Page 1 of 3

One of the bitter ironies of the global financial crisis is that even the most risk-­averse institutional investors, who tilted their portfolios primarily if not exclusively toward developed markets, sustained devastating losses and subsequently have been compelled to take on more risk — like it or not — in search of growth rates that are hard to find in Europe and the U.S.

[To view the complete list of winning firms, along with the full roster of ranked teams, go to the  2011 Emerging-Markets Equity & Fixed-Income Research Team.]

“There has been an increase in appetite for riskier assets, and emerging markets have the potential to develop superior economic growth,” observes Mark Iannotti, head of research for Emerging Europe, the Middle East and Africa for BofA Merrill Lynch Global Research in London. “Emerging markets have been a great source of interest for investors.”

Interest, yes — but also concern. Investors burned in the global meltdown may be more willing to consider emerging markets, but they are also quick to pull out at the first sign of trouble. Just last month EMEA equity-­fund redemptions hit their highest level in nearly three years, according to EPFR Global, a mutual fund tracking firm headquartered in ­Cambridge, ­Massachusetts. Year-to-date through late May, those funds have seen net outflows of $8.6 billion, largely because of ongoing worries about Europe’s sovereign-­debt crisis and its impact on growth across the region, EPFR reports.

Given the rising prominence of developing economies in the eyes of money managers and analysts, as well as the phenomenal growth some of these markets are enjoying in the postcrisis world, Institutional Investor opted to replace the Emerging Europe, Middle East & Africa Research Team survey with an Emerging-­Markets Equity & Fixed-­Income Research Team. The latter covers the same geographic area as the former — Central and Eastern Europe, the Middle East and all of Africa — but the number of industry sectors and macro­economic disciplines it includes is significantly more expansive, so historical comparisons between the two surveys are not applicable. Thus, II is presenting this survey as a new offering.

Deutsche Bank debuts in the No. 1 spot on the 2011 Emerging-­Markets Equity & Fixed-­Income Research Team, capturing 20 total positions — nine of which are for teams considered the best in their sectors. In second place, with 18 positions (including six crews at No. 1), is BofA. ­Renaissance Capital follows in third place, with 12 positions, while three firms — Morgan Stanley, UBS and VTB ­Capital — tie for fourth, with ten positions each. Survey results are based on responses from nearly 500 individuals at more than 340 institutions globally managing an estimated $395.75 billion in emerging-­markets equities and $108.75 billion in fixed-­income assets.

Deutsche Bank has 50 analysts dedicated to these emerging markets, seven of whom were added over the past year, and they follow 325 companies, up from 319 one year ago. Local placement of team members has been key to the firm’s success, according to London-­based Richard Smith, head of equity research for all of EMEA. Deutsche has analysts on the ground across the region, Smith says: 14 in South Africa, 11 in Russia, seven each in ­Turkey and the United Arab Emirates, four in Poland, two in Israel and one in Hungary. In addition, the firm has four analysts covering these markets out of the bank’s London office.

Pascal Moura, who directs emerging EMEA coverage from Deutsche’s offices in Dubai, says the firm plans to hire an analyst later this year to cover sub-­Saharan Africa, beginning with Nigeria; that person will work out of the bank’s ­Johannesburg location.

BofA also has 50 analysts covering the region, three of whom the firm hired in the past 12 months, and expanded coverage by about 10 percent, to 220 stocks. Client demand drove that increase, “particularly in the macro and strategy sectors,” says Iannotti. “We have also materially increased coverage in the Middle East region, where we continue to build our Saudi ­Arabia coverage,” he adds. BofA also credits its success to having analysts based closed to the companies they cover; the firm has researchers in the ­Middle East, Russia, South Africa and ­Turkey, so that “we can connect clients with corporates on an ongoing basis and provide waterfront coverage of equities in the space,” ­Iannotti says.

Renaissance Capital, whose Russian research operations have been hard hit by analyst departures, has been among the firms expanding most aggressively, particularly in Africa. RenCap’s analyst head count has nearly doubled over the past year, from 41 to 78, and those analysts follow a whopping 540 stocks — 105 more than the firm covered last year at this time.

