numerous and account for almost half of the volume if the analysis is based on financial value, said Leonardo Cabral, Santander’s head of investment banking and capital markets in Brazil. The executive points out that operations involving foreign buyers should also gain momentum, given the interest in the sector in Brazil.

In addition, the recent past has shown the strength of the sector and a broad movement of asset recycling. Data from M&A boutique RGS Partners sent to Valor shows that between 2013 and 2023, the electricity sector drove the M&As and capital markets segment in Brazil due to the intense pressure to decarbonize the energy mix with renewable sources, notably wind and solar.

Hugo Pacheco, a partner at RGS Partners, believes that solar distributed generation operations should be the highlight of the year. Recent operations prove as much. Nova Milano, Squared, and Brookfield, for example, have entered the sector with major acquisitions and capital injections.

This is due to regulation changes, which have triggered a “gold rush” in the construction of assets to take advantage of subsidies. Recently completed developments now pass from the hands of the previous owners, who took on the construction risk, to investment funds or consolidators, who prefer to take ownership of the developments without exposing themselves to the construction risk.

“In the regulatory environment, due to the opening up of the free energy market, we are already seeing a major conversion of new consumers to this new energy contracting environment, and we are also beginning to see a movement within some trading companies, which should complete the M&A movement,” Mr. Pacheco said.

Copel, Ibitu, Sterlite, and Enel declined to comment. AES said that its parent company, AES Corp, is assessing alternatives to finance its growth and improve its capital structure. Eletrobras and Cemig did not respond to an interview request.

*Por Fernanda Guimarães, Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Central Bank president opens options for interest rates

Roberto Campos Neto argued that it is still unclear what, from the recent turmoil, will or will not become more perennial

04/18/2024

Roberto Campos Neto — Foto: Marcelo Camargo/Agência Brasil

Roberto Campos Neto — Foto: Marcelo Camargo/Agência Brasil

Brazil’s Central Bank President Roberto Campos Neto got rid of the forward guidance that indicated a 50-basis-point interest rate cut for the next meeting of the Monetary Policy Committee (COPOM) in May and left open four possibilities. At an XP Investimentos event in Washington, he said that international and fiscal uncertainties have increased too much to allow the COPOM to keep the old promise.

On the other hand, he argued that it is still unclear what, from the recent turmoil, could remain in place for enough time to affect the Central Bank’s work in lowering inflation to the target—and consequently, the trajectory of the Selic policy rate.

Three weeks before the next COPOM meeting, Mr. Campos Neto listed four theoretically possible scenarios that could lead to different outcomes for the decision to be made on the interest rate.

First hypothesis: “We could see a reduction in uncertainty, which means we would follow the usual path.” He was not explicit about what the usual path would be, but apparently it would be a reduction in interest rates by 50 basis points, as was previously signaled, to 10.25% per year from 10.75%.

Second hypothesis: “We could have a situation where uncertainty remains very high, but it does not change significantly. That would mean a reduction in pace.” That is, the Central Bank would cut 25 basis points, to 10.5% per year.

Third hypothesis: “We could have a situation where uncertainty begins to affect more strongly important variables, and we would have to change the balance of risks.” Mr. Campos Neto was not explicit about what this hypothesis would mean for interest rates, but the logic of the gradation he employed seems to indicate a maintenance of the rate.

Fourth hypothesis: “We could have a scenario where uncertainty worsens, creating global stress. In this case, we would change our global scenario,” said Mr. Campos Neto. In this case, apparently, he is referring to the possibility of raising the policy rate.

This way, the Central Bank’s chief provided a sort of roadmap for the financial market to monitor the development of the recent crisis—international and fiscal—in order to anticipate the COPOM’s reaction to each of the situations.

And why didn’t he deliver a hawkish, more direct message? For him, with the current high degree of uncertainty, it’s difficult to anticipate the situation that the COPOM will encounter in three weeks.

“You do not want to react too much to short-term data, but at the same time you do not want to ignore a structural change to the point of losing your credibility,” said Mr. Campos Neto.

