THE Guide Investments raised the projection of Ibovespa from 120 thousand to 130 thousand points in 2022, under the perspective that the index will be able to keep up with the end of the cycle of increase in the rate of fees in Brazil and the recovery of corporate profitsmainly from the producers of commodities.
According to Fernando Siqueira, director of the broker’s analysis team, the Ibovespa’s recovery trend should continue over the next few quarters, given the latest downward movement in actions.
According to the expert, the Brazilian stock market has already gone through the “phase of despair”, characterized by sharp losses in asset prices, even when the valuation already look low.
“After the sharp drop, asset prices start to recover, usually just before the end of the recession. In this initial phase of recovery, called ‘hope’, asset prices rise substantially in a relatively short period of time, between nine and twelve months,” he explains.
In Guide’s assessment, the Ibovespa is in the “hope” phase, with investors buying stocks in the expectation that the worst is behind them.
Commodity-led recovery
Siqueira highlights that the current situation experienced by the Ibovespa is similar to the 2002-2008 cycle, when Brazil was going through a scenario of inflation and high interest rates and rising commodity prices.
The expert recalls that, at the time, the recovery of the Brazilian stock market started in the commodities sector, before the end of the interest rate increase cycle and three to six months before the beginning of the economic recovery (before the end of the recession).
“Both in the 2002 cycle and in the 2016 cycle, commodities had an important impact on the recovery of the Ibovespa. Also in that cycle, investors were reducing positions in technology companies, and China is in the process of monetary easing (stimulating growth)”, says Siqueira.
Guide also highlights that, as Brazil is at the end of the monetary tightening cycle and developed countries are only now starting to adopt a more contractionary stance, the market has managed to attract capital in recent months and may continue in this line further down the road.
profit growth
Brazilian companies should observe an increase in profits, even in the face of the contraction of the GDP (Gross Domestic Product)and with the presidential elections – not least because Guide sees a smaller impact from the electoral period this year, since the two candidates with the most chances of victory (Lula and Bolsonaro) “should not promote major changes in economic policy”.
Even disregarding commodities, the profits of companies listed on the handbag has grown, albeit at a slower pace, says Siqueira.
Guide’s head of research believes that names more oriented to the local market should show more robust results towards the end of 2022 and into 2023, as the economic recovery gathers strength.
According to Siqueira, the percentage of companies with positive revisions in earnings estimates returned to above 50% in the year.
“After a period of very low growth and many negative earnings revisions, the numbers have improved again in 2022,” says the expert.
Source: Moneytimes
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