Investing.com -- The expectation that a slowdown in the Brazilian economy will curb the deterioration of inflation expectations has led Latin American managers to reduce their projection for the terminal Selic rate compared to the beginning of the year. This is revealed in a report released on Tuesday by the Bank of America (NYSE:BAC)’s Fund Manager Survey for the region, which interviewed 32 managers with approximately $79 billion in assets under management.
At the beginning of the year, the expectation was that the current Selic rate hike cycle would end at 17%. Now, two-thirds of the participants project the final rate to be between 14.5% and 15%. The Selic rate is currently at 14.25%.
In the last meeting of the Central Bank of Brazil’s Monetary Policy Committee (Copom), the committee followed the signal from the previous meeting and raised the benchmark interest rate by 100 basis points. At the next meeting on May 7, the Copom signaled another rate hike, but without specifying the magnitude, guiding that the decision will be data-dependent.
At this level, managers are far from having a predominant position in Brazilian equities. To start a portfolio rotation, most managers pointed to a Selic rate of at least 10%.
External Risks Reduce Risk Appetite
The BofA survey reveals that Trump’s tariffs on imports from other countries are the biggest external risk concern among Latin American investors, with fears of economic slowdown in the U.S. and China, as well as falling commodity prices, increasing among managers.
These perspectives translate into a lower risk appetite. Only 6% of managers are currently taking greater risks than normal, with most increasing cash levels.
However, 44% plan to increase their allocation to equities in the next 6 months, a percentage above the historical average (38%). The Utility and Financial sectors are preferred, while commodities and discretionary consumption are considered underweight. Respondents expect that high-quality and high-dividend yield strategies will perform best over the next six months.
Ibovespa, Dollar, and Brazil’s GDP Projections
Managers expect a sideways Ibovespa with a slight rise above the historical record over the year, projecting it to end 2025 between 130,000 and 140,000 points. Thirty-one percent expect downward revisions in corporate earnings expectations throughout this year. However, the sentiment is that Brazilian stocks have the potential to outperform their Latin American peers compared to Mexican stocks.
With the expectation of a weak dollar globally, the average projection is for the Brazilian currency to close 2025 at R$ 5.80 per dollar. The average GDP growth estimate for Brazil this year is projected to be between 1% and 2%.