Interest rate hike and political tension demand cold blood from investors


Numbers don’t lie for good or for bad. 8 is four times 2. And 2021 may contain the two digits that are currently the reference of Selic. In March, the rate was at 2%, now it is at 5.25% and could reach 8% or more in December – in nine months it will be multiplied by four. The speed of adjustment is impressive, rare and does not necessarily guarantee interest above the inflation that walks at cruising speed. And such a rate correction will have repercussions in various segments of the financial market – from credit to the investments – and it will require the cold-bloodedness of banks, managers, investors and borrowers. Nobody escapes.

In addition to the interest, the political tension aggravated by the president’s speeches weighs on investments Jair Bolsonaro in new attacks on Federal Supreme Court (STF), at the Sunday demonstrations, September 7th. This Wednesday, the Ibovespa drops about 2% and can test the support of 115,000 points, while the dollar exceeds R$ 5.25 – the highest rate since August 28th.

O credit cost will go up and innovations proposed by Banco Central (BC) – as new rules for credit card receivables and in the future receivables from duplicates, modalities that, in July, moved together almost BRL 80 billion – may give relief to the sector of services and small and medium businesses due to the sharing of invoice schedules used to guarantee credit. For now, the adjustments are discreet. The average rate on credit went from 18.4% last December to 20.4% in July, the most recent data from the BC. The spread, the banks’ profit margin, was practically stable at 14.6%. In July, however, the Selic was still at 4.25% per year – half of what some institutions project for the end of the high cycle in the first quarter of 2022.

US investments, no one doubts, the Selic sprint increases the attractiveness gives fixed income. But the new level of nominal interest – with real margin still negative – will it be enough to cause a setback in the migration of investors to the stock exchange or alternative assets?

O EXAME IN talked to three managers – Azimut, Neo e Opportunity – and there is a consensus that the investment democratization process, which led to an explosion of individuals on the stock exchange, will not suffer a setback, but a brake is expected. It is a fact that the appeal of the shares soared in the cadence of falling interest rates to unprecedented levels in Brazil. Investors rushed to actions; embarked on IPOS; you private equity, with an eye on the thriving segment of startups; and even advanced at cryptocurrencies.

“In my view, the high interest will hold the process of expansion in variable income. I don’t believe in going backwards. But, without a doubt, a significant reduction in the pace of expansion because, at the margin, fixed income becomes very competitive at the level expected for the interest rate”, he ponders Marcos Mollica, Multimarket manager of Opportunity, for whom the share of variable income – among other applications in the country – is still very small by international standards.

Mollica, who sees IPCA at 4.50% in 2022 and Selic at 8% in December this year, understands that, in Brazil, we are seeing a structural change that will not change with temporary variations in the interest rate. “However, I think the interest throws cold water on the euphoria. THE wave of initial public offerings of shares, the IPOs for example, is expected to cool substantially in the coming months. And, in addition to interest, on the IPOs weighs the increase in uncertainty with the approaching elections.”

Diversified portfolios add value

To EXAME IN, Han Kim, responsible for investments, and Carolina Taira, portfolio manager from Azimut Brazil Wealth Management, state that Selic at 8% does mean greater attractiveness for post-fixed fixed income assets and a higher opportunity cost in risk allocation. “As allocators we need monitor the flows that should naturally migrate to fixed income and dealing with the impact on prices resulting from this migration. However, decisions related to allocation percentages must be based on the expected return of each asset class combined with the client’s risk profile. Historically, well-selected assets in higher risk classes give returns above the CDI even in high interest rate scenarios.”

For Azimut, the diversified portfolios with good asset selection will continue to add value to clients in the long term. “Changes in monetary policy, even contractionary ones, bring good investment opportunities, especially for managers who manage to make a more accurate reading of the movements resulting from these changes”, says Kim.

Carolina Taira assesses that the higher Selic will impact company capitalization costs and investor opportunity costs. However, there will always be good IPO opportunities for solid businesses with good prospects for receiving future flows. The Azimut executive recognizes that uncertainties related to fiscal policy, structural reforms and political issues have a more direct impact on the behavior of the stock exchange and potential stock offerings.

Marcelo Cabral, CEO yes Neo Investimentos, reports that Selic at 2% triggered a collective movement in search of more returns for financial investments. “The stock exchange was the preferred asset, but other alternatives emerged. Including, gross funds. We see investment platforms for individuals offering Federal Funds and Private Equity, opportunities that until recently were aimed at investors with a 20-year investment horizon. Today, these investment offers are commonplace. And some of these funds even offer tools to guarantee liquidity for these operations three years after the beginning of the investment. managers know that customers in general do not have the breath to go for years with no return.”

For Neo’s CEO, in this context of search for return, there are innovative applications in startups and cryptocurrencies “because the basic fee disappeared. The risk, however, never disappears. He is in excess”.

Politics can change scenario

Despite the high interest, Cabral does not see a setback in the interest and willingness of investors to move to variable income. “I don’t see a reversal of the scenario because the Selic will hit 8% or 10%. We work with a Selic of 7% or 7.5%, a rate that includes inflation plus interest, considering a framework of fiscal stability in the long term and minimum return on capital in the short term. However, the scenario can change by policy because the decision of what to do with the fiscal framework is a political decision in its various spheres. And, in the medium term, are these decisions that will lead more companies to the market or if Brazilians will leave the 99.9% that they keep in fixed income, moving to variable income or investments such as real estate, startups or even cryptocurrencies. But the rule is clear: some will lose and some will win. The democratization that we are having in investments will not change.”

Neo’s CEO recognizes, however, that in times of crisis there is desperate money looking for a return that ends up migrating to financial innovations, “which are some excellent ideas.” He points out that this movement was very strong towards startups and not small initiatives. “Large companies are assembling groups and at other times acquiring small solutions in search of innovations that put the customer at the center of their priorities. And this movement is excellent to generate value for investors, but there is a lot of exaggeration”, he warns.

In the wave of IPOs that the market surfs there is a lot of good, but also a lot of bad, assesses Marcelo Cabral. “But the prices are not very different despite the difference in the quality of the papers. There is an exaggeration in assets, but it is not homogeneous. Assets in general now have a low intrinsic rate of return. As the Selic increases in the short and long term, as we are witnessing, the assets will adjust as a whole. And that’s not to say that we don’t have cheap or absurdly expensive assets. Today, we still have valuation exaggerations that are unrealistic. A correction will take place.”

Sign the EXAM and access the most important news in real time.

From 1 to 5, what is your reading experience on the exam?

1 being the lowest note and 5 being the highest note.

Your feedback is very important to build an even better EXAM.