The first weeks of 2023 brought strong volatility to the market. The beginning of the year was one of decline for Ibovespa with the first indications from the government rather negative for the market. Nonetheless (and with considerable strength from foreign investors), the stock benchmark records gains of around 4% in the cumulative result for the year up to Wednesday’s session, around 114,000 points, despite the uncertain scenario on the adoption of policies by the new government and by the international scene.
Looking at market analyst projections on what to expect for 2023, most analysts have been projecting Ibovespa to rise this year.
Manufacturers such as XP, Bradesco BBI and Ativa have projected the Ibovespa at 125,000 points, while Safra and JPMorgan have highlighted the projection of the index at 130,000 points.
Find out the expectations for Ibovespa in 2023:
In a forecast report, XP stressed that it sees 2023 as a challenging year, but also one of opportunity, emphasizing the importance of being selective on the stock market.
“Outside, recession risks still remain elevated amid interest rates in major economies in contraction territory [que busca conter a inflação]which could lead to further downward revisions to corporate earnings,” said Fernando Ferreira, chief strategist and head of research at XP, in a projection report. “In the domestic economy, the trajectory of fiscal policy is still quite uncertain, which should keep market volatility high,” he assessed.
In the midst of a scenario of domestic and global uncertainties, XP’s bets within the Brazilian Stock Exchange are mainly focused on the commodities sector – particularly in the oil and gas segment, which should benefit from the dynamics of supply and demand still medium-term energy prices favorable for oil.
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Ferreira also pointed out that companies with low-growth theses and quality companies trading at reasonable prices and with a more resilient profile to a challenging macro outlook are still on the radar for 2023.
Bradesco BBI, in turn, highlighted in its 2023 outlook report that it has slightly reduced its exposure to Brazil and increased its exposure to Mexico in the Latin American portfolio, while maintaining an above-average exposure (overweight) in the internal market. Strategists have been keeping a close eye on risks in the face of the lack of a credible fiscal anchor.
“Brazilian equities … remain a high-risk business in the absence of a credible fiscal anchor,” they said, but noting that the new government is likely to introduce a new tax rule in Congress. “The main concern is whether the new fiscal framework will leave room for interest rate cuts in 2023.”
In terms of industries, they said they are overweight in defensive consumer stocks and so-called ‘bond proxies’, with a ‘neutral’ valuation in the financial sector and underweight in commodity-related and more cyclical stocks.
The Brazilian companies PRIO (PRIO3), Santos Brasil (STBP3) and Carrefour Brasil (CRFB3) were added to the Latin American portfolio, while Petrobras (PETR4), CCR (CCRO3) and Assaí (ASAI3) were excluded. Bradesco BBI’s portfolio also includes, in the case of Brazil, Itaú Unibanco (ITUB4), Vamos (VAMO3), B3 (B3SA3), Vibra Energia (VBBR3), Lojas Renner (LREN3), Rede D’Or (RDOR3) and Vale ( VALE3).
JPMorgan, in turn, has the Ibovespa at 130,000 points in its base case. The strategists point out that there is significant noise in terms of what the new administration’s tax policy is, but there is a reasonable chance of some sort of tax deal that will allow for lower rates through a combination of market pressure and Congress. . The country also benefits greatly from the possible reopening of China.
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Subsequently, JP reinforced its positive view for Brazilian equities. In a recent speech at an event organized by the Brazil-Florida Business Council, JPMorgan director and strategist for Brazil and Latin America Emy Shayo said the position overweight it takes place in view of the boost expected from the external scenario for the country.
“We are seeing a very unique global environment for Brazil right now for: ‘a’, the reopening of China; ‘b’, we are reaching the peak of the Fed Federal Reserve cycle, the central bank of the United States, when the Fed stops raising interest rates,” Shayo said. “More importantly, we could see the end of the ‘strong dollar regime’, and we haven’t seen it since 2014 in Latin America.”
There are also those who are more cautious with the Brazilian market. At the end of November last year, Morgan Stanley downgraded Brazil from overweight to neutral within its portfolio for Latin America due to the fiscal risks that are being observed for 2023, projecting an Ibovespa of 125k points at the end of the year.
At the end of January, the bank strengthened its position: “In Brazil, our neutral position vis-à-vis local equities reflects our structural fiscal concerns. We believe the new Lula government should have more flexible fiscal accounts, which should lead to aa) higher interest rates and b) higher real bond yields, which should c) undermine the seemingly attractive valuation story for local equities. If our assessment is correct, the next few years should be good for Brazilian fixed income assets, but not for equities.” In the Latin America portfolio, they liked Vale (VALE3), exposed to China’s reopening, as well as beneficiaries with the highest interest rates longer, such as Itaú (ITUB4), Porto (PSSA3) and BBSecurity (BBSE3).
In a late 2022 event, Eduardo Miszputen, head of global markets at Citi bank, pointed out that the Ibovespa could reach 120,000 points by the end of 2023, in a year he indicated as one of great uncertainty and volatility ( such as 2022). “We don’t see a clear up or down market movement. We see short-term cycles and opportunities,” he stressed.
“We still think that Brazilian equities are cheap relative to competitors around the world, but the stock market environment, in an environment of economic slowdown and high interest rates, is never positive,” he stressed. For him, the flow of investors from variable income to fixed income should continue in 2023.
In extreme scenarios, Guide appeared to be the most optimistic of the houses, projecting an Ibovespa of 150,000 points in 2023 with the projection of the end of rate hikes and with the growth of corporate profits. The house’s scenarios vary between 119,000 points (pessimistic) and 189,000 points (optimistic).
Genial, in turn, has shown caution in its projections, noting that the international scenario is cause for concern, but the greatest risks are internal. The correct score for the index, underlines the house, is 112,400 thousand points. However, with the house more pessimistic on the domestic scenario, it sees Ibovespa at 109,700 points.
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