Verde Asset sees signs of credit crisis – 03/07/2023 – Market

Faced with a challenging global environment, the Brazilian market continues to be affected by the noise generated by the government, according to the assessment of the manager Verde Asset, led by Luis Stuhlberger and Luiz Parreiras, in a letter sent to investors this Tuesday (7).

In the text, the company claims that the Brazilian economy may be at the beginning of a credit crisis that will demand “good public policies”. The Brazilian government, in turn, can throw opportunities away with “bravado”, he says.

“There are signs of an incipient ‘credit crunch’ [crise de crédito] reaching the Brazilian economy, which requires good public policies and not bravado”, follows the text of Verde.

She says that the market remains focused on the noise generated by the government. “Even correct measures from a fiscal perspective, such as the re-encumbrance of fuels, manage to be accompanied by excessive degrees of unnecessary and counterproductive noise, in this case, the taxation of oil exports and the repeated attacks on the Central Bank.”

Lula’s government decided to institute a 9.2% tax on crude oil exports. The measure, which came into effect on March 1, will last for four months.

The objective of the measure is to cover the gap of R$ 6.6 billion generated by the partial, and not full, reencumbrance of gasoline and ethanol.

Verde Asset claims that, not by chance, risk premiums for Brazilian assets remain quite high.

The fund claims to have maintained exposure on the B3 (Brazilian Stock Exchange), and has resumed implementing hedges (“protections”) on the American Stock Exchange.

Verde Asset started with a fund in 1997 and had assets of R$ 1 million. Currently, it exceeds R$ 55 billion in managed assets.

Despite having repercussions on the market, analyzes of the country’s economic circumstances must be considered, as they also reflect the interests of managers.

In January, the fund had already said that the Lula government had been making “outlandish statements” and had contributed to crowding out private sector investment in the country and that the fiscal situation was worrying.

At the same time, Stuhlberger echoed President Lula’s criticisms by raising the discussion on revising the inflation target. “Searching for an unrealistic goal is not a good thing for Brazil. I agree that it has to have a credible fiscal framework, the two together can make Brazil a better place”, she said in February, during a BTG event.

Now, the manager also assesses that the “constructive tone” of the markets developed in January gave way to a shock of reality in February.

The US economy surprised once again, going against the consensus that it would enter into recession and investors are now preparing to face a scenario of high interest rates and inflation.

“The US data on employment, income and consumption released throughout the month surprised expectations, and led to an important change in the narrative of the markets. Before we had a narrative focused on the slowdown, disinflation, and a possible pivot from the Fed [banco central dos EUA] towards interest rate cuts.”