Volatility has returned to Brazil. Through much of last year and the first weeks of 2010, the nations benchmark Bolsa de Valores, Mercadorias e Futuros Bovespa index seemed capable of going in only one direction up but financial crises half a world away have reminded investors that what goes up can and often does come down.
The turbulence makes little sense in light of the fact that Brazil is less affected by external factors than ever, owing to robust domestic growth. The most important highlight from this period is the continuous outperformance of consumer-related stocks over the commodity producers, explains Carlos Constantini, head of research at Itaú Securities in São Paulo.
The second half of 2009 was wonderful the market was on a nonstop tear, adds Rodrigo Góes, co-head of research at BTG Pactual in São Paulo.
The Bovespa index hit 70,451.11 in January, a gain of 72.6 percent over one year earlier, then plunged to 62,762.70 the following month amid investor concerns that the debt crisis in Dubai and speculation of an even more serious situation in Greece would set back the worlds faltering economic recovery. Once it became apparent that those two crises could be contained, investors returned to Brazilian equities and sent the Bovespa soaring to 71,784.78 in April.
The rally didnt last long. That month, China one of Brazils primary trading partners announced that it was curtailing its stimulus spending in an effort to cool its own overheated market; skittish investors, concerned about the impact a downturn in China would have on Brazil, abandoned Brazilian equities in search of safer havens. By May the index had plunged to 58,192.08.
The Bovespa has recovered a bit, but volatility has been the norm and probably will continue to be, Góes explains. The fundamentals of the Brazilian economy are solid and would probably warrant higher valuations for the Bovespa, but the shaky global economic environment has been preventing it from performing better.
Trying to make sense of the these wild gyrations has been challenging. Money managers need insight into the markets mood swings, and investors say no firm does a better job of providing the type of research they deem essential than Itaú Securities, which leads the 2010 All-Brazil Research Team, Institutional Investors seventh annual ranking of the nations top equity and fixed-income analysts. Itaú, which captured second place last year, wins 14 total team positions, four more than in 2009.
Two firms tie for the No. 2 spot: BTG Pactual, the outfit that was created last September when Rio de Janeirobased asset management firm BTG Investments bought last years top-ranked UBS Pactual, and Credit Suisse, which jumps from No. 4. The firms claim 12 team positions each, up from 11 and nine, respectively.
J.P. Morgan nearly doubles the number of its positions, from five to nine, and in so doing rises two rungs, to fourth. Rounding out the top five is BofA Merrill Lynch Global Research, which falls from No. 2; the firm wins eight positions, down from ten in 2009. Results are based on responses from more than 400 asset managers at some 250 institutions, domestic and foreign, managing $240 billion in Brazilian equities and $72 billion in Brazilian debt.
The volatility in Brazils stock market is echoed in investment research operations, with wild fluctuations in the number of analysts employed and companies covered. Itaú has 30 analysts covering Brazil, six fewer than last year after the firm reassigned some researchers to other Latin American markets; even so, the number of Brazilian stocks Itaú analysts track increased, from 125 to 129, Constantini says.
BTG Pactual added ten researchers to the 18 it acquired from UBS and increased its coverage universe from 68 companies to 107. When BTG took us over, they gave us a generous budget to find the best people, says Góes, who is the top-ranked analyst in Aerospace, Transportation & Industrials for a sixth consecutive year. (Analysts ranked No. 1 in their respective sectors are listed and the complete list of winning analysts, including those ranked second, third and runner-up, click here.) We added head count to every single sector and are still expanding. We plan to add another 25 stocks to our coverage universe by year-end.