Note on financial assets in Brazil

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By FERNANDO NOGUEIRA DA COSTA*

The Brazilian economy achieved relative autonomy in terms of financing

The Financial Equity Matrix (MPF), recently published by the Central Bank of Brazil, presents consolidated inventories by financial instruments. In an unprecedented way, it allows observing the distribution of financial assets (R$ 52 trillion in 2020) by the various component instruments and their holders, in the first half (end of 2018 to end of 2020) of the current Brazilian mismanagement.

In the December 2020 position, the importance of shares (28% of the stock), debt securities (23%), loans (18%), fund shares (12%) and deposits (9%) stood out. The first two financial instruments amounted to 51% and the other three 39%, so 90% of the financial equity referred to these five property rights over generated profit streams.

In our typical Miscegenated Anthropophagic Tropicalization (TAM), the Brazilian economy mixes a capital market economy with an economy of bank debt (loans) and public debt (debt securities). Our limited human mind has difficulty understanding it, as it abhors unraveling the multiple interactive components from which it emerges. To transform this complexity into simplicity, we have to follow a method of economic-financial analysis.

The current theoretical avant-garde follows a transdisciplinary method to understand the performance of a complex system composed of multiple components interacting with each other. The scientific assumption is that the components have very simple rules of behavior, but together generate a much more complex collective phenomenon.

In this reductionism, in the Equity Accounts, when referring to institutional sectors, but not to the economy as a whole, the numbers are aggregated, adding the values ​​referring to them, but they are not consolidated. Consolidation would eliminate, in the computation of aggregate values ​​for each institutional sector, assets corresponding to liabilities issued by units of the sector itself.

By consolidating the evolution of net financial assets by sector over the last three years, the net lending sectors (with a positive sign +) of the Brazilian economy in 2020 were households (+71%) and the rest of the world (+29%), while net borrowing sectors (with a minus sign -) were non-financial corporations (-58%) and the government (-40%). The financial system presented its financial companies with an almost balanced consolidated position (difference between assets and liabilities close to zero with a residual of -2%), due to their function of intermediation of resources when the subsystems of financing, money management and payments interact.

A process of financial accumulation represents the capitalization of part of the income flows, received from financial securities, book-entry or digitally accounted for, held by the economic agents of the aforementioned institutional sectors. They constitute “capital” in the sense of a property right over an income.

In the capitalization of a joint-stock company, via the issuance of shares, the controller divides the expected profits or unexpected losses without the risk of becoming a debtor. The interests of stock buyers are divided between dividends and capital gains by buying low and selling high, that is, speculating over time.

Shareholders monitor the risk of dilution of their shareholdings with issues of new shares, if they do not buy them. The goal is to obtain the highest possible rate of return on its shares, considering risk aversion.

It depends on the amount of net dividends distributed, during a certain period, and on the difference between the quotation at the beginning of the period and the change in its quotation. It results in the amount of capital gain or loss, less taxes and transaction costs with the shares.

The challenge of this Brazilian case study based on the MPF is to break with the orthodox separation between Microeconomics (theories of decisions) and Macroeconomics (theories of the resulting interactions between decisions). Before, the microeconomic foundations of Macroeconomics were sought, but today, metaphorically, both a “bottom-up” and “top-down” analysis are sought.

For example, considering the financial equity by type of instrument, estimated by the Central Bank, with BRL 14,5 trillion in shares (28%) and BRL 12,2 trillion in debt securities (23%), there is the interest to know its typical holders. We saw the predominantly creditor “institutional sectors” being households (71%) and the rest of the world (29%).

But how to “reduce this reductionism”? Can we disaggregate further to reveal the concentration of the benefits of financial wealth and hence the interest groups in charge of the Brazilian economy?

One method would be to compare with other data, available on websites of the Central Bank of Brazil, B3, ANBIMA, FGC, etc. In extended credit to the non-financial sector, the total balance in 2020 was practically BRL 12 trillion in 2020, that is, 160% of GDP in the first (depressive) year of the pandemic and social distancing. It increased 21,5 percentage points over the previous year and was 3 percentage points higher than the following year.

This total balance registered loans and financing (R$ 4,3 trillion or 36%); public (BRL 4,4 trillion), private (½ million reais) and securitized debt securities totaling BRL 5,2 trillion or 43%; external debt (loans BRL 1,8 trillion, bonds BRL 360 billion and securities issued in the domestic market and held by non-residents BRL 432 billion) BRL 2,6 trillion or 21%. Therefore, in this financial accounting, the shares issued and their holders were not recorded.

In financial equity by type of instrument, the sum of BRL 12,2 trillion in securities and BRL 9,6 trillion in loans would result in BRL 21,8 trillion or 41% of the total. Banks are issuers of loans, but who are the holders of stocks and bonds?

In 2020, the financial resources accumulated in the segments Consulting (R$ 1,5 trillion), Traditional Retail (R$ 1,2 trillion) and High Income (R$ 1,05 trillion), without considering the volume of open pension plans in Retail, totaled R$ 3,7 trillion.

The largest share of the financial reserve of the less wealthy was in savings, corresponding to 69,6% of the total, followed by fixed income funds and CDB, with participations of 10,4% and 9,9%, respectively. In High Income Retail, bonds and securities, especially CDB, represented the largest part of the portfolio, as its stock reached R$470 billion of the segment's total of R$1 trillion.

in the segment Private, assets linked to variable income ended the year with a stock of R$ 310,5 billion in stocks and R$ 125,2 billion in stock funds. These rich people receive tax-free profits and dividends for further financial accumulation.

ANBIMA registered, for all Individuals, in the Private and in Retail, R$435 billion in shares and R$172 billion in equity funds. Both instruments added up to BRL 608 billion or 16% of the total financial volume in 2020.

According to B3, the participation of investors in the Brazilian stock exchange in 2020 registered 21,4% of Individuals, 27,2% of institutional investors, 46,6% of foreigners, 4,6% of financial institutions and 0,8% others. With the increase in the basic interest rate, after March 2021, there was a rejection of variable income by Individuals. In 2022, its average is 15,3%, institutional (funds) 25,9%, foreign 54,2%, financial institutions 3,7% and another 1%. Foreign colonization via shares remains on the Brazilian stock exchange, without considering shares acquired on stock exchanges in the rest of the world.

The market value of the 387 shares traded, in mid-October 2022, on the spot stock market, reached BRL 4,4 billion, with ¼ of it concentrated in the shares of Petrobras and Vale. In 2019, they were all worth R$4,1 trillion, in 2020, R$7,2 trillion, and in 2021, R$8 trillion. Equity wealth is volatile, therefore risky!

As we have seen, together, bonds and loans surpassed shares (41% against 28%), that is, in Tropicalização Antropofágica Miscegenada (TAM) the economy of public debt and banking prevailed over the economy of the capital market. In 2020, expanded credit reached 160% of GDP and expanded means of payment, that is, Financial Assets reached BRL 8,4 trillion or 113% of GDP. That funding (financing sources) represented 71% of extended credit, of which 1/5 (or 34% of GDP) was external debt, that is, financing granted from abroad.

In summary, the conclusion is that the Brazilian economy has achieved relative autonomy in terms of financing. There is a lack of greater technological autonomy, a delayed search, including due to the recent setback, caused by scientific denialism.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Support and enrichment network. Available in https://fernandonogueiracosta.wordpress.com/2022/09/20/rede-de-apoio-e-enriquecimento-baixe-o-livro/

 

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