In line with the war between “David and Goliath” to talk about investments in Brazil and the United States, Guinea, in its monthly letter, highlighted the price of Brazilian assets, even though the US market is a “transparent” option. An important competitive advantage for 2022.
“Like everything Value investor You know, the return on investment is not just a factor of quality and growth: price is a fundamental variable. In that sense, it is possible Davy Brasilro could outperform the North American Goliath, “the manager argues.
In Guinea’s analysis, low expectations around the Brazilian market could open the door to surprises. There is no way to compare the US economy to the domestic economy – in fact, the manager says, the US economy is growing at more than 3% in terms of strength and growth above all else in the world. Before infection.
With GDP growth close to 8% for the fourth quarter, the outlook is even brighter.
Brazil’s expectations, on the other hand, are challenging. According to Guinea, the tightening monetary policy of the central bank and the increase in risk premiums due to the financial situation will put the country on hold next year.
However, through a series of recent crises, according to the manager, the Brazilian stock market has not failed to offer investment opportunities in interest rates or exchanges. Guinea points out that Brazil’s assets are very cheap, especially when considering the actual interest rate difference between Brazil and the United States.
One concern raised by the letter is the 2022 presidential election, which should add volatility to the market. But in Guinea’s analysis, the high probability of a second round between Lula and Jair Bolzano has already been priced. “At the current level, we will receive a positive surprise rather than a negative one,” he said, pointing out that Lula’s credible approval for a third way development or center would lead to a moderate government. Ability to reduce the premium currently required.
But who will win this battle? Little Brazilian Davy or giant American Goliath? The manager divides his analysis into three different asset classes: interest, stock market and forex.
In this regard, the letter points to a “technical tie” between Brazil and the United States. “Both sides offer good opportunities,” Guinea said. In the United States, opportunities are on the “taken” side of interest (available from rising rates) and in Brazil, on the “used” side of indirect inflation and short interest rates.
The stock market
Despite being very strong, with a large number of large assets and large volumes, in Guinea’s view, the US stock market may have little room to grow.
21x Price / Earnings In many scenarios and with real interest rising, earnings depend only on the revenue growth of the listed companies, which, while expected to be positive, will be much more modest than what has been seen in recent quarters, says the manager.
In Brazil, a low economic growth environment will restrict corporate profits. However, the risk premium of local stocks against fixed returns is one of the highest in the last decade.
“In short: the S&P 500 is now a growth index for investors (‘Development‘): High quality with high expectations. When IBOV value is an index for investors (‘Respect‘): Low rating with low expectations ”, the document explains.
In this scenario, S&P would be the most solid code. “Value or growth for 2022? We believe it depends on each investor’s characteristics and appetite for risk, but here again, in a situation that raises expectations, there is room for our dave to bring down the giant, “the manager concludes.
The strength of the US dollar cannot be compared to the real dollar. That gap will widen next year as the US currency is driven by the recession in China, the delay in the European recovery, weaker economic conditions in the United States and less dependence on oil and natural gas, and its prices are rising.
In Guinea’s view, the market has underestimated these benefits to the dollar, so capital inflows into the United States remain attractive.
The real advantage, however, is that even if the currency is affected, it is 15% higher than the worst level of 2002 and higher than the 2016 level.
In managerial analysis, both currencies have the potential to perform better against their counterparts. In addition, having both in the portfolio is a great way to balance risks with “the real risk is the currency and I carry the dollar, the currency that performs best in highly defensive situations”.
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