To know what the COPOM will do, it’s important to pay attention to what Mr. Campos Neto said about what is a surprise and what is not in recent events. It’s also good to re-examine the Central Bank’s so-called reaction function, that is, how it uses the new information that will emerge in the next three weeks to make its decisions.

He said he kind of expected the worsening in the international environment. This helps to understand why he said last week, after the release of U.S. inflation data, that the scenario had not changed substantially.

But another factor wasn’t in the Central Bank’s calculations: the deterioration of Brazil’s fiscal situation. Still, on at least two occasions he expressed doubts that this worsening will translate into a permanent increase in the risk premium. “When you change [the fiscal target], the premium moves further,” he said. “I hope that doesn’t happen.”

Mr. Campos Neto expressed concern, in particular, about the relationship between fiscal credibility and monetary credibility. The main indicator that the Central Bank has lost credibility will be inflation expectations, especially longer-term ones.

As for the monetary policy reaction function, the main message is that there is no mechanical relationship between fiscal policy, external environment, and monetary policy. It will be necessary to see how these recent events affect the COPOM’s central scenario for inflation and the balance of risks. This is what will determine which of the four hypotheses above will be adopted by the COPOM at its next meeting.

*Por Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Congress analyzes bill to regulate streaming services

The matter was sent to the Lower House; Senate committee authorized charges on platforms to foster local film industry

04/17/2024

The Senate’s Committee on Economic Affairs approved on Tuesday (16) a bill that regulates streaming services in Brazil. The matter will now be analyzed by the Lower House.

The text determines that streaming companies are charged up to 3% for the Contribution to the Development of the National Film Industry (CONDECINE).

The new rules also extend to platforms for sharing audiovisual content and to platforms that offer television channels on online services.

The wording also makes it clear that the provisions of the law must be applied to companies that offer the services to Brazilian users, “regardless of the location of their headquarters or the infrastructure for the provision of the service.”

The text cites the “valorization of Brazilian audiovisual content,” including independent content. For this, the bill foresees minimum amounts of Brazilian audiovisual content in the streaming services, which vary according to each one’s catalog. Compliance with the new legislation, if approved, can be gradual and completed in up to eight years.

By the final wording, streaming platforms with up to 2,000 shows must reserve 200 for Brazilian audiovisual content; those with 3,000 shows must reserve 150; those with 5,000 must reserve 250; and those with 7,000 must reserve 300.

If the analysis is completed, the economic agents providing the video-on-demand service, audiovisual content-sharing platforms, and internet application television providers must apply for accreditation before regulator ANCINE within 180 days after the start of offering the service to the Brazilian market.

*Por Julia Lindner — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Embraer’s Eve Air to start delivering flying cars in 2026

EVE-100 has a backlog of 2,800 orders totaling $8.6bn; company awaits ANAC certification

04/17/2024

Daniel Moczydlower — Foto: Divulgação/Embraer

Daniel Moczydlower — Foto: Divulgação/Embraer

The first full-scale model of the EVE-100 electric aircraft, developed by Embraer’s Eve Air Mobility, is expected to be ready by the end of 2024. The pilot project will be used to carry out the first flight tests of the electric vertical take-off and landing vehicle (eVTOL), which is under the regulatory stage at the National Civil Aviation Agency of Brazil (ANAC).

EVE-100

The schedule was unveiled to Valor by Embraer X CEO Daniel Moczydlower on Tuesday (16) at the WebSummit event in Rio de Janeiro. Commercial operation of the eVTOL should start in 2026, the year when the company expects the certification process by ANAC to be completed.

The testing and development stage aims to provide the agency with reports and data. There is no specific regulation yet for eVTOLs, as the model is new to international aviation.

According to Mr. Moczydlower, flight tests with the pilot model of the vehicle would start by the end of this year at the Embraer factory located in the municipality of Gavião Peixoto, São Paulo.

“One of Eve’s biggest competitive advantages is that it will use the entire Embraer infrastructure. That makes us faster, with a lower development cost,” he highlighted.

The electric aircraft project was originally incubated by Embraer X and is currently being led by Eve Air Mobility, a company listed on the New York Stock Exchange with Embraer as its main shareholder.

EVE-100 has a backlog of 2,800 orders, totaling $8.6 billion. Among its customers are helicopter operators, airlines, leasing companies, and shared flight platforms from all continents in the world.

