Markets are up around the world despite the pandemic and economic concerns, buoyed by low interest rates. When Brazil’s central bank pushed interest rates down to a historic low of 2% amid Covid-19, it sparked a particularly large shift among Brazilians, who are swapping their dwindling fixed-income investments for stocks for the first time. Fueling the trend are social-media stars who have boosted the market by giving younger Brazilians—lots of them—the confidence to try their luck with equities.
A million new investors entered Brazil’s stock market since March and there are now three times as many investors in the market as there were two years ago. The new interest in the market has paved the way for a flurry of public offerings, with 25 companies going public so far this year, the most in 13 years. The São Paulo-based B3 exchange’s benchmark index, the Ibovespa, is up more than 60% since its March low.
Brazil’s stock market has long struggled to attract local investors. With interest rates as high as 14% here only four years ago, investors had little reason to abandon profitable fixed-income investments to venture into stocks. The stock exchange has also traditionally offered little diversity, with miner Vale SA and oil company Petrobras accounting for a little more than a fifth of all shares in the Ibovespa.
Despite concerns about Brazil’s deteriorating fiscal health, the government has rolled out stimulus amid the pandemic, amounting to 8.3% of output, which has helped buoy the economy and injected confidence into the stock market. Investing in stocks is riskier and more volatile than bonds, since their returns are closely linked to the health of the economy. Right now, equity returns are soaring—not just in Brazil, but globally, boosted by countries’ pandemic stimulus packages.
Brazil also is seeing a shift in the culture and mechanics of investing. Historically, equity investing had been for the elite. Opening accounts and trading securities was prohibitively expensive. The large banks that dominated often limited investments to their own products.