Ibovespa fell 0.25%, at 102,675 points, the lowest level since August 1
José Tovar — Foto: Divulgação
Fears of banks failing around the world weighed again on local assets during Wednesday’s trading session. The cautious movement and the demand for protection by global investors caused the benchmark stock index Ibovespa to fall to its lowest levels since August, while the exchange rate reached R$5.3 to the dollar, its highest level since the beginning of the year. The prospect of a global recession also contributed to another day of significant declines in future interest rates.
The dynamics of the local market can therefore be seen as a synthesis of the behavior of foreign investors in relation to Brazilian assets throughout the month of March. While non-residents have increased their bets on future interest rate declines in recent days, pessimism about the stock market and the real has also increased.
Wednesday, the Ibovespa fell 0.25%, to 102,675 points, the lowest level since August 1, 2022, while the foreign exchange rate closed up 0.7%, at R$5.2932 to the dollar, the highest level since January 5.
The latest data released by B3 shows that foreigners had withdrawn R$968.8 million from the Brazilian stock market in March until Monday 13. The figure adds to the R$1.68 billion withdrawn in February.
Figures from B3 point out that, since the turn of the month, foreign investors increased by $1.665 billion the long position (betting on the rise of the foreign exchange rate), in a very strong movement seen in the last three trading sessions.
“It created [Wednesday] gain jitters in the market, with the potential impact of a possible bankruptcy of a large bank, like Credit Suisse. What we hope is that the Swiss central bank will help prevent this from happening, because this is very bad for the global GDP, and for Switzerland’s GDP,” said José Tovar, CEO of Truxt Investimentos.
For the executive, the moment of uncertainty ends up triggering a demand for protective assets, such as U.S. Treasury bonds. “There is already an expectation that next week the Fed will not raise interest rates by 0.50 or 0.25 points; it may keep the rate stable. It is a very abrupt change that shakes the markets, disturbs the stock markets and causes interest rates to fall quickly,” he said.
Participants also point out that the signals sent by the markets on Wednesday suggest that some global investors are preparing for a recession. “The sharp drop in oil signals that investors are pricing in a recession,” said Victor Candido, the chief economist at RPS Capital.
According to him, the decline in Treasuries yields in recent days has also contributed to the fall in short-term interest rates in the local market. On Wednesday, the rate of the interbank deposit (DI) contract for January 2024 fell to 12.945% from 13.075% while the DI for January 2025 fell to 12.06% from 12.245%.
In this sense, the context of global risk aversion may continue to weigh on local assets, according to the economist of RPS Capital. “The marginal buyer of the stock market in recent months was the foreign investor. If the scenario worsens, this buyer will become a marginal seller. Technically, local funds remain poorly allocated,” Mr. Candido said.
He also points out that the exchange rate has suffered, in line with its emerging market peers. “However, if there is an external environment that allows for an interest rate cut, we will likely see the exchange rate suffering with falling interest rates. Brazil’s idiosyncratic risk is not going to disappear and is likely to increase as the government will want to stimulate the economy with an already reduced fiscal space,” the economist said.
*Por Gabriel Roca, Augusto Decker, Victor Rezende — São Paulo
Source: Valor International