Eve Air Mobility reported that, of the total, 335 vehicles were ordered in Brazil—100 by Avantto, 50 by Helisul, 50 by OHI (Revo), 40 by FlyBIS, 25 by Flapper, and 70 by Voar. “The first lot of orders should be delivered as soon as ANAC certifies the vehicles,” said Mr. Moczydlower.

“We expect to produce few units in the first years and accelerate the pace in 2027 and 2028,” the CEO added. The first factory will be set up in Taubaté, São Paulo. The business model does not include direct sale of the aircraft to individuals. Commercial use is expected to be similar to air taxi companies, with flights of 10 to 15 minutes.

The potential of the urban air mobility market in the world is estimated at two billion passengers per year from 2030 to 2035, according to Embraer X. The company plans to democratize air transport with short-haul urban trips at affordable prices.

“We are estimating that flights could come to a price range that would not be much higher than what you would spend in a taxi stuck in traffic for two hours,” said Mr. Moczydlower.

Shared trips, the use of electric batteries, and the cost of maintenance are regarded as some advantages of Embraer’s eVTOLs. The vehicle will be fully electric and capable of transporting four passengers plus the pilot for up to 100 kilometers.

*Por Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil is losing AI investments to Paraguay, Nvidia says

Lower import taxes and proximity to Itaipu attract investors to Paraguay, executive says

04/17/2024

Marcio Aguiar — Foto: Leo Pinheiro/Valor

Marcio Aguiar — Foto: Leo Pinheiro/Valor

Brazil is losing investment from European groups to its neighbor Paraguay in the expansion of data centers to support the advance of artificial intelligence (AI) using renewable sources.

The alert was made by Marcio Aguiar, Nvidia’s executive director of corporate sales in Latin America, in an interview with Valor, during the Web Summit Rio 2024, an innovation event taking place until Thursday (18) in Rio de Janeiro.

The U.S. manufacturer of graphics processing units (GPU) is a leading provider of computing capacity to supply the processing demand generated by AI. It held 83% of the data processing chip market in 2023.

“We have received requests from European companies that invest in data centers in Paraguay, a country with lower import taxes and which is close to [hydropower plant] Itaipu,” said Mr. Aguiar. Data centers are electric-intensive facilities. This situation has intensified over the last six months. “Brazil could take advantage of this current trend by reviewing some taxes to encourage companies to come here. That would be the big step,” he added.

Nvidia is also advancing in offering computing capacity to research institutions in the country and plans to deliver a second supercomputer to a Brazilian research institute in the coming months. Since 2015, the company’s Santos Dumont supercomputer has served the National Scientific Computing Laboratory (LNCC), in Petrópolis, Rio de Janeiro.

Nvidia also wants to set up a data center for Brazilian research institutions. “Why not centralize processing and deliver it to universities across the country remotely? It would be much more effective and less costly for the country,” the executive suggests. “There are several government bodies interested.”

In the corporate market, competition from microprocessor manufacturers and the entry of technology giants—Nvidia clients—such as Google and Microsoft in the AI chip segment do not seem to worry Nvidia.

“We are not fighting for market share but to open new markets,” said Mr. Aguiar in the opening panel of the Web Summit Rio, on Tuesday (16).

In addition to selling its chips to large cloud providers such as Google, Microsoft, and Amazon, and to local data centers focused on GPU servers, Nvidia is betting on demand from the biopharmaceutical, robotics, and digital twin industries. The latter, which is based on virtual representations of infrastructures that operate as in the real world, using AI, “is a game changer,” Mr. Aguiar points out.

Nvidia manufactures its chips exclusively through Taiwan’s TSMC, which is joining rivals such as Intel, AMD, and Samsung in announcing major chip manufacturing projects in the United States. Investments exceed $200 billion, using funds from the Biden administration amounting to $53 billion.

The launch of AI chips by Nvidia clients such as Google and Microsoft is seen as a natural move by the executive. “To date, we are the only company developing hardware and software platforms compatible with all cloud providers,” Mr. Aguiar claims. “No company wants to be so dependent on others. That shows the value of this market and how much we have been focused on the sector. For others, this is a new business for their use.”

