Volatility reigns in Brazilian markets, but fund managers see Ibovespa as an opportunity

Brazil’s stock market lost steam and its benchmark index closed the day down 1.85 percent, after grim projections by the government.

First, the Health Ministry said the public hospital network could collapse as early as in April, also suggesting the Covid-19 crisis would only start to improve in September. Then, the Economy Ministry reviewed its GDP growth forecast from 2.1 to 0.02 percent.

All of that came coupled with growing mistrust in Brazil, as the government is set to increase public spending to fight the Covid-19 outbreak following the approval of a state of calamity—which lifts many budget restrictions. The problem is that outside investors don’t believe Brazil has the fiscal space to increase its public deficit. 

But even though the stock market index has posted a 40-percent rout in 2020, investment fund managers are starting to see a light at the end of the tunnel. 

Verde Asset Management, founded by Luís Stulhberger—one of the most respected fund managers in Brazil—admitted to clients that it was a mistake to minimize the extent of the outbreak. However, they see opportunity in the crisis.

“We will obviously have serious economic impacts. But, for us, the market’s corrections more than reflect such impacts. Social distancing, Covid-19 treatments, and fiscal and monetary measures already announced themselves as a bridge to cross the current volatility.”

The fund added that it is increasing exposure to the U.S. market, and maintaining exposure to stocks in Brazil.But the truth is, volatility is still running wild. Airlines Azul and Gol were gaining 40 percent at one point in the day, but their shares closed up 15.3 and 16.5 percent respectively. Petrobras shares (PETR4), on the other hand, squandered early gains and ended the day 1.7 percent down. Analysts are pointing to a severe distortion in stock prices caused by risk aversion. In a note to clients, Nord Research’s Ricardo Schweitzer pointed out mining company Vale, investment holding Itaúsa, and retailer Via Varejo as his top picks.

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