This year has already been the biggest in a decade for share offerings from Brazilian companies, but there has been little sign of the foreign investor appetite that fueled prior rallies, as weak growth and divisive politics keep many on the sidelines.
Foreigners invested about 40% of the total raised in the first nine months of the year, according to B3 stock exchange data. That is a far cry from their average 70% participation in previous Brazilian capital market booms such as 2007 and 2010.
Not even the approval of a long-awaited pension overhaul last month — the keystone of a market-friendly turn under President Jair Bolsonaro — was enough to lure back international investors, according to bankers managing the transactions.
Foreign participation remained meager in the latest offerings, which brought the total raised in Brazilian share sales to US$ 21.9 billion so far this year, the highest since local firms raised US$ 48.7 billion in 2010, according to Refinitiv data.
Fund managers, analysts and advisors say sluggish recovery has given foreigners little reason to rush in, while polarized politics under Bolsonaro — and the recent release of his leftist rival from prison — have put some investors on edge.
“The political landscape and the risk of a reversal of the (market-friendly) measures that have been implemented in the last couple of years are the biggest challenges,” said Frederico Sampaio, chief investment officer for Franklin Templeton Brazil.
A Brazilian Supreme Court decision this month allowed former president Lula da Silva to leave prison despite a bribery conviction, firing up left-wing supporters as he vowed to unite opposition to Bolsonaro’s agenda.
Others say a meager economic outlook has offered little upside from recent share offerings, with most companies raising cash primarily to reduce debt, not to finance expansion. Shareholders in need of capital, such as the Brazilian state, sold stakes in companies such as state-controlled Petrobras, Brasil Resseguros and Banco do Brasil .
“Brazil’s potential economic growth is not very high and the unemployment rate is not expected to drop fast,” said Andre Rosenblit, Banco Santander Brasil’s head of equities.
Although the economy has shown signs of recovery, with inflation contained and interest rates at record lows, investors were expecting Bolsonaro’s pro-business policies to take faster effect. A halting approach to pension reform also undermined faith in his dedication to other reforms.
Still, bankers expect international investors to return at a faster speed in 2020, as growth picks up.
“Brazil seems like a more attractive investment destination versus the rest of the region,” said Pablo Riveroll, head of equities for Latin America at Schroders.
But it is unlikely that Brazil will win back its former weight in global emerging market portfolios. The country has dropped from a 16.3% share in such funds ten years ago, close to China at the time, to 7.7% this year.
By comparison, China now represents 31.9% of the MSCI index, up from 18.3% ten years ago, with a boost coming last year when MSCI added mainland Chinese stocks to its global benchmarks.