The Brazilian stock market (Bovespa) overtook the psychological threshold of 100 thousand points last week and today it is already at 102 thousand.

After the election of Bolsonaro to the presidency of the Republic there were many (I included) to foresee a substantial growth of the Ibovespa (Bovespa Index).

Immediately after the election of Bolsonaro (end of October 2018), XP Investimentos published the following forecasts:

  • Bovespa: it has ample room for improvement and could reach, in an optimistic scenario, 125 thousand points by the end of 2019. In a moderate scenario, the estimate is that it can reach 105/110 thousand points
  • Dollar: after an initial period of devaluation, it should close 2019 quoted between 3.70 and 4.00 reais
  • Recommended stocks for the purchase: all state-owned, in particular Petrobras, Cemig and Banco do Brasil

The Bovespa grew by 18% in the period considered: Cemig grew by 34% and Banco do Brasil by 25%. Petrobras, on the other hand, was disappointed, remaining stationary, listed at R $ 28.00 per share.

The dollar is quoted today at R $ 3.83, undergoing a relative devaluation after reaching a peak of R $ 4.10 on May 20, just a month ago.


Let’s see the trend of Ibovespa from January 2018 to today.

From January 2018 to the end of June 2019, he has scored:

+ 31% of the value expressed in reais

+ 13% in dollars

+ 19% in euros

The performance of the Bovespa was very positive in terms of local currency (+ 31%), even net of inflation (around 6% in the period considered).

However, it is clear that the devaluation of the real influenced the result in euro and dollar. In the case of the euro, the good result in the reais was partially canceled, but the performance continues to be positive (+ 19%). The worst performance in dollars, which still earns 13% in the period considered.

That is, whoever invested 10 thousand dollars in the Brazilian stock market in January 2018 today would find, before the various commissions and taxes, around 11300 euros. Excellent investment, if we consider for example the NYSE, which in the same period lost 3%.

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I remember that the value of the basket of shares that constitutes Ibovespa is strongly concentrated on some blue chips that are very sensitive to political events and to changes in macroeconomic factors:

Itau (Itausa and ItauUnibanco): 14.23% of the index

Petrobras (ON and PN): 11.45%

Bradesco (ON and PN): 9.90%

Vale (ON and PN): 5.80%


Four years of growth

The first months of 2019 could have been even more positive for the Brazilian stock market, but the difficulties of the new Brazilian government in articulating a consistent economic agenda (pension reform, mainly) and the cooling of the economy have held back the enthusiasm of the investors.

However, the balance continues to be very positive, if we consider that in the last 3 and a half years the Bovespa has grown by 150%.


What to expect from the Brazilian stock market in the coming months?

Despite the cooling of the economy in the first half of 2019, there are several signs of a change in the economy.

The approval of the pension reform is in the final stages, there is a good chance that it will happen as early as July. Much of the credit goes to Rodrigo Maia, president of the Chamber of Deputies, who has managed to articulate his parliamentary intent without distorting it. Although the reform itself does not solve the country’s problems, it will be an important signal for local and foreign investors.

Inflation continues to be under control and Banco Central has signaled the possible start of a cycle of reductions in the discount rate (SELIC), conditioned however by the approval of the pension reform.

On the international front, the monetary policy of the United States and the European Union is heading towards a reduction in interest rates, a factor that tends to stimulate the flow of investments towards countries with a developing economy, which is the case of Brazil .

A trend is underway to strengthen the real, which appreciated by 6.2% against the dollar in five weeks. This phenomenon is a consequence of the factors mentioned above, but by no means less significant than the state of confidence of the markets.

With this scenario and the growth prospects that are materializing, it is natural that the markets are betting on an enhancement of equity assets, and this explains the recent price increases.

In the case of approval of a pension reform that allows a substantial reduction in the social security deficit, the doors will be opened for other necessary reforms, above all fiscal and political.

Brazil has all the potential to enter a virtuous circle of sustainable economic growth and therefore there is room for significant growth in stock prices over the next six months, with a target of 120 / 125,000 Ibovespa points.


Note: those interested in the historical performance of the daily Bovespa index, real / euro exchange rate and real / dollar exchange rates for the last three years, can receive it for free in excel format by requesting it to: