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SÃO PAULO – What Title to Buy on the Stock Exchange in Times of Uncertainty for the Brazilian Economy? For most of the year, the most obvious answer was to Suzano (SUZB3), in the logic that, as an exporting company, it would benefit strongly (and automatically) from a strong dollar.
In addition to being a company with good fundamentals and a great deal of progress before the Fibria merger (FIBR3), it would be a natural cover among the fuzziest scenarios. As a result, shares rose 192% during the year, reaching R $ 54 in September and being by far the highest Ibovespa of the period, becoming a true "star" of the stock market.
Thus, as expected, Suzano did not show a positive performance during the election period, with a loss of 23% in October, election month and in which the market was already predicting a victory for Jair Bolsonaro, walked into the perspective of the discourse in favor of reform. During this period, the Ibovespa rose by 10.2%, while the dollar lost 8%, or R $ 3,328.
However, even the recent upturn in US post-election money to R $ 3.90 was also in the international arena, and the uncertainties surrounding the next government's reforms had not encouraged SUZB3's to applaud the stock market. The last two sessions of November, shortly after the European competition authority approved the merger of its activities with Fibria, were made available to the company. However, equities have fallen rapidly and badets have already fallen by 34% in just over three months.
The explanation of this movement is explained by a factor which, until now, did not weigh. the company has gained momentum, especially in recent sessions, which has led badysts and managers to review their outlook on the company's numbers. This is the sharp decline in pulp prices with the uncertainties of the Chinese economy. Until the beginning of the third quarter, the scenario was stable for the commodity, which led Suzano to reflect more the exchange – but that has changed.
Last Tuesday, prices for hardwood pulp, produced by Suzano, recorded the largest year-to-year decline from $ 29.51 per tonne to $ 706.90 per tonne after falling . $ 13.78 a tonne last week. The decline, moreover, is widespread: long fiber prices have also fallen from US $ 6.66 per tonne to $ 803.21 per tonne, while European prices have also fallen strong devaluation.
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These downward movements of one of the major inputs overlapped on the dollar's performance, reminding the market that Suzano's investment thesis was not simply not depend only from the macro point of view.
And while some badysts say the stock is cheap in the midst of recent sharp declines, the lack of visibility on commodity prices leads to a still pessimistic outlook for the company's stock , according to the partners of the manager. Capital of Vinland, Humberto Meirelles and Paulo Castilho.
"We have a negative view of the action, not exactly for society, but much more for the way we see the commodity cycle. With falling prices, the stock is declining, whatever or its value, because it increases the uncertainties on the cash generation of the company, which leads to an anticipation of the performance of the shares ", explains Meirelles.
Thus, with few prospects for short-term commodity price recovery, let alone Given the fears of a trade war likely to weigh on Chinese economic activity, one will be able to take advantage of this. is expecting Suzano's pressure despite the already dramatic decline in badets. "The commodity falling without it being clearly known when the economic slowdown will stop, it's time to go out [do papel]," said Meireles, pointing out that the exchange rate is important, but that the performance of the Brazilian currency and cellulose is the most important.
Reversal of landscape? Without Great Expectations
For Meireles, the reversal of this pessimistic scenario would consist in adjusting the commodity stocks, which are currently high, in addition to a better coordination of supply between the producers, which could have a greater impact on prices. From a macro point of view, a prospect of improving activity in China and reduced risk of trade war could be factors leading to a recovery of the pulp and, therefore, to the badets from Suzano.
But for now, the visibility of the occurrence of these events is quite low, so that managers do not look at the moment for badets. They also point out that, for those who wish to expose in exchange, the shares affected by the US currency are not the best option, but are positioned directly in the currency.
However, it is important to highlight the positive market outlook for Suzano in the medium term, especially given the significant synergies (and $ 1 billion) resulting from the merger with Fibria, as well as the market always carrying its main commodities. even with projections for more conservative demand growth. In the short term, however, the word of caution is careful with Suzano.
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