Harion Camargo | An institutional overview of the Brazilian market - what to expect in 2024

Rio de Janero - Since the second half of last year, developments in the Brazilian macroeconomic scenario and greater political stability have been crucial factors for the recovery of credit in the country. Advances such as more effective inflation control, the implementation of tax reform, and the appreciation of the real have boosted the productive sector, and this trend is projected to continue throughout 2024, including in the capital markets.

Even in 2023, the federal government sent various signals to the capital markets. The Ministry of Economy, for example, stated that the new financial management model would be neutral, ensuring that taxation, accounting practices, and regulations would not make distinctions between public and private securities. These guidelines are considered positive indicators for this essential component of the financial system, whose main goal is to bring together those in need of resources for projects with those who have capital available to invest.

Capital market issuances totaled R$ 463.7 billion in 2023, a 14.9% decrease compared to 2022, according to data from the Brazilian Association of Financial and Capital Market Entities (ANBIMA). The best performance was recorded in December of last year, with issuances reaching R$ 74.5 billion.

Debentures led the fundraising, reaching R$ 236.3 billion in offerings last year. This result was driven by outstanding performance in the last quarter, totaling R$ 94.3 billion, although it represented a 12.7% reduction compared to the previous year. Among the sectors, the electricity sector stood out, recording R$ 62.4 billion, followed by transportation and logistics (R$ 30.6 billion) and sanitation (R$ 28.4 billion). The average term of the bonds was 8.6 years, surpassing the 6.3 years recorded in the same period in 2022. In the case of incentivized debentures, the average term was even longer, reaching 14.3 years, representing an increase from the 12.7 years in 2022. Regarding the allocation of resources, 30.9% were directed to infrastructure investments, a significant increase compared to previous years (in 2022, the allocation for infrastructure was 20.2%).

In the broader context of investment funds, Brazilian investors withdrew R$ 127.9 billion in 2023, according to ANBIMA data. This result was influenced by a negative withdrawal of R$ 74.5 billion in December alone, contributing to a total deficit of R$ 114 billion in 2023. By category, multimarket funds led the outflows, totaling R$ 134.3 billion. Next, fixed income saw withdrawals of R$ 59.8 billion, while equity funds had net outflows of R$ 17 billion. This dynamic occurred simultaneously with the sector's overall unsatisfactory performance in terms of profitability.

Looking at the current scenario, after more than two years of low activity, 2024 is projected to be the year of the resurgence of IPOs in Brazil. With pent-up demand from several companies that postponed their plans due to high interest rates, numerous Brazilian companies are poised to take advantage of the improved outlook and go public on B3 this year. Investment bank executives believe that IPOs will only gain traction from the end of the first semester, after the return of follow-ons, and are expected to be led by large and cash-generating companies.

*Harion Camargo, CFP®, DCM Manager, Banco Mercantil, Sao Paulo, Brazil. Harion is a holder of a Bachelor's degree in International Trade and postgraduate in Financial Engineering (FIA-SP), certifications: CFP, CFA Investment Foundations, Cambridge, CEA, CPA-20, CPA-10, PQO, FBB-100, and CA-300. He also conducts various lectures at universities on topics related to personal finance and the financial markets.