Was Ibovespa shocked by interest rate cuts? – 08/06/2023 – Marcos de Vasconcellos

The crowd for the beginning of the so-called “cycle of cuts” of the basic interest rate (Selic) has been growing since the beginning of the year, visibly. Now that it has finally arrived, the Ibovespa is “flat”. It makes sense, even though it doesn’t seem like it at first glance.

To recap the general idea: Lower interest rates lead to more money circulating, with more credit, expansion, and possibly more profit on the part of companies. Therefore, the stock market tends to rise when interest rates fall.

Let’s go by the order of the factors (as it changes the product). In February, when renowned fund managers such as Luís Stuhlberger, from Verde Asset, and André Jakurski, from JGP, agreed that it was time to cut interest rates and, even more, said that it would not be a big problem to change the inflation target, many people in the market wrinkled their noses.

Over time, the indicators of falling inflation, which they already claimed to see clearly, were taken to the table of the president of the Central Bank, Roberto Campos Neto (a need I mentioned here). The Selic cut then started to seem inevitable. The only discussion that remained was the size: whether the Copom would reduce the rate by 0.25 or 0.5 percentage points.

In May, the yield curves (which, in general, show the market’s expectations in relation to interest rates in the short, medium and long term) already “said” that large investors in the financial market saw the first cut in August.

As you always need to remember, it’s not people like you and me who move prices in the market. But, yes, the big funds, mainly international ones.

Foreigners already saw the movement there in May and had time to position themselves on the Stock Exchange to take advantage of the expectation of heating up the economy. More than R$ 17 billion were injected by gringos into the Exchange in June and July.

And how do you choose (or would you choose) shares of a company from another country, which you don’t know in depth? Go for the best known, right? Thus, the broth of those R$ 17 billion went to the pot of the Brazilian giants. And a strong reflection of this was the Ibovespa, which brings together the most representative shares of our Stock Exchange, soaring by more than 12% between May 31st and July 31st.

Thus, when the long-awaited Selic cut was announced by the Copom, last Wednesday (2), the market movers already had their positions taken. And the Ibovespa was shocked.
But I didn’t come here to say that the train has passed and play the prophet of the past.

There are good places to look for opportunities that often fall under the radar (or off the radar) of big investors. The day after the interest rate cut was announced, the SMLL, the Bolsa’s small caps index, was in the positive, while the Ibovespa closed in the red. On Friday, it was up 0.6%, while our main indicator was down almost 0.9%.

Small caps are companies with a lower market value and less liquidity, that is, less traded than the giants (or “blue chips”). They are more sensitive to the domestic economy and, mainly, to the availability of money in circulation, as they are usually still seeking expansion. But that doesn’t mean they are small companies. Even Embraer is considered small cap by the Exchange classification.

The beginning of the interest rate cut cycle has the power to heat up the economy and bring money back to companies that need to grow.

It is never time to bet everything on a single thesis, of course, but there are few analysts who disagree that it is a good time to put a bit of optimism in the investment portfolio.

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