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Stock Exchange, fixed income and focus on China: see the best investments for 2021


Increased pandemic, risk of fiscal unrest and political uncertainties put pressure on investors in early 2021; setting goals and diversifying options are key tips for those just starting out

Fabian Blank/UnsplashKeeping investment goals in mind and diversifying options are top tips from financial market experts

The year 2021 did not start easily for the Brazilian investor. After the Stock Exchange renew the historic maxim by closing above 125 thousand points, speculators of the Ibovespa, the main B3 index, saw the trading session close successively in red. The 3.21% drop, at 115,067 points this Friday, the 29th, was the 12th day that business ended in fall, compared to seven trading sessions. The forces that put pressure on the market’s mood at the beginning of this year are similar to those seen in 2020 in the worst moments of the Covid-19. From outside, the apprehension of global markets comes due to the high number of infections, while in the domestic agenda the risk of uncontrolled public accounts and uncertainties in the political direction predominate. Faced with this adverse scenario, economists and financial market experts are categorical in reinforcing basic principles: having defined objectives and diversifying options. Knowing where you want to go is essential to define the departure routes. The goals can be broad, from a vacation trip, to covering the costs of a wedding party, buying a new car, renovating the house or having comfort in retirement. “It is important to understand this profile before starting. One profile may have more identification with the variable income, while another may be better looking for something in the fixed income. It is necessary to understand what the person wants with that investment ”, says Betina Roxo, chief strategist at Rico Investimentos. The second point covers one of the most cliché advice in the financial market: never put all your eggs in one basket. Even if the investor’s profile is more aggressive, it is essential that he does not invest 100% of the chips in risky assets, such as shares on the stock exchange. On the other hand, even the most conservative should not shy away from investing part of the money in anything other than fixed income.

The number of bettors on the Brazilian Stock Exchange doubled in 2020 and currently totals more than 3 million people. If this contingent entered the worst economic scenario of the last century, the expectation of improvement in the indicators should keep the flow of new speculators up over the next few months. However, for beginners, the scenario will be different from that faced by those who disembarked during the new coronavirus. In general, the markets have already recovered the losses suffered last year, which ends up dropping the risk of the application. This decrease in the probabilities of loss causes premiums, that is, remuneration, to shrink. “It doesn’t mean that there are no risks, but the profits are more moderate than before,” says Michael Viriato, professor of finance at Insper. This recovery has been being rehearsed since the end of 2020, when the financial market detached itself from the “real economy” and started successive hikes. Investors, however, are driven by expectations. For Viriato, the time has come to know if the optimism that supported the rise at the end of last year will really materialize. “Now is the time for the test, that is, will the economy really improve? Will jobs come back? Will inflation stay low? It is a series of questions that need to be answered now. ”

The bad mood that contaminated the Ibovespa in the first month of the year indicates that the result of this test was below expectations. Although the scenario tends to be positive in the general scenario, this moment of instability overshadows investors’ view. In the face of uncertainty, the experts’ recommendation is to seek safe haven in sectors that minimize risks, such as commodities and linked to innovation. “ The investment should be seen as the purchase of part of the company, even if it went up a lot in the last year. E-commerce remains a disruptive sector, and looking at the long term it makes sense to keep growing, ”says Betina. Segments that were heavily punished by the pandemic, such as tourism, transportation and physical stores, but which are already showing recovery, should also be on the radar of those looking for something long-term. “There are still challenges for the resumption and it is not something so fast or sure, but the vision is that once they operate normally, they will return to profit.” Viriato, from Insper, also mentions these recovering markets, with emphasis on utilities and retail, as a focus of attention. “ The companies that are most affected can benefit the most. It all depends on the resumption of the economy. ” It is also necessary to analyze how the end of measures to maintain the economy last year will have this new phase. “You have to wait for the first quarter to see it. Emergency aid promotes a series of distortions in consumption, and made sectors appear not to have suffered from the crisis, such as civil construction. It is necessary to be careful if it is something solid or illusion ”, he says. The pressures in Brazil open opportunities for investors to seek better profits in exchanges and investments abroad. The Asian market, driven by the recovery of China before the other countries of the globe, it is the best option for those who want to bet on financial speculation abroad. “When we think about diversification, it is not just for an asset class, but also for geography,” says Betina. In the international market, Viriato highlights the opportunities in sectors aimed at consumption. “ The market that may be very surprising this year is the Asian market, mainly China. The consumption there tends to develop stronger with the recovery of the economy ”, he says.

Fixed income investments have always been Brazilians’ favorites, but this relationship began to change with successive cuts in Selic by the Central Bank. Between the end of October 2016 and September 2020, the basic interest rate of the Brazilian economy went from 14% to 2%, and has since remained at the lowest level in history. The situation is expected to change this year. At the first meeting in 2021, the Monetary Policy Committee (Copom) removed the foward guidance, as the policy of keeping interest rates low was baptized, signaling the thawing of the Selic and the beginning of a new escalation. The signals issued by the monetary authority made the financial market bet that the interest indicator will end the year at 3.5% this year, according to the Focus Bulletin. However, there are those who see the prospect of an increase of up to 5%. Despite the high, the index is still far from what it was a few years ago, but that does not mean that it does not have attractive options. “It yields much less than before, but it is still a good investment for making emergency reserves. It is not an option for those looking for profitability, but to have security and liquidity ”, he says.

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