The echo of the most beautiful Carnival in the world, returned to its former glory after the pandemic, is dying out on the beaches of Copacabana and in the clubs of Ipanema. But it may be time for a virtual tour of the Brazilian Stock Exchange. The numbers, in truth, do not recommend it. Since the beginning of 2023, the country's main index has lost -2% (in Euros), largely underperforming the average of the other main global indices, MSCI World +6,22%. It had gone exactly the opposite in 2022, when it was among the best in the world with a +16,60%, in euros.
The race certainly contributed to slowing down the race tough electoral campaign and, even more, the tcoup attempt of followers of former President Bolsonaro. For sure there Lula's victory in the electionsthe presidential election has dampened the enthusiasm of investors, at least those who are politically very incorrect but attracted by the plans of deforestation of the Amazon. But, after the more confused post-vote phase, various signs suggest that things on the macro front are not going so badly.
Brazil: after the tough electoral campaign, agriculture is driving the recovery
The climate, first of all. In 2022, Brazil enjoyed favorable environmental conditions foragriculture leaping in first place, together with the USA, in the ranking of cereal producers. Says Denis Pandini, Nomisma's agri-food manager: "In the panorama of the world's top exporters of agri-food products, Brazil represents the country that has gained the most from this scenario strongly conditioned by geopolitical tensions and climatic adversities". Thanks especially to corn boom (+230%) “In the year that has just ended, Brazil has achieved growth in the value of its own agri-food exports by more than 50%, exceeding 126 billion euros and thus conquering second place overall, after the USA, in the world ranking. There price hike it has in fact favored exporters of agricultural commodities, penalizing instead 'transformers' such as Italy: just think that, while Brazil obtained a surplus in the agri-food trade balance of 113 billion euros (against 73 in the previous year), Italy from 4 billion euros in 2021 has returned to negative, after several years of surplus, of 1,4 billion euros ".
Purchases from China are back
Of course, agriculture is not everything. But Brazil can count on the picking up of its best customer, i.e. the China starved of raw materials, whether it's iron or the chickens. The Brazilian central bank thus revised its GDP growth forecast upwards, while leaving the inflation forecast unchanged. According to the Focus bulletin, published every Monday, GDP will grow by +0,85% in 2023 (just over the +0,84% estimated a week ago). This points to a slowdown from 2022, when Latin America's largest economy grew by +2,9%, but not the feared recession. Growth of +2024% is forecast for 1,50 and growth of +2025% for 1,80. As for theinflation, the report estimates 5,90% this year, unchanged from a week ago. But the central bank's inflation target for this year is 3,25%, set to fall to 3% in 2024 and 2025.
The central bank raises rates but Lula opposes it
But the president Lula openly contests the central bank governor and his policy of high interest rates, heavily questioning the social utility of the current inflation target, which Lula considers an obstacle to economic growth. The Carioca stock market prospects are obviously linked to the outcome of this comparison. But observers are optimistic. Here is what writes Rahul Mathur, Investment Manager Global Macro & Currency Fixed Income of GAM Investments (independent asset management group based in Zurich). “Brazilian export earnings continue to hold solid, the state budget is in better shape than a year ago, inflation is declining and, at the moment, the central bank is keeping nominal and real rates stable. Brazil has some of the highest real rates globally.”
Also the conflict between the new president and the central bank should not be exaggerated. “Looking at Brazil's economic data, we believe there is already a compelling reason why monetary policy officials should cut interest rates. Of course, the political risks are high due to the inauguration of the new administration but the first signs emerging from the discussions seem constructive and indicate that the government recognizes the importance of preserving the independence of the central bank”, concludes Mathur.
In short, the real Carnival may have just begun.
Ugo Bertone do me the favor!!!
Absurd really, you do not know what is happening with the economy of Brazil. Go find out for real, there is a total disaster and it will go from bad to worse
What an absurd article, in the title you talk about the "boom" of the economy, instead once opened, we see that the stock markets are negative -2%, the growth took place in 2022 (before the Lula government) +16%, also due to the agriculture growth happened in 2022, but are you serious?
Did you earn how much to write this disinformation?
After a tough electoral confrontation and an even harsher socio-economic conflict (in Rio the poverty rate rose from 2019% in 16,7 to 11,8% in Rio) Brazil does not represent a sort of Eden on earth, nor as that's what I wanted to describe it. If anything, after a difficult quarter, the Brazilian economy presents more than one element of interest for the financial markets: the 2019/2022 harvest allowed agribusiness growth of 23%; the prospect of the recovery of exports with China with a strong acceleration in the coming quarters; the president seems able to guarantee the consensus of centrist formations in favor of the most urgent reforms, despite the disagreements with the central bank. Hence the "bet" on the Carioca country that it could benefit from less pressure on interest rates from the autumn. At least this is the opinion of quite a few managers who administer the capital of pension funds and other institutional investors who are based on the logic of numbers and not on political passions, always legitimate but which do not always help to identify investment opportunities.