See investment recommendations with Selic cut – 05/28/2023 – Market

The expectation of a fall in the basic interest rate (Selic) forecast for the second half of the year, which seems to consolidate with the approval of the fiscal framework in the Chamber and the retreat of inflation, should open up some opportunities in the market for investors.

Shares of smaller companies more closely related to the domestic economy, fixed-income fixed-income securities and the Brazilian currency are pointed out by specialists as candidates with high potential to stand out in a scenario of interest rate reductions.

Variable income manager at FAR (Fator Administração de Recursos), Isabel Lemos says that the drop in interest rates reflects the reduction of uncertainties related to inflation, but also about the credit market and in relation to the conduct of economic policy in the country, as well as relating to the global banking sector and interest rate hike policies in developed economies.

According to the expert, in this less uncertain scenario and with lower interest rates ahead, shares of consumer, real estate and capital goods companies, which are more sensitive to Selic fluctuations and which have performed below the market average over the last few years months, tend to stand out positively.

“These are sectors that should start showing an improvement in results”, says Isabel. “With uncertainties diminishing, we begin to see a light at the end of the tunnel.” The retailer Renner and the manufacturer of parts for the automotive sector Randon are names that the manager sees with good eyes.

She adds that stocks known in the market as “small caps”, with a market value lower than the largest companies on the Exchange, should also present an outstanding performance in the wake of the Selic reduction.

The “small caps” are shares of companies more related to the domestic economy, and tend to move more than their peers when interest rates are downwards, says Fernando Siqueira, head of research at Guide Investimentos.

“The ‘small caps’ tend to be shares of smaller consumer companies and the real estate sector, which feel more interest rate variations compared to names like Vale and Petrobras”, says Siqueira.

According to the specialist’s calculations, in years in which the BC (Central Bank) promoted cuts in the Selic, the “small caps” had an average appreciation of 44%, compared to gains of 34% on the Ibovespa.

In May, until the 26th, the Exchange’s “small caps” index rises 14%, while the Ibovespa is up 6%. Even with interest rates still unchanged, just the prospect that they should start to fall has already had an impact on the segment’s papers, says Siqueira.

The Panvel pharmacy chain, the Direcional real estate company, Oncoclínas, a healthcare company, and the EcoRodovias concessionaire are among the “small caps” in Guide’s recommended portfolio for the month of May.

Werner Roger, founding partner and investment director at Trígono Capital, a manager focused on “small caps”, mentions Kepler Weber and Mahle Metal Leve among the main positions in the funds’ portfolios.

He explains that the former is one of the main agricultural production storage companies in the country and will benefit from the record harvest forecast for this year, while Metal Leve operates in the manufacture of vehicle components and tends to surf the price reduction policy. and consequent increase in car sales promoted by the government.

“The ‘small caps’ are recovering quickly, and whoever is out of the market will lose the rally”, says the Trígono manager.

Medium-term prefixes to guarantee returns above the Selic

In fixed income, Siqueira, from Guide, says that, with the prospect of a fall in the Selic rate, prefixed loans become an attractive option to compose the portfolio.

By investing in fixed-rate securities today, investors are guaranteed high returns in the double digits for the next few years, depending on the maturity of the security, while post-fixed securities, which have been among the favorites of specialists in recent months, will reduce the return according to the trajectory of the Selic, explains Siqueira.

“When the BC starts to cut interest rates, we should have a migration from floating rates to fixed rates. It is a natural dynamic that the market does”, says Rodrigo Jolig, co-CEO and director of investments at the manager Alphatree Capital.

Fund manager at Empiricus Investimentos, Rodrigo Knudsen says that investors should turn their attention to fixed-rate medium-term bonds, maturing around 2026. At the Treasury, the papers paid a nominal interest of 10.98% on Friday ( 26).

These are papers that still offer an attractive two-digit return and that are at a level above what should be the prevailing interest rate at the maturity of the bond, says Knudsen.

In addition, they are not as risky as longer-term bonds, which mature after 2030 and are more subject to market volatility depending on the conduct of the government’s economic policy, says the Empiricus manager.

Marcos Papaterra, partner and commercial director at Tag Investimentos, says that, even with the fall in the Selic rate, the market’s expectation is that interest rates will remain at high levels for a long time yet —in the Focus bulletin, the median of estimates for Economists consulted by the BC point to a rate of 12.50% at the end of this year and 10% in December 2024.

For this reason, continues Papaterra, investing in post-fixed private credit bonds that pay the CDI plus a fixed rate between 1.5% and 2% continues to be a good option for clients’ portfolios. “We continue to bet on fixed income as one of the great investment horses.”

The Tag partner adds that the episode at Americanas at the beginning of the year, and more recently at Light, demonstrate the importance of carrying out a very detailed analysis of the bond issuers and the financial health of the companies.

Real should benefit from foreign flow to the Stock Exchange with interest rate cuts

Jolig, from Alphatree, also says that the recent strengthening of the Brazilian currency against the dollar, which has been testing levels below R$ 5, is a trend that he believes should continue with the fall of the Selic.

Interest at the current level contributes to the entry of foreign investors attracted by the above-average return compared to most other countries, says the manager’s co-CEO.

And, even with the fall in the Selic rate, the specialist expects the flow of international capital to remain strong, with global investors coming in to take advantage of the probable recovery of the Stock Exchange.

Analysts at Itaú BBA also hope that the cut in interest rates will contribute to the entry of foreigners.

“International investors are more optimistic than we anticipated, due to the view that prices in the Brazilian market seem attractive in relation to other emerging markets and due to the expectation that stocks tend to perform well when there is greater visibility about the price cuts. interest”, say the bank’s analysts in a report released on the 25th.

Manager at Neo Investimentos, Mario Schalch adds that, more than the strengthening of the real, the dollar should go through a period of weakening in the coming months.

After having benefited as a store of value in comparison with the main peers, whether due to the war in Ukraine that hurt the euro, or the shutdown of the Chinese economy that drove away interest in the Asian currency, the dollar should now experience a new rebalancing, with the resumption of demand for alternatives to the US currency, says Schalch.

Neo’s manager also points out that, in a historical analysis, the real remains cheap against the dollar even with the recent appreciation.

However, he says betting on the real should be seen more as a short-term tactical strategy at this point. This is because the economic policy adopted by the government may still bring volatility to the prices of domestic assets, without it being possible to rule out spikes in the dollar’s rise. “Any type of bet on the improvement of the real needs to take into account that we may experience specific moments of deterioration in the price of the asset.”