The outbreak of covid-19 in China, the second largest economy in the world, has caused concern among investors. The return of the increase in cases of the disease caused some cities to decree lockdown again. Ports were closed, industries paralyzed their activities and the country slowed down, impacting the plans of importers and exporters from other nations.
As a result, commodities (raw materials such as oil, iron ore, soy), which had been heated since the beginning of the Russian invasion of Ukraine, began to lose strength. Attracted by higher interest rates and less political and commercial risk, international investors are looking for alternatives.
Given this, how can the scenario in China affect your pocket as an investor? And how to protect yourself from these uncertainties? Check below the answers to these questions, according to experts heard by the UOLand more details on the current situation in the Asian country.
Recently, the Chinese government announced an infrastructure stimulus package in hopes of reviving the economy. For investors, there is still no clarity on how long it should take for the Chinese economy to recover.
The recovery in commodity prices, for example, is linked to the permission to reopen factories and the relaxation of confinement rules to contain cases of covid in places like Tangshan – China’s largest steel production hub.
Before the return of restrictions for isolation, the country was already suffering from difficulties in the real estate market, depressed by the increase in default and high leverage.
The set of unfavorable facts also has its effects on the yuan, China’s official currency, which reached its lowest level in 19 months against the dollar this Thursday (12), accumulating a devaluation of almost 6% in one month.
A recent report by MUFG (Mitsubishi UFJ Financial Group, Inc), the holding company of Banco MUFG Brasil, cites concerns about inflation due to the blockade of circulation in part of the nation.
“Considering that China is a major global supplier of manufactured goods, this leads to higher price pressure on electronic goods, appliances and clothing,” the note reads.
The analysis by Guide Research, on the other hand, states that, even with better-than-expected figures for the April trade balance, there are signs of a slowdown in the Chinese economy.
China’s impacts on investments in Brazil
As the world’s second largest economy — and the largest exporter and main consumer market in terms of population — China’s performance has an impact on global growth, particularly in commodities.
“As important as the Fed’s rate hike [Federal Reserve, o Banco Central americano]the challenges for the Ibovespa [principal índice de ações da Bolsa de Valores brasileira] are inextricably linked to the future of our largest trading partner,” says the Guide Research report.
This is because the monetary tightening promoted by the Fed, by raising the dollar, reduces interest in investments in emerging markets. The move is already reflected in China’s corporate credit market, which has been facing difficulties.
O UOL listened to experts to learn how to protect the investment portfolio from international instabilities such as China has suffered.
How to protect your wallet
Luís Barone, manager of fixed income, public and private bonds at Galapagos Capital, says that, in part, the reaction of the dollar against the real, observed in recent weeks, has to do with the Chinese economy, but also with the rise in American interest.
In general, according to Barone, assets with market risk, exposed to a very high fluctuation, in addition to suffering today from the high fiscal deficit and the pre-election climate in Brazil, are the most affected by external factors, such as the moment faced by China and the decisions of the Fed.
The small investor, as the manager of Galapagos Capital says, must, at this moment, try to get out of the market risk.
Now, the option with the least exposure to uncertainties, including those coming from China, is fixed income, which, as the expert says, almost always paid high interest rates and is now “particularly attractive.”
Despite the expectation of falling inflation [que vai caindo] in Brazil, prices should continue to rise, so it is interesting to invest in assets linked to inflationary indices. Even because, for a while, we will continue to see the effects of the problems with supply chains and with the flow of products in some ports, triggered by the pandemic in China and the war in Ukraine, which reflects in the increase in costs.
Luís Barone, manager at Galapagos Capital
The investments most exposed to the Chinese crisis are Brazilian exporting companies, such as the mining company Vale (VALE3), which has fallen sharply since the March 7 trading session on B3 — and which, due to its weight, has compromised the performance of the Brazilian stock exchange. as a whole. The assessment is by Renato Breia, founding partner of Nord Research.
Although the Chinese problems are not recent and are already being felt in the Brazilian economy, the specialist finds it difficult to calculate their extent.
Sandra Blanco, strategist at investment platform Órama, has a different opinion than Barone. “Inflation is high in the world, as well as here. But in Brazil we should be close to the peak”.
Another suggestion by Barone is fixed-rate government bonds, which have been reaching record yields thanks to other market factors, such as risk aversion and expectations for the price of oil.
On Thursday (12), the Fixed Rate Treasury with maturity in 2033 and payment of semi-annual interest was traded with an annual return of 12.71%. Other examples are the Fixed Rate Treasury 2025 and the Fixed Rate Treasury 2029, both with an annual return of 12.56%.
Breia, from Nord Research, says that there are not many companies linked to commodities on the Brazilian stock exchange. Among those currently most exposed, he cites, in addition to Vale (VALE3), Petrobras (PETR3/PETR4) and PetroRio (PRIO3).
For those who want to take advantage of the moment of loss of Chinese vigor, the partner at Nord Research explains that the best moment may be behind us.
“The best time for portfolio repositioning is over. Most of the upside [previsão de quanto um ativo pode subir em um determinado período] of commodities has passed”, says Breia.
Even so, the executive sees some opportunities on the Brazilian stock exchange, which has good assets traded below their potential value.
Among them, PetroRio itself (PRIO3), because, according to him, it is not only linked to the price of the commodity, but to the increase in production, and the expectation is that prices will stay high for a while.
Breia also suggests the purchase of dollar-denominated assets, taking advantage of the current exchange rate level, because the American stock market has also dropped a lot.
The strategist of the Órama investment platform includes in her list of assets most exposed to the Chinese slowdown, commodities (grains, oil and metals), variable income (in particular exporting, consumer and meat companies), asset classes linked to inflation and fixed income (in Brazil, interest rates may reach the end of the high cycle).
Even with the unstable environment, it is possible to find opportunities when buying assets with prices below their potential, according to Sandra. “For the investor who has a long-term horizon, with the recent drops, some good opportunities have arisen”, she says.
Below is the portfolio suggested by Órama’s strategist:
The strategist, however, warns investors who are frightened by the retraction behavior of some assets, such as commodities.
The market has already fallen a lot, but now is not the time to reduce the position and take a loss. It’s better to wait now. Brazil is still an attractive country for foreigners,
Sandra Blanco, strategist at Órama
The Galapagos Capital executive makes another recommendation: investors with little experience should not try to find opportunities, on their own, in an unfavorable scenario in China or the war between Russia and Ukraine. For example, trying to profit from a new high in commodities or products pegged to foreign currency.
“It is very difficult to predict the price of a commodity, which has a higher volatility than the country itself. Likewise, it is not possible to anticipate exchange rate movements, even more so with so many uncertainties”, says Barone.