(Bloomberg) -- Companies are lining up to abandon Brazil’s stock market, joining dozens that have left in recent years as high interest rates sap valuations. Opportunistic investors are waiting with open arms.
Subsidiaries of media giant Globo Comunicacao e Participacoes and French supermarket chain Carrefour SA are a few of the firms planning to ditch B3 SA, which operates the local equity exchange.
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It’s gotten harder to find reasons to stay. A mix of political instability and double-digit rates have hurt the local equity market, and many investors have moved their money into safer fixed income instruments with high yields. Today, 429 stocks trade on B3, according to the exchange, down from 463 in 2021. Half of those departures came in 2024.
Nobody is replacing those runaways. B3 hasn’t had an IPO in about four years, and a wave of buyouts — often from companies with existing stakes — is gradually leading to more delistings.
“The investable universe in equities in Brazil has become very small,” said Christian Keleti, Chief Executive Officer at Alpha Key Capital Management.
In August, payment processor Cielo delisted following a tender offer from its controlling shareholders. Carrefour plans to take its local subsidiary, Atacadao SA, private after buying the shares it doesn’t already own. Meanwhile, Globo is trying to pull Eletromidia SA, which it acquired in November, off the exchange.
Smaller constituents are also looking for a way out. Internet services provider LWSA SA, veterinary pharmaceutical company Ouro Fino Saude Animal Participacoes and electronics manufacturer Positivo Tecnologia SA are actively considering leaving B3, according to people with knowledge of the matter. All three companies declined to comment.
“Strategic investors have started to emerge, willing to delist,” said Keleti. “This will happen more and more with the current level of share prices, because, especially for those with a strong currency, it is very cheap to buy.”
Brazilian stocks sell for 7.13 times blended-forward 12-month earnings, below the 10-year historical average of 10.06 times, according to data compiled by Bloomberg. They’re much cheaper than the MSCI gauge of emerging-market stocks, which trade at a ratio of 12.46.
A similar trend is taking place in Mexico, with billionaire Ricardo Salinas Pliego planning to take Grupo Elektra private in the wake of a huge selloff of its shares. The Mexican stock market has seen a spate of delistings in recent years due to weak valuations and corporate aversion to transparency.
The lackluster interest in Brazilian equities has also depressed trading volumes. In 2024, Brazil’s benchmark Ibovespa index had an average daily trading volume of around 23.9 billion reais, down from 33 billion reais in 2021.
However, the index is up more than 4% this year amid a broad rebound in Latin American equity markets. Soft economic data reports that fueled bets that the central bank won’t tighten monetary policy as much as expected and signs that leftist President Luiz Inacio Lula da Silva won’t run for re-election next year have also helped push stocks higher in recent weeks.
Raphael Figueredo, an equities strategist at XP Inc, said a challenging economic landscape may make it “less costly for some companies to go private than to remain publicly traded” since listed firms are “subject to speculation and strong outflows driven by funds withdraws.”
Companies that remain on the stock exchange have resorted to buybacks and dividend payments in an attempt to keep their shares attractive. Last year, B3 constituents announced the most buyback programs since 2008. Meanwhile, a rush of dividend payments at the end of last year led to outflows that weakened the local currency, prompting the central bank to intervene to prop up the cratering real.
“Companies are finding their shares very cheap,” said Rafael Oliveira, an equity fund manager at Kinea Investimentos. Instead of spending on capital expenditures, he said, “they are seeing that buybacks are perhaps the cheapest investment they can make in this context of high interest rates.”