At Faria Lima, champagne is already chilling for the celebration of 130 thousand Ibovespa points. The question is whether the ice melts before or after the stock market.
The rally (that’s what they call these rises all at once) came strong for the investment crowd to dream of a plentiful Christmas. It was an increase of 11% in 17 days — the equivalent of inflation accumulated in 12 months.
Now, predictions are pouring in that it will rise, fall or remain at the new level. But there is no big news other than what we have already covered here before: calming inflation, interest cuts in Brazil and insecurity in the United States. Our risk assets become more appetizing for those who like them.
If you, like the vast majority of investors, are not a great trader, who buys and sells shares all the time according to the price of the day, it is more important to understand that the true profitability of investing in the Brazilian Stock Exchange comes from dividends. But not the idea of ”receiving a salary every month” and spending it around.
An exclusive study presented to me by Nubank experts shows that, from January 2010 to June 2023, Ibovespa delivered a return of 48%. But this is because it reinvests the dividends in the portfolio itself. Without reinvesting dividends, do you know how much is left? Less than zero. More specifically, 14% negative. Pure and simple devaluation of your portfolio.
And this is something in our market. The same cut, on the same dates, with the S&P 500, equivalent to the Ibovespa of the United States Stock Exchanges, shows that the reinvestment of dividends there is responsible for only 30% of the total appreciation of the index (which was 289% in the period ).
A favorite among Brazilians, dividends are viewed favorably by those looking to “live on income” or a “second salary”. But they are often a demonstration that companies no longer see growth potential and prefer to share the money to keep shareholders happy rather than expand and increase their value.
Unlocking the growth potential of local companies is one of the government’s biggest challenges. With China’s economy slowing, we are expected to increasingly target products from (or previously intended for) the Asian giant, such as steel.
In a conversation we had last week (available on Market Monitor’s YouTube), the coordinator of the Tax Reform working group in the Chamber of Deputies, Reginaldo Lopes (PT-MG), assured that the new rule will unlock the growth of the industry local.
When asked whether the industry would benefit most from the new law, he replied that, in fact, it is the most harmed by the current system and that the reform would only equalize this. He tried to deflect, but it was clear that the industry would win the day, with the hope that this would open doors for economic growth.
If the plan succeeds, the investor in Brazil in 2033 may have to say goodbye to some dividends that drip into his account from his stock portfolio. But that would be good news: that the economy is effectively advanced and stocks are gaining real value.
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