William Shakespeare's Macbeth once observed that life is
"full of sound and fury, signifying nothing." That's also an
apt description of 2012, a year in which there was much ado in
world markets about what turned out to be not very much at
"The worst case of a hard landing in China and a messy
breakup of the euro failed to materialize," notes Candace
Browning, director of global research at Bank of America
Merrill Lynch in New York. In addition, the hotly contested
congressional and presidential elections in the U.S. resulted
in little change to the status quo. Political gridlock
continues in a divided Congress, as evidenced by the stalemate
over the so-called fiscal cliff of spending cuts and tax hikes
set to take effect at the beginning of January.
All of these issues ratcheted up anxiety, and many investors
turned to sell-side researchers for guidance and assistance in
understanding each new development. Throughout the year,
Institutional Investor asked money managers and other
buy-siders to tell us which analysts have provided the most
helpful insights in a dozen countries and regions. The results
of our 12 research team surveys have been published separately,
but when the totals are aggregated, BofA Merrill is II's Top
Global Research Firm for a second straight year. The bank wins
236 total team positions, ten more than last year, and
maintains a comfortable lead over J.P. Morgan, which returns in
the No. 2 spot. J.P. Morgan picks up 12 positions, bringing its
total to 214.
Deutsche Bank, with 193 positions, holds steady in third
place despite increasing its total by more than any other firm,
with a gain of 30. Morgan Stanley, whose team-position total
rises by 14, to 155, returns in fourth place.
Citi comes close to matching Deutsche's feat: It adds 28
positions, for a total of 129. That's enough to propel the firm
from No. 8 to tie for fifth place with UBS, the highest-ranked
firm to experience a decline in its team total. Last year the
Swiss bank ranked fifth overall, with 135 spots. The tables on
the surrounding pages rank firms by their overall team
positions, first-place finishes, and equity and fixed-income
annual totals. Deeper data can be found at
institutionalinvestor.com. Many of the research directors at
these firms expect the new year to look very much like the old
"China, the fiscal cliff and the recession remain on
investors' minds, so a muddle-through scenario in 2013 seems
most likely," Browning says. "Our view is that the
high-liquidity, low-growth backdrop of recent years will
continue and that economic risks are skewed to the upside as
tail risks fade."
That sentiment is echoed by Richard Smith, Deutsche's
London-based associate director of equity research and head of
company research for Europe, the Middle East and Africa. "The
three major sources of uncertainty for economies and markets
are the U.S. fiscal cliff, the euro debt crisis and China," he
says. "Having come through the China leadership transition
without a major surprise and with cyclical indicators
improving, the latter risk is moving to the background and we
look for a slow U-shaped recovery."
Looming sequestration in the U.S. is another story, however.
"There is a nonnegligible risk that a deal won't be done by
year-end," he says. "Going off the cliff will result in a U.S.
recession in the first half of 2013. Going off the cliff would
also expose Europe to further concerns over its ability to
solve its own sovereign debt crisis."
Andrew Pitt, global head of research for Citi in London,
says that in addition to these worries, "China's slowdown being
poorly controlled, and potentially rising geopolitical
tensions" could rattle world markets in the year ahead.
"In terms of investment themes, the desperate search for
yield among money managers will continue to dominate
asset-allocation decisions and will likely reward companies
that return income to shareholders above those that invest in
growth, which builds in some risks for corporate earnings
growth in the longer term," he believes.
The International Monetary Fund is projecting worldwide real
gross domestic product expansion of 3.6 percent in 2013, up
from 3.3 percent in 2012, but few sell-side economists are as
optimistic. Citi anticipates global GDP growth of just 2.6
percent in the year ahead. Gains in emerging markets will
likely be offset by a continued drag in the euro zone, Pitt
explains. "Our base case still expects a Greek exit from the
euro over the next 12 to 18 months, and sovereign debt
restructuringmost likely via a mix of coupon reductions
and maturity extensionfor at least five European area
sovereigns in the period 2013 to 2017," he says.
Economists at Deutsche predict output will increase 3.1
percent. "By and large, the emerging markets remain the global
growth engine thanks to easy policy conditions and global
liquidity," says Smith. "The developed economies remain subpar,
especially in Europe. The pace of fiscal austerity may slow in
2013, which alongside potentially improving bank credit
dynamics should get the euro area back into positive economic
growth as the year unfolds."
BofA Merrill's operating assumption is: "The global economy
grows 3.2 percent, with growth accelerating modestly from a
fiscally compromised first quarter led by China and the U.S.,"
Browning says. "Zero-interest-rate policies remain in place
across the Group of Seven, government bond returns in major
markets range from 3 to 2 percent, and the dollar rallies
to 1.20 versus the euro."
Researchers at Brazil's BTG Pactual, which ties for eighth
place (with Sanford C. Bernstein & Co. and Credit Suisse)
when firms are ranked by Most First-Place Positions, are even
"We think next year will surprise us by being better than
analysts expect," declares Rodrigo Góes, São
Paulobased head of research, sales and trading. "The hard
landing in China will not occuractually, economic
activity in China will be better than in 2012. Sure, the new
growth plateau is not 10 to 12 percent, but rather 7 to 8
percent, but it will prove to be a stable plateau."
The U.S. is the market to watch, he adds. "The fiscal cliff
political debate will be settled in a way that affects
employment and growth only marginally. And, abstracting from
political uncertainties, the underlying dynamics of the U.S.
economy are quite good in relative terms," Góes
BTG Pactual is one of the few firms in expansion mode. In
2012 it acquired two brokerages, Chile's Celfin Capital and
Colombia's Bolsa y Renta. Now, "we are in the process of
opening a broker-dealer in Mexico, which should be fully
operational by the first quarter," Góes adds. "In
anticipation of this move, we put together a very strong
Mexican research franchise, which we believe is already one of
the best on the Street."
Jefferies & Co.which climbs from No. 24 to share
20th place with ISI Group and Russia's Troika Dialogis
also beefing up operations. In November the firm agreed to
merge with one of its largest shareholders, Leucadia National
Corp., in an all-stock deal valued at $4.1 billion; the
takeover is expected to be completed in the first quarter. "We
are now part of a larger institution, with a much bigger
balance sheet," notes director of equity research for the
Americas Michael Eastwood, who joined the firm in September
from Morgan Stanley, where he served as head of fixed-income
and associate director of equity research. "This makes us a
Jefferies has hired a dozen lead analysts in the past 18
months, bringing its total to 50, and "we are still hiring,"
Eastwood says. "We want to ensure that we continue to produce
quality research, partner with key clients and make sure
corporate access is focused on meeting with the right
Competitors cite similar goals as the world turns a page on
the calendar but has yet to turn a corner on the financial
crisis. If their forecasts are correct, investors will continue
to clamor for all the assistance they can get.