Brazilian portfolios are increasingly favoring fixed income investments amidst international and domestic uncertainties. With improved bond returns, including inflation-linked securities, experts suggest maintaining exposure to government bonds. Equities faced declines in February, raising caution among investors. The outlook emphasizes risk management and adjusting investment strategies to maintain competitive yields and capitalize on attractive market segments.
In the current investment climate, fixed income remains a strong recommendation for Brazilian portfolios due to substantial returns amid uncertainties domestically and globally. The U.S. economic policies under President Trump are expected to shake the global economic structure, while Brazil navigates a tightening monetary cycle. There are concerns regarding whether President Lula’s government will opt for stimulus measures or allow economic slowdowns.
Unlike in 2024, investors now have more bond options besides the CDI, with pre-fixed and inflation-linked securities starting to provide competitive, real returns. The IMA-B 5 index, which includes inflation-linked Treasury bonds, reported a gain of 0.65% in February and 2.55% year-to-date, outperforming both the Selic and CDI, while the IRF-M index, focusing on pre-fixed securities, rose by 0.61% and 3.20% in the same periods, respectively.
Despite an optimistic January for equities, the market faced declines in February, with the Ibovespa falling 2.64% and the small-cap index dropping by 3.87%. The real estate sector still led with a 7.26% growth. The dollar appreciated by 1.35% against the real but decreased 4.26% year-to-date. Diversifying into international assets is advised as a strategy to maintain purchasing power, even amidst potential overseas market volatility.
Rafael Bisinha from Citi Brasil suggests focusing on real interest rate alternatives, advising investors to hold National Treasury Notes, series B (NTN-B), which pay inflation plus a premium. He noted that bonds maturing in 2029 offered a 7.76% yield as of February 28. Although marking to market could impact daily portfolio values, holding bonds to maturity remains attractive. He emphasizes the importance of risk management in portfolio sizing according to investor profiles.
For conservative investors, portfolios with exposure to Selic and CDI have been yielding good returns. Bisinha advises against making pre-fixed bonds the majority holding, as current market rates indicate a favorable real interest rate environment. He believes that stable assets like pre-fixed bonds can make room to absorb potential volatility from riskier investments like small-cap stocks.
Bisinha has adjusted his view on Brazilian equities to a neutral stance, advocating for a small increase in exposure to underpriced small-cap stocks penalized by equity fund redemptions. Global asset managers are increasingly looking for alternatives outside the dominant U.S. tech companies, particularly after events impacting firms like Nvidia.
Galapagos Capital adjusted its investment strategy for 2024 after a cautious stance, incorporating risk into portfolios through stock and multimarket funds. They believe NTN-B maturing in 2035 will outperform the CDI in several-year terms, making a compelling case for their inclusion in inflationary scenarios.
Caution remains regarding pre-fixed securities, with an eye on attractive equity prices amidst market fluctuations. Alexandre Cancherini suggests that while Brazilian assets are undervalued, a clearer market trigger for unlocking their value is essential for growth, noting structural portfolio shifts aimed at increasing equity allocations despite the current prevailing underallocation.
Concerns persist regarding U.S. economic policy’s impact on foreign investment in Brazil. Itaú Unibanco’s Nicholas McCarthy stresses the need for measures to manage inflation for increased confidence in investment inflows. Despite recent inflation forecasts suggesting a potential rise, McCarthy has begun to favor bonds over equities, reducing durations to balance risk.
Experts warn that emerging markets like Brazil may experience downturns parallel to U.S. stock market corrections, as articulated by SPX Capital’s Rogério Xavier, who pointed out the historical correlations affecting these markets. This complex interplay continues to frame investment strategies and outlooks.
Current investment strategies in Brazil focus heavily on fixed income securities amidst economic uncertainty. The diversification of bond options and potential returns have made them favorable compared to equities. Experts advocate for careful management of risk and portfolio sizing, particularly through Treasury bonds tied to real rates. As inflation and geopolitical factors culminate, Brazilian investors are adjusting positions to better navigate uncertain markets and maintain capital preservation.
Original Source: valorinternational.globo.com
