By Felipe Miranda – The Daily Pro (Brazil)
There are serious doubts that Brazilian stocks asset prices can continue to appreciate after the substantial rally in 2016.
Skeptics will recall, with good reason, that at 14x earnings, the Ibovespa would be at its historical high in terms of valuation. Moreover, this recovery has come about in an environment of optimism. The actual indicators show a different story, more like a scorched-earth scenario. What’s more, these indicators have frustrated the expectations of an expected turnaround. Also, companies are reporting a trend of slow recovery with a very gradual (and delayed) rise in profits, while their balance sheets continue to be highly leveraged (companies are carrying a lot of debt).
All true. However, they may have missed reading George Soro’s General Theory of Reflexivity. Or even Clarice Lispector’s work, which I am pretty certain has completely escaped them.
Basically, Soro’s idea is that there can’t be a strict separation between expectations and reality. Economic agents have a defined concept of what the future will be and that, in turn, has a direct influence on reality. That “new reality” in turn, affects the expectations for the next period, which in turn, influences reality, and so on. It creates a perverse cycle of reflexive influence where the process of analysis transforms expectations into another fundamental measure per se.