Volatility decreased in the local and foreign financial markets, after reaching, in March and April, brands never seen before, overcoming even the peaks of the 2008 global crisis. But experts heard by the Estadão / Broadcast believe that asset prices will continue with high levels of volatility, influenced by the increase in political uncertainty in Brazil and, in the international market, by the worsening of relations between China and the United States and doubts about the resumption of the economy amid the pandemic of the coronavirus.
Volatility measures show that fluctuation levels have skyrocketed with the advancement of the covid-19 pandemic. The VIX volatility index, considered a “fear gauge” in the markets, traded in Chicago, has surpassed the 82-point level, until then the highest mark reached in history, only reached in the financial crisis of 2008. This month, the indicator is around 30 points.
The volatility of currencies has also been reduced recently, although less than in the stock markets. In the case of Brazil, the implied volatility of the dollar for three months skyrocketed from February onwards, level below 12% per year, which came since November 2019, to the peak 24% in March. This month fell again, but it continues above 20%. The higher the index, the signaling is of greater demand for the dollar, with the investor trying to protect himself from volatility.
JPMorgan strategists point out that April marked the transition from a period of acute volatility in the markets, amid the rapid spread of the coronavirus around the world.
In Brazil, there were several circuit breakers, billions of dollars injected by the Central Bank in the exchange rate and interest, sometimes reaching high limits, sometimes low, in the future market. In the Brazilian case, JPMorgan warns that in recent weeks political and fiscal risks have grown, which should continue to contribute to the uncertain economic scenario and pressuring prices.
For the chief economist of emerging markets of the British consultancy Capital Economics, William Jackson, the worsening of the political environment in Brazil, with occasional improvements in a few days, but with no sign of going out of the focus of investors, should continue to cause volatility above others. emerging markets, leading agents to embed a higher premium in Brazilian assets due to increased political risk. As he points out, coronavirus cases have only increased, the world economy is collapsing, but it is the policy that dominates the news in Brazil.
Bank of America notes that governments, especially central banks, have been working to keep market volatility low, especially in currencies. But the tendency is for the level of oscillation to remain high in emerging market currencies due to the worsening of macroeconomic fundamentals.
For Brazil, the American bank projects a 7.7% drop in Gross Domestic Product (GDP) this year, in addition to a strong fiscal worsening and a more depreciated real. “We are also concerned that the political and social dynamics are getting worse.”
San Francisco-based technology analyst Beth Kindig warns in a recent article in American magazine Forbes that markets have entered a “new era” of volatility, where movements tend to be “faster and deeper”. All of this is due to the increasing use of hedge fund managers, including in Brazil, of strategies based on the use of algorithms in high frequency transactions, which can make the funds profit in both the accelerated and the downward movement of assets.
A study by Jupiter Asset Management shows that 80% of the American stock market is controlled by robots. “These machines can change their allocations faster than the blink of an eye,” says Beth Kindig, citing studies that point out that a transaction is made in 79 millionths of a second.
Kadima Asset Management partner and manager, Rodrigo Maranhão, a manager specializing in quantitative strategies, using algorithms, points out that robots are programmed with pre-defined rules taking into account “decades of data”. Therefore, the robot makes the decision, removing the emotional component that a person would have if he had to change the strategy quickly. The algorithm must be able to know when to change allocation, when to reset such a strategy, whether to stop losses or make profits, Genial Investimentos said in a live this week.
Maranhão said that two Kadima multimarket funds use algorithms that seek very short-term trends, from one to three days. “In this scenario, this type of algorithm benefits from this environment of greater volatility,” he said. “Our multimarkets have benefited a lot from the dollar’s volatility this year, as well as from overseas markets such as platinum and palladium, metallic commodities with a lot of volatility this year,” he said. “Historically, our funds have performed better in periods of greater volatility.”
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