Investors follow suit with this movement. A week ago (April 9), Intel released the new version of the AI chip, Gaudi 3, hoping to advance Nvidia’s dominance. As the news circulated, Intel shares on the Nasdaq began to rise, while Nvidia shares plummeted. But that has changed. Nvidia closed up 1.64% and Intel fell 0.14% on Tuesday (16) session. In the last 12 months, Nvidia shares gained 226.80%.

The reporter’s travel costs were covered by the Web Summit.

*Por Daniela Braun — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Haddad blames external factors for weakened real

Exchange rate reached highest level in more than a year after federal government presented new fiscal targets

04/17/2024

Fernando Haddad — Foto: Diogo Zacarias/MF

Fernando Haddad — Foto: Diogo Zacarias/MF

Finance Minister Fernando Haddad said on Tuesday in Washington that news from abroad explain “two-thirds” of what is happening domestically.

The rise in the exchange rate in the last two days coincides with the government’s new fiscal target, which now forecasts a zero result in 2025, compared to the previous prediction of a surplus of 0.5% of GDP. On a bad day for emerging currencies in the world, the exchange rate rose 1.64% on Tuesday, to R$5.2697 per dollar, the highest closing level since March 23, 2023, with an intraday high of R$5.2873.

According to Mr. Haddad, among the factors that affect the exchange rate are data that indicate heated economic activity in the United States, U.S. inflation data “that has not yet been fully digested,” and the escalation of the conflict in the Middle East after Iran attacked Israel, with an impact on the price of a barrel of oil.

For the minister, the rise of the exchange rate in Brazil is also due, in part, to turbulence caused by the disclosure of the new fiscal target. “It is necessary to better explain over time what will happen to Brazilian government accounts.”

The minister said that the new goal is realistic and embodies learning from the government in recent months. He also argued that the goal aligns with the long-term aim of stabilizing public debt.

Analysts said, however, that as long as the primary surplus does not come close to 1% of GDP, gross debt will continue to rise. The government had previously envisioned achieving an economy of 1% of GDP in 2026, but now sees this only happening in 2028 — therefore, in a new presidential term. For 2026, now the forecast is for a surplus of 0.25% of GDP.

Mr. Haddad said that Brazil is experiencing a week of turbulence and that, after this tense moment, “things will settle down.” However, he took the opportunity to say that it may be a good time to “rethink strategies.”

“The external scenario isn’t helping. As for the domestic scenario, we are correcting it by dialoguing with the federal government and the National Congress. Since the issue is more delicate, let’s now take a moment to rethink the strategy and redefine the role of each one to restabilize expectations.”

Mr. Haddad gave examples of programs such as the Emergency Program for the Rebound of the Events Sector (PERSE), whose rapporteur, Congresswoman Renata Abreu, defends tax waivers of R$5 billion per year. He is in Washington for the biannual meeting of the IMF and the World Bank.

“We understand that Congress has its goals, but we have to bring this program close to normal, close to reasonableness. It is very unrestrained, open to fraud—there has been fraud and the Federal Revenue Service is combating it.”

Mr. Haddad said the country cannot get off the “growth track.” “What is happening today is a message to the federal government, it is a message to the National Congress, it is a message to the justice system, it is a message to the Finance Ministry, it is a message to Planning Ministry, it is a message to the Central Bank. Let’s understand and reposition. We have no reason from the point of view of the fundamentals of the Brazilian economy to get off the correct track of making this country grow again with low inflation and job generation,” he said.

After the new IMF projections for the Brazilian economy, he said he expected the organization to review “for the better” the country’s GDP growth estimates. “We will also follow what happens in the global economy because we depend on it too.”

The IMF said on Tuesday that it expects the Brazilian economy to grow by 2.2% this year and 2.1% in 2025. The forecast for Brazilian GDP this year is 0.5 percentage points higher than that released by the Fund in January. The forecast for next year was raised by 0.2 percentage points.

The IMF’s projections are higher than those of the Focus survey, collected weekly by the Central Bank, forecasting a GDP increase of 1.95% this year and 2% in 2025.

