On June 17th, Petrobras announced a new increase in fuel prices at refineries, of 5.18% for gasoline and 14.26% for diesel, completing an increase of more than 30% and 60% in prices of these items, respectively, only in 2022.
Among the reasons for this rise in prices are the disruption of global supply chains due to the pandemic and the war between Ukraine and Russia in Eastern Europe. Russia is a major commodity exporter, and due to Western sanctions on its exports, global oil availability has declined.
The lower supply of Russian oil represents an increase in the price of a barrel of oil. By way of comparison, this year alone, the barrel of Brent oil went from approximately $74 to more than $120 at the time of writing, an increase of just over 60% in less than six months.
Bringing this fact to the Brazilian reality, Petrobras still depends on the import of oil for refining and supplying the domestic market, despite the intense political propaganda about oil self-sufficiency in previous governments, since there are few competitors in the refining area. Therefore, the state-owned company has part of its cost linked to the international price of oil.
That said, an increase in the price of a barrel can be absorbed in two ways: i) an increase in fuel prices at the refineries controlled by the company or ii) a reduction in the profit margin or even a loss for the state-owned company’s results.
The first scenario, which has been chosen by the Petrobras Board of Directors, has an immediate impact on inflation and, consequently, on the popularity of President Jair Bolsonaro on the eve of the presidential election in October.
The second scenario has an equally perverse effect, as it generates losses for the company and a decrease in dividends paid to shareholders, including the Union, which can increase the gap in public accounts and the need for greater indebtedness by the central government. All this without mentioning the damage caused to pension funds, which guard the retirement of thousands of Brazilians. That is, if it stays, the animal catches it, if it runs, the animal eats it.
Political-ideological debates aside, let’s see below how this increase moves the economy, the real estate market and, consequently, your pocket.
In addition to the obvious impact that it became more expensive to fill the car’s tank for day-to-day travel, it is important to remember that Brazil is a country that is highly dependent on the road network for the logistical operation of distribution of practically all goods and, therefore, , an increase in the cost of transport also represents an increase in the price of all products in general on the supermarket shelf. The name given by economists to this phenomenon is an old acquaintance of Brazilians, inflation.
How more expensive gasoline impacts the profitability of real estate funds
As already mentioned in previous articles, real estate funds do not pass this phenomenon intact. On the one hand, the growth in inflation expectations means an increase in the basic interest rate and, consequently, a decrease in the price of shares and FIIs in general. On the other hand, an increase in inflation can also generate an increase in the equity value and/or the income paid by these funds. To understand this impact more deeply, it is necessary to divide the analysis into two sets: brick funds and CRI funds.
In brick funds, those in which the investment strategy mainly consists of acquiring real estate for the purpose of obtaining income via lease, moments of high inflation tend to positively impact the value of real estate and lease income.
However, the correction of property values is made over time via appraisal reports, as well as correction of lease values carried out, usually on an annual basis, and therefore, this type of fund can capture this effect over time. Real estate may suffer from contract renegotiations and fail to capture 100% of the inflation in the analyzed period.
CRI funds, or paper funds, are those in which the investment strategy mainly consists of acquiring real estate financing securities for the purpose of obtaining interest via interest and monetary correction of the credits that make up the portfolio.
In general, these paper funds have mechanisms to pass on inflation more immediately. However, high inflation can also mean higher credit defaults and, therefore, affect the dividends paid by the funds.
What to do in times of panic
At times like the current one, when some investors go into panic mode and risk asset prices fall, good opportunities also open up to acquire FIIs at interesting prices, but caution and a lot of study are needed so that the investor does not buy a pig in a poke.
Finally, whichever alternative is chosen within the real estate funds universe, inflation correction has associated benefits and risks.
Therefore, the maxim of sectorial diversification and strategies is always valid to maintain the long-term view of the investment portfolio and avoid the easy gain traps that appear at all times via influencers, sellers of financial products, etc.