August 20, 2019 / 5:39 PM / 3 months ago

UPDATE 2-Volatility drives away foreign investors from Brazil, but IPOs arouse interest

(Recasts, adds analyst comments)

SAO PAULO, Aug 20 (Reuters) - Foreign investors have sold off 20.3 billion reais ($5 billion) in Brazilian stocks so far this year, but the 13-year high in outflows has coincided with strong demand for several recent stock offerings, easing the gloom for some bankers.

The foreign investor selloff was the biggest since 1996, stock exchange parent company B3 SA Bolsa Balcao said on Tuesday. The selloff was driven mainly by increasing worries over the global economy.

Yet including acquisitions of shares in IPOs and follow-on offerings, many in companies with prospects for strong growth and efficiency gains, foreign investment flows actually showed a positive balance of 4.4 billion reais.

“There is a clear quest for high growth stories, companies going to the digital world or that might have very clear signs of efficiency gains,” said Juliano Arruda, head of Latin America equities sales at Goldman Sachs.

Since the beginning of the year, 19 IPOs and follow-on offerings raised 53.47 billion reais, with 25.57 billion reais coming from foreign investors, B3 data showed.

In July, for instance, foreign investors represented 45% of the 9.63 billion reais raised by state-run oil company Petroleo Brasileiro SA in the share offering of its fuel distribution unit, Petrobras Distribuidora SA.

“Resources might be coming out of one door (secondary market) and entering another (primary),” analysts at Planner wrote in a report.

Magali Bim, portfolio manager at asset manager Brasil Plural, said in a recent interview with Reuters that foreign investors were unlikely to outbid local investors in existing shares traded on the Bovespa, but were joining larger share offerings in which they could get better prices.

The latest available international portfolio flows data from Brazil’s central bank show that in the first six months of the year investors pulled more than a net $2 billion from Brazilian stocks, while investing more than a net $6 billion into Brazilian fixed-income assets.

Investors told Reuters the foreign exodus from stocks could be mostly attributed to increasing worries about the global economy, the U.S.-China trade war and a financial crisis in neighboring Argentina.

Yet, despite the overseas outflow from equities, the benchmark Bovespa index is up 13% this year, as the lowest domestic interest rates on record encourage local and institutional investors to diversify out of bonds.

$1 = 4.0350 reais Reporting by Paula Arend Laier; Writing by Gabriela Mello; Editing by Chizu Nomiyama and Rosalba O'Brien

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