(Bloomberg) -- Foreign investors poured 10 billion reais ($1.78 billion) into Brazil’s stock market in August — the biggest monthly inflow this year — on rising bets that the Federal Reserve its gearing up to cut rates.
It was the second consecutive month of net investment, after six months of outflows, according to data from exchange operator B3, the highest value since December.
“The main catalyst is the global scenario,” said Jennie Li, equity strategist at XP Inc. Traders poured 1.34 billion reais into the Brazilian stock market on the same day of Fed Chairman Jerome Powell’s speech at Jackson Hole on Aug. 23, in which he emphasized that the “time has come” for the world’s largest economy to start cutting rates.
While the Fed’s easing cycle is expected to boost the stock market further, recent currency volatility and the prospects of higher rates in Brazil could damp investor appetite for local assets. Concerns about the country’s fiscal outlook led investors to sell the real and price in several interest rate hikes last week.
“It’s hard to say how long the foreign flows will last, but the fact is that the scenario is more favorable for emerging countries, such as Brazil, after a series of softer data in the US,” said Diego Carvalho, partner and head of equities at Bahia Asset Management.
On top of a risk-on sentiment across global markets, historically low valuations and a solid corporate outlook are also boosting the local stock market. The benchmark Ibovespa stock index rose 6.5% in August to reach its highest on record.
To extend the inflows and the stock market gains, “we need global investors to have confidence in Brazil, which partially requires a stable currency, and we need local investors to have more interest in equities and that requires a declining interest rate environment,” said Josh Rubin, a portfolio manager at Thornburg Investment Management.
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