Foreigners do not see Brazil as a priority, says CIO of Nau Capital

Ibovespa is expected to underperform other emerging markets for the remainder of the year.

This is the assessment of Mauricio Valadares, from Nau Capital, who pointed to a combination of internal and external factors as responsible for the unfavorable scenario for the Brazilian stock market.

According to Valadares, two elements stand out as the main limitations for a significant appreciation of the index.

"The interest rate level in the country is restrictive, with high nominal rates and high real rates, which in itself already prevents a significant appreciation of the Ibovespa", he stated.

In addition, the composition of the index, with a relevant weight in oil and iron ore, also contributes to a less optimistic view.

Technology attracts foreign capital, but Brazil is left out
Valadares explained that the change in global investor perception towards Brazil is directly linked to the advancement of the technology sector, especially due to the euphoria with artificial intelligence.

Markets such as Taiwan, Japan and Korea began to focus attention as they are home to companies with significant earnings revisions.

"The global investor looks at these revisions and, obviously, tries not to be left out of this possible movement", he said.

As Brazil does not have a comparable prominent technology sector, the country began to be seen with less priority by foreign capital.

At the beginning of the recent geopolitical conflict, Brazil was favored by the rise in oil prices, given its net export profile.

However, with the normalization of commodity prices - which returned to levels lower than those observed before the conflict -, this competitive advantage ceased to exist.

"Brazil no longer has the competitive advantage it had at the height of the war", said Valadares.

Capital market needs to overcome high interest rates and institutional instability
When analyzing the obstacles to a more robust consolidation of the Brazilian capital market, Valadares highlighted that high interest rates are a limiting factor, but not the only one. For him, institutional issues also weigh negatively.

"Scandals such as the recent case of Banco Master, for example, are taking away some of the impetus for large global institutional players to enter our market more strongly", he stated.

In his opinion, the country needs to advance in legal stability and security to attract foreign investors with greater consistency.

Elections priced as continuity, with no expectation of structural reforms
Regarding the impact of the elections on financial assets, Valadares assessed that the market already prices the continuity of the current government as a base scenario, with a low probability of relevant structural reforms in the next four years.

"The likelihood of the current government addressing the fiscal issue in a more sustainable and definitive way over the next four years is low," he said.

He also noted that, even in a scenario of alternation of power, there would be no prospect of transformational changes, which explains why the electoral issue remains in the background for the market.

Valadares did not rule out, however, that the issue could gain relevance as the election date approaches.

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Source: CNN