Last week, Itaú BBA analysts made a small “tour” with a series of meetings with investors in the United States. In addition to the state of California, the group stopped in cities such as New York, Chicago and Minneapolis to meet with 25 global funds focused on emerging markets.
Brazil’s macroeconomic outlook, opportunities and risks from a stock market perspective were on the agenda road show and a summary of those meetings was published this Tuesday in the investment bank’s report.
“There’s a lot of interest in understanding what’s going on in Brazil, but they haven’t significantly increased their allocations yet. It appears that once the uncertainties are removed, there could be massive flows into Brazil,” analysts Marcelo Sá and Matheus Marques wrote.
The results of the presidential election and the new composition of the House of Representatives and the Senate are among the main factors behind this “waiting mode” of American investors in relation to Brazilian assets.
The main question involved the risk of contesting the results if the difference in votes between Jair Bolsonaro and Luiz Inácio Lula da Silva was small. The economic policy of the two candidates was also a recurring theme, as was the issue of fiscal policy and public debt control.
The meetings also gave positive feedback on falling inflation and Brazil’s “surprisingly strong” GDP numbers. It was clear to most investors that the central bank could start lowering interest rates sooner than other countries.
On the other hand, investors signaled that the dynamics of inflation and rates in the US should affect appetite in Brazil and were surprised by the resilience of inflationary pressure in the US market and the extent of the Federal Reserve’s containment policy in this scenario.
In proportion to these impressions, investors highlighted the segments of the economy and their preferred shares. The main choice fell on the retail sector, as it is believed to be one of the markets that will benefit the most from lower interest rates and government incentives to increase spending.
“In the food retail space, the advantage remains in Assai, although some buyers have shown interest in Grupo Mateus. Of the other traders, Renner and Arezzo were the most agreeable, while some investors cited RD and Grupo Soma,” say analysts.
Still in this space, but in terms of e-commerce, Mercado Livre remains the top choice for most shoppers. On the other hand, Itaú BBA pointed out that there are very negative opinions about the magazine Luiza, Via and Americanas.
Another sector with positive perspectives is the financial sector, however, with a more neutral view of large banks. “B3, XP and BTG were the top picks among US investors, as these companies are likely to benefit from lower interest rates, either through higher earnings or expanding multiples,” another excerpt from the report noted.
The positive outlook extends to the utilities and shopping centers sectors. In the first, the main names mentioned by investors are Equatorial, Eletrobras, Energisa and Sabesp. Some of them also mentioned Cemig and Copasa, but Itaú BBA was more skeptical about the challenges of privatizing these assets.
In shopping malls, the list of top picks according to Americans includes Multiplan, Iguatemi and BRMalls. The segment of construction companies, on the other hand, attracted almost no interest. According to analysts, there was a lot of disappointment in MRV, and only Cyrel was mentioned, considering the quality and liquidity of the company.
In healthcare, the only name mentioned was Hapvida, with investors “increasingly constructive” on the asset. On the other hand, Rede D’Or did not generate much interest given its high value. In the second segment, Weg is also listed as a good choice, with strong growth expected over the next few years, especially as it reaps the benefits of the energy transition.
As far as car rental companies are concerned, the advantage is Localiza, due to its quality and liquidity. Movida, on the other hand, has been the subject of concern as many investors realize the company has paid dearly by expanding its fleet during the pandemic.
Also contrary to optimistic views, US investors highlighted a bearish bias for the commodity segment and, among steel industry names, mentioned only Gerdau as a pick.
“There were some doubts about Suzan, but many were afraid of a possible correction of pulp prices. There was negative sentiment for Vale, given pessimism about China and no interest in protein names, despite very cheap valuations,” analysts noted.