“We continue to project 2.2% [of GDP growth in 2024], although activity indicators are heated. We are receiving good news from the end, both from the point of view of collection and from the point of view of production and sale. Credit is particularly increasing in Brazil. However, we will be parsimonious, we will continue to maintain our expectation of 2.2%, but with a small upward bias,” he said.

Mr. Haddad also said he believes that, despite the turmoil, there is room for interest rate cuts.

According to him, the fundamentals of the Brazilian economy “are better than a year ago.” For him, the adjustments made by the government ensured an improvement both from the point of view of revenue and the point of view of expenditure. However, he expressed concern about Social Security finances after recent bills passed by Congress, adding that the government is likely to appeal in the courts.

“We’re not going to have the primary spending that we had last year. We’re not going to have the primary revenue that we had last year. The revenue will be much better, the expense will be much lower. Where do the tax receipts come from? From the measures that Congress passed,” he said.

Asked about the exhaustion of the measures, he answered that the extension of the tax relief, especially in the municipalities, was not on anyone’s radar.

“The payroll relief is something that bumps into the Social Security reform, which everyone defended, from this point of view, all the time. All political parties argued that Social Security could not lose revenue. Then comes an amendment, in a bill. The president vetoes, overturning the veto, and we reopen the discussion,” he said.

*Por Alexandra Bicca — Washington

Source: Valor International

https://valorinternational.globo.com/
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DNV analyzes offshore wind potential in Brazil

Norwegian company says projects submitted to environmental agency total 190 GW

04/16/2024

Celebrating its 50th year in Brazil, Norwegian consultancy DNV views the country as a strategic market in the medium and long term. While its main focus remains on oil and gas, the company recognizes the potential of future offshore wind energy generation, still pending regulation.

Alex Imperial — Foto: Divulgação

Alex Imperial — Foto: Divulgação

Celebrating its 50th year in Brazil, Norwegian consultancy DNV views the country as a strategic market in the medium and long term. While its main focus remains on oil and gas, the company recognizes the potential of future offshore wind energy generation, still pending regulation.

At the request of the World Bank, the company began an analysis last year of the scenarios of the offshore wind energy industry in Brazil. The initiative is part of the World Bank Group’s Offshore Wind Development Program, with support from the Energy Sector Management Assistance Program (ESMAP) and the International Finance Corporation (IFC).

DNV operates in risk management and project certification. It assists companies in meeting international safety standards, conducts risk assessments, and evaluates investment costs.

At least 96 offshore wind exploration projects have been submitted to Brazil’s environmental protection agency (IBAMA). DNV estimates that these projects total around 190 gigawatts, of which 50 gigawatts have been commercially evaluated by the Norwegian company.

The consultancy did not disclose which companies it was hired by. “Our work begins in an early phase, before these projects start operating, with analysis of the technical aspect and economic viability,” said Alex Imperial, vice president and regional manager of the DNV group in the Americas.

The consultancy said that the oil demand will decline after reaching a peak, but will not reach zero in 30 years. Therefore, the decarbonization of processes associated with oil and gas production is expected to become a window of opportunity. However, balancing global consumption and directing investments toward renewable sources is expected to be the industry’s biggest challenge in the coming years.

Brazil is well-positioned in the energy transition. “We see opportunities with onshore wind and solar energy, where we already have a strong position,” said the group’s global CEO, Remi Eriksen. “There is also great potential in offshore wind exploration due to the experience in oil and gas, which would generate more nautical activities to support it,” he added.

The full development of offshore wind activity in Brazil depends on regulatory frameworks. Bill 11247/2018 was passed by the Chamber of Deputies (Lower House) in November last year but still needs to be analyzed by the Senate. “We are working in workshops with the Ministry of Mines and Energy to assist in regulation. It is a role we have already played in other countries,” said Mr. Eriksen.

Petrobras, Yara, Modec, SBM, and Grupo OBC are among DNV’s main clients in Brazil, which ranks among the company’s top 15 markets. The operation in the country stands out for having one of the highest growth rates among the others, as highlighted by the group’s global CEO.

