Brazilian Economy Faces Uncertainty Amid Restrictive Monetary Policy and Global Factors

The Brazilian economy, struggling under a restrictive monetary policy that has lasted too long, is facing growing uncertainty as investors weigh the risks and returns of investments. According to Elmer Ferraz, an equity manager who has recently joined Jubarte Capital as a partner, the stock market, excluding Vale and Petrobras, trades at 10 times earnings, with a risk premium close to 3% if not below that.

Key Takeaways:

• The Brazilian economy faces uncertainty due to a restrictive monetary policy that has lasted too long, with inflation-linked government bonds offering a better risk/return trade-off for investors than equities.
• Jubarte Capital's new partner, Elmer Ferraz, estimates an increase of 10% to 12% in the results of companies listed on B3, excluding Vale and Petrobras.
• Jubarte's global macro strategy is based on readings of global economic cycles, with the firm's main fund having no exposure to local equities at present.
• The firm's founding partner, Eduardo Camara Lopes, notes that after three years of massive withdrawals from investment funds, the current cycle should not differ much from others marked by sharp asset downturns, followed by a recovery phase.
• The international scenario is marked by all-out pressure from U.S. President Donald Trump's administration against the Fed's independence and the imposition of higher tariffs on trading partners.
• The Fed is sensitive to economic activity and should respond if inflation is under control, with data favoring a rate cut.
• Jubarte's expectation is that the Central Bank will begin cutting interest rates in December, with activity data showing the impact of rates on the economy.

Statistics:

• The Brazilian stock market trades at 10 times earnings, excluding Vale and Petrobras.
• The risk premium is close to 3% if not below that.
• Jubarte's macro strategy is based on readings of global economic cycles.
• The firm's main fund has no exposure to local equities at present.
• The U.S. Federal Reserve's monetary policy decisions are a key factor in the international scenario.
• The data favor a rate cut, although the Fed's degrees of freedom are limited due to U.S. President Donald Trump's attacks.
• The Central Bank's interest rates may begin to cut in December, with activity data showing the impact of rates on the economy.

Sources:

• Elmer Ferraz, speaking about the Brazilian economy and the stock market in the article "Brazil's economy losing momentum, expert says" by Adriana Cotias, dated [no date mentioned].
• Jubarte Capital, founded in early 2024 by Eduardo Camara Lopes and other ex-Itaú Asset executives.
• Niall Ferguson, economic historian and University of Oxford scholar, who joined Jubarte's advisory board.
• Luiz Fernando Figueiredo, former Central Bank Director and chairman of JiveMauá, who joined Jubarte's advisory board.
• Marcus Menoita, real economy and agribusiness expert, who is part of Jubarte's advisory board.
• Manoel Lemos, technology and innovation expert, who is part of Jubarte's advisory board.