Brazil’s stock exchange B3 doubles in value in 4 years; reaches the 4 million investor mark

RIO DE JANEIRO, BRAZIL – Never has so much been said about the Stock Exchange in Brazil. With real interest rates (which discount inflation) close to zero, investing in stocks has become the talk at the bar.

It may seem that this has always been the case, but the truth is that the trend is quite recent. It was only 4 years ago that B3 was created – the result of a merger between the former BM&F Bovespa and Cetip.

Since then, the business’ market value has more than doubled, from R$40 (US$7.7) billion to R$100 billion, while the total number of investors has multiplied sixfold, reaching nearly 4 million.

Growth in the number of investors was conjunctural, since fixed income investments became less attractive with the drop in interest rates. So much so that, before the current boom, the Exchange attempted to promote the stock market in a number of ways.

From tents on São Paulo’s beaches and in trade unions to an advertising campaign with Pelé, nothing seemed to help in a scenario where investors could profit over 10% a year without running any risk.

With the drop in interest rates came the stock market investment platforms. Suddenly, clients found themselves bombarded from all sides: banks, analysis agencies, and brokerage houses.

“What made the difference was the growth of platforms and the advisor market, who provide knowledge to individuals,” says Raphael Figueiredo, a partner at Eleven Financial.

Attorney Bruna Garner, 27, is one of these new investors. Her first shares were bought about a year ago, when she scouted for stocks that dropped sharply at the start of the pandemic, such as Azul, Gol, and CVC tourism agency.

“I began to have a source of income. Our parents were thinking about pensions and real estate, but they don’t yield as good a return as stocks,” Bruna says, who has 10% of her portfolio in equities – the remainder in fixed income.

Data analyst Yago Rodrigues, 28, began investing a little before the pandemic started, testing real estate funds and ETFs, which follow stock indexes. Today, Rodrigues has 50% of his portfolio in stocks, including shares of one of the market favorites, Magazine Luiza.

The increase in the total number of listed companies also helped boost the Brazilian stock market. Since early 2020, over 60 companies have held initial stock offerings (IPOs), a number that will still be rising until year-end.

Despite B3’s rapid growth, once ranked fifth among the world’s stock exchanges, its position fell due to the weakened Brazilian real, since the ranking is based on the U.S. dollar.

The ranking is led by the American Nyse and Nasdaq, giants with US$20 trillion in capitalization of listed companies. At B3, this value stands at about US$1 trillion.

Competition

Despite its recent growth, B3 is still alone in the local stock market. The potential entrance of a competitor to the Brazilian stock exchange is a recurrent subject.

In recent months, with rumors of a new move to create a rival, B3 has lost some 28% in market value. The topic resurfaced after the Brazilian Securities and Exchange Commission (CVM) submitted the matter to a public hearing, closed a few months ago. The results of this consultation are still being analyzed.

Experts believe that this competition will come, but not in the form of a traditional exchange such as B3, but instead in the form of fintechs that will focus on specific business services, such as Mark 2 Market, focused on the registration of Certificates of Agribusiness Receivables (CRAs).

Professor of Economic Law at FGV-Direito, Caio Mario Pereira Neto points out that regulation itself may make room for competition, as occurred in the banking sector, which is currently driven by the performance of fintechs.

On the other hand, there is a long list of potential rivals for B3 that haven’t prospered. ATS Brasil submitted a request to the CVM in 2013 to open an exchange, but the project did not advance. The same fate befell the Claritas project, in partnership with Bats Global Markets, a global operator in the sector.