Mr. Eriksen spoke with Valor on Wednesday, during his visit to Rio for the company’s 50th anniversary celebrations in Brazil. In the Brazilian market, DNV has 300 employees and nine offices in six states: Rio de Janeiro, São Paulo, Minas Gerais, Rio Grande do Sul, Ceará, and Bahia.

According to the executive, revenues from the Brazilian operation grew by 65% between 2019 and 2023, while global growth was 50% in the same period. “During this time, we had COVID-19, which makes these 65% even more significant,” said Mr. Eriksen. “There is potential for growth in several sectors in Brazil,” he said.

With 160 years of history, DNV is present in 100 countries. Revenue ranking is led by the United States, Norway, Germany, the Netherlands, the United Kingdom, and China. In Brazil, the company operates in various sectors—such as food and beverage industries and healthcare companies—but the naval and energy sectors remain its main activities in the country.

“Norway discovered gas in the 1960s, and we started in Brazil in 1974. That is why oil, gas, and maritime transportation have been the main drivers of our growth here,” said the CEO. “Today, this is a very mature and well-regulated industry. These are the markets where we like to operate,” added Mr. Imperial.

*Por Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Monetary policy costs rise without fiscal anchor, central banker says

Roberto Campos Neto said monetary authority’s work becomes more challenging if fiscal policy lacks credibility

16/04/2024

Roberto Campos Neto — Foto: Rovena Rosa/Agência Brasil

Roberto Campos Neto — Foto: Rovena Rosa/Agência Brasil

The work of the Central Bank becomes more difficult if there is a perception that there is no fiscal anchor, said Roberto Campos Neto, the president of the Brazilian Central Bank, during an event in New York on Monday. Asked how changes in fiscal rules affect the work of monetary policy, he explained that central banks have to refrain from making comments on fiscal policies.

However, he emphasized that “fiscal and monetary anchors go hand in hand, and whenever there is a change that makes the fiscal trajectory less transparent or less credible, it means having to bear higher costs on the other side. Therefore, the cost of conducting monetary policy increases.”

The president of the Central Bank noted, however, that the market “had a much worse outlook for the fiscal situation than the target actually adopted by the government.” Mr. Campos Neto added, “I have been saying for a long time that the ideal is not to change the goals and do as much as possible to achieve these goals.” But “if, for some reason, we have to change it, it’s very important to communicate well, because if people lose confidence in the fiscal anchor, the monetary anchor will be affected.”

The fact that the United States is postponing the start of the monetary easing cycle, with expectations consolidating around a higher rate at the end of the cycle, may begin to draw attention to the debts of the main developed countries, the central banker said.

“When we look at what happened in the U.S., people thought for a while that rate cuts would start in March. And when that doesn’t happen, the window basically moves in time as a result, and now that the [inflation and activity] data is disappointing [coming in stronger than expected], the terminal rate changes as a result.”

In his view, “there was a re-pricing of rates [by the market], but what we should observe and which will probably become the next big issue is that we are about to start a debate on global debt.”

According to the president of the Brazilian Central Bank, “the fact that the U.S. is now postponing the cycle, but also has a higher terminal rate, will make people talk about the debt.” Mr. Campos Neto cited that the largest blocs of developed economies—Japan, Europe, and the U.S. — have a sovereign debt representing a large proportion of the total global debt.

“If you look at the fact that they paid close to 1% [before inflation returned] on the debt rollover, and if that goes to 3%, it means a threefold higher cost on the largest debt on the planet. So I think the next topic we’re going to talk about is not the inflation window. Last year, when no one was talking about it, we mentioned that we didn’t see disinflation processes as smooth as some people were saying. Now agents are pricing to some extent that the cycle is going to be delayed a bit. The next big question will be about what happens to total debt.”

According to Mr. Campos Neto, “the fiscal policy is becoming less and less coordinated with the monetary [in most of the world].” For him, when we entered the pandemic, it was very easy to coordinate the responses. “You increase spending and reduce [interest] rates,” he said about stimulus programs

“But the end of that is being very difficult to coordinate. And there’s nothing more permanent than a temporary spending program. That was a phrase I borrowed from Milton Friedman. But you see it in many different places, and I think it will become a problem.”

*Por Sérgio Tauhata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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