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Foreigners Return to Brazil Stocks for First Time This Year

(Bloomberg)

(Bloomberg) -- Foreign investors are testing the waters in Brazil’s battered stock market. 

Local stocks recorded their first month this year of net inflows in July, according to data from exchange operator B3 SA. Foreigners put $616 million into Brazilian equities last month, following outflows of 40 billion reais ($6.9 billion) in the first half, the data show. 

The move — a welcome respite for a market that’s down 5% this year, one of the worst in the world — reflects a global rotation away from the booming AI sector, according to Daniel Gewehr, chief strategist at Itaú BBA. The prospect of the Federal Reserve lowering interest rates in September could help attract more foreign investors into the market in the second half of the year, he said.

“There is a good chance that there will continue to be inflows, but depending more on the Fed than on Brazil,” he said. 

Sabesp’s jumbo stock offering, Latin America’s largest stock deal of the year, also contributed to foreign inflows in the month. 

Brazil’s central bank has paused its monetary easing cycle amid persistent concern about inflation, with the key rate at 10.5%. At these levels, many investors prefer to park their money in fixed income as a more appealing strategy. 

That’s different to the scenario seen at the end of last year, when Brazilian policymakers were expected to lower the benchmark rate, and boost the appeal of equities. Now, Gewehr said, rates are expected to remain at 10.5% this year and next — which will likely keep locals at bay.

“I don’t think domestic investors will enter the stock market in 2024,” he said. 

--With assistance from Leda Alvim.

©2024 Bloomberg L.P.