“The increase reflects our view of emerging markets — in particular capital flows within and between emerging markets — as having the greatest upside over the coming years,” says David Nangle, who is based in Moscow and has directed ­RenCap’s equity research since December, following the departure of Roland Nash for Verno Capital, an asset management firm. “We are committed to combining global sector expertise with on-the-ground analysis in the markets we cover.”

RenCap plans to continue adding analysts — just last month it hired its first researcher to cover Turkey, Yavuz Uzay — and hopes to have 93 in place by the end of the year. “We are in expansion mode, and if markets behave, we will continue our sectoral and geographic rollout at a managed pace,” Nangle explains. He adds, however, that given the volatility associated with emerging markets, “it can all come to a grinding halt very quickly in this business.”

RenCap has been pushing to increase the number of stocks under coverage in part because of emerging markets’ quick rebound in the wake of the financial crisis, he says. “We are seeing capital raising and increased interest from ­investors.”

In July the firm completed its $27.3 million purchase of Johannesburg-­based BJM ­Securities, picking up a troop of 21 analysts who cover 70 local companies. RenCap also has four analysts in Nigeria and two each in Kenya, Zambia and Zimbabwe, and Nangle says plans are in place to expand across Africa: “We are now using Johannesburg as a hub for building out our Africa ­business.”

Rising foreign investment has been the main force behind ­RenCap’s expansion in Africa — “these capital flows have the potential to increase over the next decade,” Nangle says — and also explains why the firm opted to open an office in Hong Kong in July. “We are now seeing ­Chinese investment in Africa and Russian firms listing in Asia,” he says, citing Moscow-­based aluminum maker United Co. ­Rusal’s ­January 2010 initial public offering on the Hong Kong Stock Exchange. “There are many companies looking to list in Hong Kong, as the world’s center of gravity is shifting, and a great number of Asian investors want to participate in that.”

The financial crisis challenged assumptions about the nature of markets both mature and emerging. The latter initially proved more resistant — holding out against the tide of worldwide declines and appearing to give credence to the decoupling theory, which maintains that developed markets in general are declining in influence; a downturn in Europe or the U.S. no longer necessarily will precipitate a crisis in emerging markets. It didn’t take long for old patterns to emerge, however, and when stock prices began to fall in developing markets a few months later, they fell hard — in many cases, faring far worse than the markets in which the crisis originated. The benchmark Russian Trading System index plunged nearly 80 percent from peak to trough, and Dubai’s benchmark index plummeted some 70 percent. In yet another challenge to conventional wisdom, emerging-­markets economies then proved resilient, rebounding more quickly than those of developed markets, attracting the interest of investors looking for growth.

However, political instability and inconsistent reporting and disclosure still plague many emerging markets. Investors were caught off guard by the near default of Dubai World in November 2009 when the emirate announced that it was unable to meet its obligations and requested a six-month freeze on its debt payments; markets around the world tumbled anew on the revelation. (The government of neighboring emirate Abu Dhabi rode to the rescue that December with a $10 billion aid package.)

Given the image of regional instability and the fre­quently unprecedented levels of government intervention in markets in the wake of the crisis, macro­economic research is understandably at a premium. Investors seek to understand the big picture as well as the small before they allocate funds, and in the emerging EMEA markets no one provides better insights, investors say, than the Troika Dialog quartet conducted by Evgeny Gavrilenkov, ranked No. 1 in Economics.

The 56-year-old economist, who works out of Moscow with two associates — the third is based in Kiev — earned a degree in applied mathematics at the Moscow Aviation ­Institute in 1978 and a Ph.D. in economics at Voskhod Research Institute in 1985. He joined Moscow’s Center for Economic Analysis, a government think tank, in 1992 as department head, then became deputy director and finally acting director before moving to another think tank, the Bureau of Economic Analysis Foundation, in 1997; there he worked as deputy director general and acting director general until 2002, when he joined Troika as chief economist. Gavrilenkov also served as a visiting researcher at the International Monetary Fund in 1994 and 2001, and as a visiting professor at Japan’s ­Hitotsubashi ­University from 1995 to 1997 and at the ­University of Paris, ­Panthéon-­Sorbonne, in 2000.

Single Page    1 | 2 | 3