This article is from cointelegraph.com.br and the original article can be read here in Portuguese
Rising inflation is increasingly shrinking the purchasing power and financial income of the Brazilian population in 2022, according to a report published by Valor Investe on Wednesday, June 1st.
With the projection of 0.28% for the IPCA in May, the index will reach 4.59% in the first five months of the year. Thus, there were few applications that managed to overcome or even keep up with the rise in inflation in Brazil until now in 2022.
Seen as a potential asset for hedging against inflation and the loss of citizens’ purchasing power, Bitcoin (BTC) led the accumulated real losses, recording a devaluation of 45.22% in 2022, having also suffered the additional impact of the appreciation of the real against the dollar.
The US currency has dropped 14.77% since the beginning of the year. Adding the Brazilian inflation index, the real profitability of the dollar is -18.5% so far. Gold, to which Bitcoin is often compared, did not escape the general trend of the market. The precious metal registers real losses of 19.16% in 2022.
Among the indicators of variable income assets, the Ibovespa index is one of the few that has been able to beat the IPCA. The Brazilian stock exchange index registers accumulated nominal annual returns of 6.23%, which is equivalent to 1.59% in real terms.
The main highlight of the variable income segment, however, is the dividend index (IDIV), which increased 4.26% in May and 14.16% in the year. A rise of 9.15% discounted inflation.
Fixed income and interest rate
Fixed income investments have also registered negative real returns in 2022. With the exception of the IMA-B 5 and IMA-B, which represent baskets of IPCA+ Treasury bonds, with terms of up to five years. Both have registered nominal returns of 6.25% and 4.73%, and real returns of 1.59% and 0.13%, respectively.
Itaú Unibanco and Claritas analysts interviewed by the Valor Investe report believe that although the interest rate of the Brazilian economy is currently at 12.75% the Monetary Policy Committee of the Central Bank (Copom) has not yet reached the ceiling. Both project that the interest rate should be raised to 13.75%, a level at which it should remain until the end of the year.
With one of the highest nominal interest rates in the world, Brazil may have anticipated a global movement of monetary tightening, favoring fixed income investments.
Even more so because the global macroeconomic and geopolitical scenarios are expected to remain unchanged until the end of the year. The main factors that have determined the behavior of the markets should remain unchanged, despite the recent US stock market relief rallies and from one Bitcoin’s brief recovery started on the weekend, but already interrupted. Both market movements proved to be insufficient to reverse the prevailing short- and medium-term downtrend that affects risky assets.
Henceforth, the US Federal Reserve (Fed) must accelerate its policy of tightening monetary and raising interest rates in reaction to the inflationary shock, All the more so because the war in Ukraine acts as a vector of additional pressure on commodity prices, affecting the global economy in a broad way.
There is still a growing fear that a recession in China is inevitable. Mainly due to the restrictive social isolation guidelines imposed by the Chinese government with its zero-tolerance coronavirus policy.
Inflation should be guided by the prices of oil and its derivatives, said Gina Bacelli, an economist in the area of investment strategy at Itaú Unibanco. Thus, fixed income instruments are among the bank’s main investment indications to its customers.
Preferably, fixed-rate bonds with shorter maturities, with a term of up to three years, and in inflation-linked securities, which ensure real gains in the long term and, therefore, more attractive returns.
Although I believe the price of some shares on B3 to be attractive, the risk-return ratio is still unfavorable compared to fixed income. Finally, Bacelli says that Itaú Unibanco suggests allocation between 14% and 19% in variable income, depending on the risk profile of the investor. There is no specific suggestion for Bitcoin and others cryptocurrencies.
As Cointelegraph Brasil recently reported, the price of Bitcoin could still reach $14,000 during current bearish cycle. Even so, the current price levels, around $30,000, could result in good buying opportunities for investors with a long-term focus.
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. EmeringCrypto.io does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.