Brazilian stocks not cheap despite drops, survey shows
The significant drop of Ibovespa since it reached an all-time high of 130,000 points in June, coming below 120,000 points in August, has made B3 lag behind its emerging peers. The poor performance of Brazilian stocks, however, is not enough reason to classify the Brazilian index as "cheap" since internal factors continue to play against the prospect of appreciation of domestic equities, asset managers say.The benchmark stock index Ibovespa underperformed emerging peers in dollar terms in August. According to a Valor Data survey, the Brazilian index was the only one in the negative territory, down 2.89%, while Turkey leads the gains, up 7%. As for the period between January and August, the Brazilian index showed a slight appreciation in dollars, of 0.84%, ahead only of Chile, which fell 1.34%, and Turkey, which dropped 10.91%.The ranking makes clear both the tepid performance of variable income assets and a weakened real, said Fabiano Godoi, managing partner at Kairós Capital. "What makes Brazil look cheap is not exactly the stock market, but the [local] currency, which still seems out of place," he said.However, according to Valor Data, even when the comparison is made in reais, the performance of Ibovespa is not worthy of excitement. In August, the spot index fell 2.48%, while in the year there is a slight fall of 0.20%, ahead only of Turkey (+0.31%). The Turkish index led the monthly performance, appreciating 5.68% in local currency, while in the year, Russia leads (+21.38%), with Mexico right behind (+20.96%).ACE Capital’s relative value manager Maiko Carvalho notes that discount rates on the economy are going up, and up a lot, since June. "And if the discount rate goes up, the present value [of the stock] goes down. This, in itself, would be enough reason to harm and make the Ibovespa stay away from international peers, because the local discount rate is rising in relation to the world," he explains.Mr. Carvalho says that, despite the fact that company profits have been better than expected in the most recent earnings season - which would justify a higher fair price for the Ibovespa - the fiscal risks and the more latent political turmoil ended up offsetting the positive surprises with the results.In recent months, Brazil’s benchmark inflation index IPCA has shown itself to be more persistent, which led the Central Bank’s Monetary Policy Committee (Copom) to accelerate the pace of the increase in the Selic, Brazil’s benchmark interest...
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