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Episode 37

Brazil's new investment generation

Published on: July 16, 2020 • Duration: 4 minutes

Roger Hirst and Luiz Braga, Refinitiv’s Director of Sales in Latin America, talk about how investors are adapting to the volatility in the Brazilian markets. Are new young investors the light at the end of the tunnel for the Brazilian economy?   

  • ROGER HIRST: Welcome to the Corona Correction Series in association with Refinitiv, I'm your host, Roger Hirst. Brazillian asset prices had a fairly torrid time during the initial phases of the Corona crisis. With the equity market falling hard and significant declines for the Brazilian real, the currency, political uncertainty has also picked up due to the government's handling of the pandemic. I asked Refinitiv's Director of Sales in Latin America, about how investors were adapting to the volatility in the market.

    LUIZ BRAGA: Brazil has been passing through a different investment scenario, opening opportunities to improve, learn, and develop new ways of investing. A big discussion is without a portfolio diversification and mitigating risk and finding good returns, it's very challenging right now. With a series of interest rate cuts impacting fixed-income investments, and this pandemic scenario hitting the B3 stock exchange performance very hard, showed to us that the great levels that we had back in January when we were around 119,000 points, changed to a reduction of almost 47 percent. Not only Covid-19, but discussions between the U.S. and China were the main contributors to that.

    With the huge stress and uncertainty in the market, plus investors without appetites for volatility, forced them to change their investment strategies to other different types of asset classes. Having said that, in a country that was used to have high fixed rates, the need to discover other ways to generate alpha was not in their day-to-day, for many. But now it started to be a must-have action. Taking a closer look into the funds markets in Brazil, fixed income funds are having a challenge moment, with negative returns and performance below the CDI. The fund flows for fixed income, reduced almost 18 billion dollars this year, while equity, hedge funds, FX, saving plans and even ETFs had a positive performance and positive flows that together represent around 15 billion dollars. 

    Asset managers and investment experts are now developing new products and promoting finance education as a big play during this pandemic scenario, to bring trust and confidence back to the Brazilian investors. Also, in the search for new ways of investing we already see the stock market, for example, recovering their losses. In a recent report from B3, the stock exchange reached in April the mark of two million investors. A very interesting trend is that those new investors have a younger average age, are starting to invest in smaller amounts, but they are diversifying those amounts via stocks, real estate, and ETFs. Although with this big hit in the market and after a series of circuit breaks during March, B3 started to have its gains back, and is reaching almost 100,000 points. 

    ROGER HIRST: What surprised me was the influx of younger domestic investors taking advantage of this dip in risk assets. This phenomenon has been widely covered in the U.S., where the rise of the retail investor has been driven by a younger cohort. It would appear that this pattern has been repeated in Brazil, indeed, maybe it's globally that we are seeing younger investors taking advantage of the recent volatility to start investing. The variety of Brazil's investment products has also been on the increase. And it may be that the use of handheld technology and social media has made it easier to get these products in front of a wider, younger and willing audience. For foreign investors, a lot will depend on their view of the Brazilian currency, the real. In a recent interview, Ron Leven suggested that many currencies have now overshot against the dollar and could continue to consolidate as long as global risk remains stable. We'll see you later with another update.

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