Understand in 5 points why the stock market had the biggest fall sequence in history

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Challenging foreign scenario and lack of fiscal security in Brazil explain investors’ dismay with the Brazilian stock market. Ibovespa Pexels The Ibovespa, the main index of the Brazilian Stock Exchange, the B3, closed the trading session this Friday (18th) on a high, ending the biggest sequence of falls in its history. The index rose 0.37% to 115,409 points. There were 13 consecutive trading sessions down until last Thursday (17). In this period, the index accumulated a devaluation of 5.71%. The last negative record took place in 1970, when the Ibovespa fell for 12 consecutive sessions. At that moment, the world was going through a difficult time, in which the growth model adopted after the post-war period began to decline, generating crises in several countries. Now, in 2023, there is a sad similarity: once again, the world faces a challenging economic scenario, which helps to explain the reason for the sequence of casualties experienced by the Brazilian stock exchange. Specialists interviewed by g1 explained the main reasons for this series of devaluations. This is the list of pointed topics, which will be deepened ahead: The prospects of high interest rates in the United States for a longer period; The period of economic slowdown that China is going through; The lack of definition of the fiscal future in Brazil; A worse-than-expected corporate earnings season; Market dissatisfaction with Petrobras’ pricing policy. Learn more about each of these points below. High interest rates in the United States The most important point to understand this devaluation of the Ibovespa is the perspective that American interest rates — currently between 5.25% and 5.50% per year — should remain high for longer, including may have new highs. At its last meeting, the Federal Reserve (Fed, the US central bank) raised rates by 0.25 percentage points. According to Ariane Benedito, economist and IR at Esh Capital, after the meeting, the market’s expectation was with the release of the minutes, which bring all the details of what was discussed by the institution. These minutes, released last Wednesday (16), brought more signs that the Fed remains concerned about inflation in the United States and, therefore, may carry out new interest rate increases. The information caused the yields of US government bonds to skyrocket (since they are monetized precisely by the country’s interest rates), causing investors to migrate their money there. “The United States economy is the strongest and is showing good profitability, so investors withdraw money from emerging countries to take advantage of a better risk premium in developed economies, and Brazil is very dependent on foreign flows”, says Ariane. Investment analyst Vitor Miziara points out that the various falls observed in Brazil also occurred in other countries, including the United States, which saw its stock market plummet in recent weeks with expectations of higher interest rates. Weaker China Still abroad, another factor weighing on the Brazilian stock market is the perception that China is going through a period of economic slowdown. Daniel Moura, specialist in capital markets, explains that the Asian country, which is the second largest economy in the world, is not managing to resume its economic growth. If China grows less than expected, this could impact the world demand for several types of products, mainly commodities, since it is one of the biggest demanders for these items, impacting the entire export chain of several countries, including Brazil . “Brazil is very dependent on China, very dependent on commodities, so everything that happens there ends up having a weight on our index. in implementing the announced stimuli – and the country will only recover after these stimuli”, comments Ariane. Moura also points out that companies in the Chinese real estate sector are going through a financial crisis, with some developers asking for an extension of the deadline for paying off debts. This is one of the most important sectors of the Chinese economy and a crisis can generate a negative reaction across the country, worsening market perception. Main index of the Brazilian stock exchange closes down for the 13th time in a row Fiscal uncertainties in Brazil With all these uncertainties abroad, economist Ariane Benedito explains that, for Brazil to attract investors, it would need to present security, which it is not managing to account of the still hazy fiscal scenario. She also points out that the minutes of the last meeting of the Monetary Policy Committee (Copom) of the Central Bank of Brazil should have calmed investors’ spirits, since the institution started the cycle of cuts in the Selic, basic interest rate. However, the lack of definition about the fiscal framework, in addition to new government spending (such as the new Growth Acceleration Program), continue to worry investors, who fear that public accounts will get out of control. According to Miziara, in the short term, another important risk on the radar is tax reform, which “could further complicate the economy and, when we talk about the stock exchange, directly harm shareholders” with proposals that could affect the returns offered. Companies with financial problems Miziara also points out as one of the negative impacts on the stock market the end of the corporate balance sheet season, which came worse than the market was expecting, showing that companies are not facing well the most challenging economic moment, with high interest rates and inflation still above target. “Looking at both the results and the projections for the coming quarters, the numbers are a little discouraging in economic terms. This made the shares less attractive”, she points out. The companies that most disappointed, according to the analyst, were those in the retail sector — mainly Magazine Luiza and Via —, which are facing very pressured financial margins, and the health sector, with a very low growth in the customer base due to the inflation still high. Petrobras’ pricing policy Finally, the last point that contributed to the devaluation of the Ibovespa in recent weeks was Petrobras’ pricing policy, which investors dislike, points out Ariane. The company has the second largest weight in the composition of the main stock exchange index, behind only Vale — and, therefore, when the value of its shares falls, the general performance of the Ibovespa also suffers. Petrobras adopted, since 2016, the International Parity Policy (PPI), which caused Petrobras fuel prices to fluctuate according to the international market, following oil and dollar quotations. In May of this year, Petrobras ended this measure and announced a new pricing policy, which raises many doubts among specialists as it is considered not very transparent.

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