American IPOs prompt renewed activity in Brazilian equities market
Warner Music's IPO was the largest of the year in the US, raising $1.9 billion and with enough demand for the company to increase the size of the offering and start trading up 20%. Warner's deal and the context that enabled it raised expectations of new listings in the near term, bringing impact for other stock markets, including the Brazilian.
Brazilian companies and bankers are considering again, albeit cautiously, the possibility of gradually resuming initial public offerings - even if local economic projections continue worsening.
This somewhat more positive view comes from the high correlation between Brazilian stock-market bellwether Ibovespa and the S&P 500, which since the beginning of the crisis in Brazil has been close to 90%. Therefore, to understand what keeps the Ibovespa up amid somber prospects for the local economy, paving the way for offerings, bankers and asset managers seek explanations in the American market.
Credit Suisse, one of the Warner underwriters, says that presentations to investors include current assumptions of consumer spending and recovery of the American economy. "The purchasing power of American households was not affected by the pandemic. The injection of $7 trillion in the economy and the reduction of expenses create a pool of liquidity that indicates that, in a scenario of vaccine or medicine for covid-19, the economic rebound may be stronger than anticipated," says Bruno Fontana, head of Credit Suisse in Brazil. He also points to the improvement of some indicators in that market, such as the reduction in jobless claims.
Since early May, the S&P 500 has risen 6.5%, and the Ibovespa has risen 16%. In the year, Brazilian equities are still down 18.9%. The recent rise made companies planning to go public get a better pricing benchmark, considering multiples of already-listed competitors in the sector.
In the meantime, the average market projection for the Brazilian GDP went to contraction of 6.25% from 3.76%, and the government subsidy proved unable to support the average income and consumer spending of households. But that's where this impact of the American market joins the local fundamentals. With falling inflation and GDP, what is left to the Central Bank is to continue cutting interest rates. "We don't have this effect of income in Brazil, but have a scenario of interest and inflation that is new for the investor and for Brazilian companies," Mr. Fontana says.
The expectation is that the Selic policy...
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