Invest in what? What to invest in? – 12/24/2023 – Market

With lower interest rates, inflation under control and a falling dollar, investments should benefit in 2024. According to analysts, the year to come will be a win-win: both fixed income and variable income should offer good returns to investors .

According to experts, the next few months should continue the movement seen at the end of the year, with the prospect of interest rate cuts and the recovery of risky assets, as the cycle of monetary tightening, that is, of rising interest rates for controlling the inflation that was born with the pandemic seems to have come to an end.

Now, the debate revolves around how basic interest rates will fall around the world.

For Brazil, the Central Bank’s Focus survey shows that the Selic should end next year at 9.25% per year. It is currently at 11.75%, and, according to Roberto Campos Neto, president of the Central Bank, it should fall to 10.75% in March.

The reduction in Selic reduces the profitability of fixed income. But, as inflation is also on a downward trend, real interest rates (above rising prices) remain high, experts say.

The IPCA predicted by Focus is 3.93% in 2024. Considering the Selic rate of 9.25%, this is equivalent to a real interest rate of 5.32% for next year.

“Fixed income continues to have attractive rates, and investors should always have fixed income in their portfolio. But now, if they have a more aggressive profile, they should also have variable income”, says Marina Renost, analyst at Blackbird.

In fixed income, she currently prefers fixed-rate bonds that mature between two and four years, and those linked to the IPCA with longer maturities.

“There are also good opportunities in private credit, but it is necessary to analyze whether it is a healthy and consolidated company”, says Marina.

Generally, the more risk, the greater the return. This is why private securities, such as debentures, CRAs and LCIs, pay more than public ones, as companies are more likely to go bankrupt than the country.

According to Rachel de Sá, an analyst at Rico, the reductions planned for the Selic rate should have little impact on Brazilians’ portfolios. “For the individual, it makes little difference, what they have to understand is that the rate will still remain high. It will not drop to 2% again. It is not the end of fixed income.”

To increase profitability, she recommends dividing investments into pre-fixed, post-fixed and hybrid fixed-income securities — which combine pre-fixed interest with the annual variation of the IPCA — with greater weight for the last two.

For a good combination of assets, Rachel recommends actively managed fixed income funds, which bring together not only different types of products, but also bonds with different maturity dates.

Large managers also invest in fixed income. At Itaú, it makes up the majority of recommended portfolios, with greater weight in floating rates.

It reaches 100% in the case of the most conservative profile and 46% in the case of the most daring, for whom the bank also recommends 35% in multimarket (funds that combine fixed income and variable income) and 19% in variable income.

BlackRock, the world’s largest manager with US$9 trillion under its umbrella, invests more in Brazilian fixed income than in variable income, given the high real interest rate.

“But I think the environment for emerging markets, both fixed income and equities, will become more attractive in 2024 if we see a shift from monetary tightening to monetary easing,” says Russ Koesterich, director of global allocation at BlackRock.

The financial market expects interest cuts in the US and Europe in the first half of 2024. Lower interest rates in developed countries benefit emerging countries, as they lead investors to diversify their portfolio in search of higher interest rates.

As the Brazilian interest rate is higher than the American one, it is possible to earn money by borrowing it in the USA and investing it here. This investment strategy is called carry trade, and tends to become more advantageous as American rates fall.

Furthermore, our variable income assets have greater appreciation potential, experts say.

According to Nicholas McCarthy, investment director at Itaú, the Ibovespa, B3’s main index, is around 20% below its historical average.

“In other words, the Stock Exchange could rise 20% and it will simply return to the Brazilian historical average. There is plenty of room for the Stock Exchange to move forward, and, with interest rates falling, this scenario could materialize”, says the expert.

According to a survey by the broker Rico, historically the sectors of the Stock Exchange that benefited most from cycles of falling interest rates and have not yet recovered in the current cycle are: agribusiness, food and beverages, capital goods, electrical, financial institutions, sanitation and transport .

In these sectors, the broker recommends investing in Itaú, Banco do Brasil, BB Seguridade, Alupar, Isa Cteep and Assaí. Another well-evaluated stock outside this scope is Petrobras.

Koesterich, from BlackRock, prefers US stocks, especially those linked to artificial intelligence, onshoring (search for suppliers from the same country) and the healthcare sector.

“American companies are more resilient. The market there is not cheap, but, if you look beyond the ‘Magnificent Seven’, it doesn’t seem that expensive. Energy stocks are very cheap”, says the strategist.

Magnificent Seven, in reference to the film of the same name, deals with the seven giants that will drive the stock market in 2023: Alphabet (owner of Google), Amazon, Apple, Meta (former Facebook), Microsoft, Nvidia and Tesla. Together, they correspond to 29% of the world’s main stock index, the S&P 500, which accumulated an increase of 22% this year, until last Friday (22).

“As these seven had a strong year, the good opportunities are in other sectors and companies”, says Daniel Martins, president of GeoCapital, a manager focused on foreign shares.

He recommends biotechnology and clean energy companies, as well as Disney, Estée Lauder, Moderna, Novo Nordisk —which produces Ozempic—, Palo Alto Networks, Crowdstrike —both cybersecurity— and Albemarle, lithium mining and processing.

“We also like travel companies, such as Booking and Visa, which have a good margin of profit from traveling abroad”, says Martins.

All of these companies are present on the Brazilian Stock Exchange in the form of BDRs (receipts for assets listed abroad). But, in addition to the variation in foreign shares, they also reflect the fluctuation of the dollar, as they are quoted in reais here.

Marina, from Blackbird, issues a warning. “If you are conservative, it doesn’t matter if it’s the best time for the stock market, it’s best not to buy. Put a fixed rate bond and an IPCA+ bond in your portfolio, which already increases your risk.”

In addition to having a portfolio suited to your risk profile, you need to ensure you have an emergency fund before investing. It must be equivalent to at least six months of expenses and be invested in CDBs from large banks with daily liquidity or in the Treasury Selic.

“After making the reservation, you need to know what you are investing in and not expect miracles,” says Rachel de Sá, from Rico.