Former President Jair Bolsonaro 's decision to choose his son, Senator Flávio Bolsonaro, as his candidate in next year's elections has prompted Verde Asset to add a touch of caution to its equity strategy.
Luis Stuhlberger 's asset management firm, which manages approximately R$ 13.4 billion, decided to strengthen its stock market protections through long-term options structures, given "more negative scenarios that seem to be poorly priced," stemming from the Bolsonaro family's decision.
"We see a political landscape that remains quite uncertain, and we maintain a view of significant probabilistic uncertainty regarding the next electoral cycle, in addition to risk premiums that are considerably tighter than at the beginning of this year," says an excerpt from the management report of the Verde multi-market fund.
The decision significantly altered the previously very positive scenario for the stock market, which had been benefiting from a combination of foreign capital inflows to emerging markets and "constructive developments" in the local political landscape, with the market assessing that the recovery of President Luiz Inácio Lula da Silva 's popularity had reached its limit.
But Bolsonaro's statement that his candidate is his son, and not the governor of São Paulo, Tarcísio de Freitas , as Faria Lima and the business community had hoped, has led to the assessment that Lula's chances of being re-elected and carrying out his spending agenda have increased.
The announcement sent the stock market tumbling – the Ibovespa closed down 4.87% on Friday, December 5th, the biggest drop since February 22nd, 2021, when Bolsonaro nominated General Joaquim Silva e Luna as president of Petrobras.
"It seems to us that many market participants recognize the potential upside of a political change, but in general the consensus – especially among foreign investors – minimizes the downside of the current government remaining in power," says an excerpt from Verde's letter.
Properly protected, Verde increased the fund's exposure to the Brazilian stock market, while maintaining a stable global position. Positions in Brazilian equities, gold, credit, and local real interest rates were responsible for the 1.06% gain in November, slightly above the 1.05% recorded by the CDI (Brazilian interbank deposit rate).
In the domestic fixed income market, the fund maintained a long position in real interest rates, while in the United States it remained invested in real interest rates and long on implied inflation. In the currency market, the asset manager decided to remain long on a basket of currencies against the dollar, in addition to long positions in the yuan, gold, and the Brazilian real.
Year-to-date, the Verde fund has recorded a gain of 14.78%, above the 12.94% increase in the CDI (Brazilian interbank deposit rate) over the same period.
