Every year brings new opportunities. One of my recommendations for 2024 is PagSeguro Digital (PAGS), a Brazilian fintech company that trades on US markets. It has a one-stop app for everything you need money for. That includes deposits, purchases, and lending, explains Eoin Treacy, editor of Fuller Treacy Money.
The Banco Central do Brasil was among the most aggressive in hiking short-term interest rates. It took the short-term rate from a low of 2% in early 2021 to a peak of 13.75% by August 2022. Then it held the rate steady for a year.
The central bank later waited to cut rates until it had clear evidence inflation was falling back to acceptable levels. Since August, it has reduced them by 2% -- and it expects inflation to be at pre-pandemic levels by the end of 2023.
I believe Brazil is a good model for what we can expect from the US Federal Reserve. After a multi-month pause, the Fed is now talking about cutting rates by 0.75% in 2024. Inflation is moderating here, too. In fact, the bond market is rapidly pricing in the potential the Fed will cut rates by more than 0.75%.
In short, central banks all over the world are turning from raising rates to cutting them. That will help to support new consumer demand and risk-taking behavior. That’s a recipe for a recovery in the most interest rate sensitive parts of the market.
Raising rates by 11.75% had a serious knock-on effect for the most interest rate sensitive part of the Brazilian stock market. The fintech sector took a heavier beating than most. The rising cost of credit hit margins hard.
PagSeguro collapsed and has only just begun to recover. As rates come down, demand for credit should recover and so will retail transactions.
The shares have been forming a base for over a year. That’s the foundation that supports new uptrends. They’re now on the cusp of breaking higher. In sum, PagSeguro represents a clear growth opportunity at an attractive price. It has ample scope to stage an impressive recovery in 2024.