How do Brazilian companies operate?

According to analysts, the possibility of a higher interest rate cycle mainly penalizes technology companies.
Brazilian companies listed on the North American market are also likely to suffer from rising interest rates
Analysts point out that despite the bad conditions for some sectors, there are good growth opportunities

Chance of rate increase Fee In the United States (United States) Has affected the North American market in the first months of this year. According to a survey by Econometica sent to E-investorBy the end of 2021, all companies listed in the United States were worth more than $ 51.1 trillion.

Two months later, that enormous amount has shrunk to $ 47.2 trillion, down 7.6% over that period. In this downward view, most of the Brazilian companies listed abroad have losses of almost 42% this year.

The anticipation of an interest rate restructuring punished the performance of shares of companies that are considered high risk, such as technology. The Econometrica survey shows that the 10 biggest declines in the US stock market came from technology companies. Target (FBOK34), Microsoft (MSFT34) and Apple (AAPL34Companies that recorded the biggest negative change from the end of 2021 to Wednesday (2).

According to Gustavo Aranha, partner and distributor director of GeoCapital, the justification for the market value of these companies is due to investor feedback on the risk to companies with high growth expectations in the coming years. “These are companies with the highest growth value in terms of price (of shares) in the coming years. With interest rates likely to rise, the market has become less confident of future growth and has begun to overestimate current profits,” Aranha notes.

Penalties arise because technology companies require expansion investments or borrowed capital. With the rise in interest rates, loans to invest are becoming more expensive. “The possibility of spending too much money on borrowing hinders overall growth rates and this affects the company’s base,” explains David Gobat, CEO of Passfolio.

According to Marcelo Cabral, investment manager at Stratton Capital, the cycle could continue for the first quarter or last longer, with the first adjustment expected in March. “This initial fall was not a very strong fall. The market is still high. Therefore, we have to go a long way for this adjustment in the monetary regime to be reflected in stock prices,” he estimates.

However, Aranha believes that investment opportunities can be created in this scenario. According to him, the fall in all stocks in the North American market was not reflected and some companies were punished for having a long-term growth outlook, even with positive cash flow. Geo Capital partner believes, “These are companies with better results, but they have fallen with non-cash companies (large capital inflows) because they promise very strong growth in the future.” For this reason, the manager has increased his position in companies such as Illumina (ILMN) and Meta (FBOK34) in recent weeks.

In the national stock market, the reality is different. According to Econometric data, the market value of all listed companies in Brazil increased by US $ 128.5 million during the period from the end of 2021 to Wednesday (2).

According to XP’s stock strategist Jenny Lai, this positive movement in the Brazilian stock market is due to the influx of foreign capital, which is seeking safe investments. “We see global investors moving away from technology companies to products and banks, which we have more in Brazil,” explains Lai. The low price was another attraction for investors.

The movement balanced foreign capital at R $ 62.6 billion B3 this year until February 25. According to B3 data, this amount is 130% higher than the inflow of foreign capital in the first two months of 2021.

Brazilian companies that list shares in the United States also suffer from a cycle of high interest rates. According to a study by Stratton Capital on demand E-investorOf the 12 companies that made IPOs in the North American market between 2018 and 2021, only four showed positive performance in this year’s cumulative results. The other eight losses reach nearly 42%.

Being in the technology industry, most of the Brazilian companies listed in New York recently went public. “These are companies that have not yet proven their growth and the expected growth prospects for the future,” Li explains.

This is the case with Nupang (No. 33) It went public in the United States last December and has declined 17.2% since the beginning of the year.

However, other companies in the technology sector are still facing huge losses. Shares of PagSeguro (PAGS) and Stone (STNE) fell 41.6% and 34.7%, respectively, according to the survey.

Rodrigo Lima, a stock analyst, explains that in addition to the high interest rate situation, there are other factors that contributed to the poor performance of companies in the regulatory change to exchange rates. “Stone and Backsego have been hit hard by the central bank’s open consultation to establish a 0.5% limit on transaction fees (DICs) for transactions with prepaid cards, which currently stands at 1.5%,” Lima explains.

Development of new media FeeDigital wallets and pix also affect the revenue of these companies.

Lima explains that for companies with good performance, specific factors of each company contributed to the positive balances. XP offers 10.5% efficiency in 2022. Looking at the performance up to Wednesday (2) IPO date (December 2019), the revenue reaches 17.6%.

To the stock analyst, the positive performance is related to the results the firm has issued in recent months. “The company offers a significant increase in held assets, which reached R $ 815 billion in the last quarter of 2021, and the number of customers, currently with more than 3.4 million investors,” he notes. Recent acquisitions such as the Bango model were also pleasing.