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
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
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.
Credit Suisse kept its research operations stable, with 21
analysts tracking about 110 companies. We have maintained
a steady commitment in spite of volatile market
conditions, explains São Paulobased Emerson
Leite, co-head of Latin American equity research at Credit
Suisse; hes also ranked third in Chemicals & Oil.
When the market turbulence subsides, Leite says, the Swiss bank
will begin adding analysts.
J.P. Morgan picked up three analysts, bringing its total to
25; they cover 95 stocks, up from 85, according to Ben Laidler,
the firms New Yorkbased head of Latin American
equity research: We wanted to be closer to companies and
clients, to provide a more comprehensive local view to go with
our global strengths.
One of those strengths is analyst Saul Martinez, who vaults
from runner-up to capture the top spot for the first time in
Banking & Financial Services. Backers single out
Martinezs coverage of Itaú Unibanco Holding for
special praise. The 36-year-old, New Yorkbased analyst
upgraded both the preferred shares and the American depositary
receipts from neutral to overweight on a dip in May, at 32.85
reais and $17.56, respectively, after Bank of America Corp.
announced that it would sell its stake in the São
We felt that investors had the opportunity to buy a
best-in-class bank with above-peer profitability levels
and a solid growth outlook at a very reasonable
valuation, Martinez says. Since the upgrade the stock
leapt 20.5 percent, to R39.59, and the ADRs jumped 27.5
percent, to $22.39, through July. During the same period the
Bovespa index rose 16 percent and the Standard &
Poors 500 index inched up only 2.8 percent.
Martinez, who earned a masters degree at Princeton
Universitys Woodrow Wilson School of Public and
International Affairs in 1998, joined J.P. Morgan in New York
as a banks analyst that same year. He moved to Bear, Stearns
& Co. in 2000 to cover Latin American financial
institutions. When JPMorgan Chase & Co. acquired Bear
Stearns Cos. in June 2008, Martinez found himself back at
the firm where he began his career.
Another analyst at No. 1 for the first time is Paula
Kovarsky; the Itaú researcher rises from second place to
rule the roost in Chemicals & Oil. Kovarsky, 36, who is
headquartered in São Paulo, knows the industry well:
After earning a bachelors degree in mechanical
engineering at Pontifícia Universidade Católica
do Rio de Janeiro in 1996, she worked as a mergers and
acquisitions specialist in the business development office of
Royal Dutch Shell for ten years.
In January, Kovarsky advised clients that São
Paulobased petrochemicals giant Braskems plan
to acquire rival Quattor Petroquímica would likely be an
expensive venture. Even though state-run Petróleo
Brasileiro (better known as Petrobras), which owned a 40
percent stake in Quattor, had agreed to contribute a massive
amount of cash to equalize the capital structure, Kovarsky
wasnt impressed. She broke with the consensus and
reiterated her neutral rating on Braskem, at R13.61.
They all bet on a free lunch to be paid by
Petrobras, Kovarsky says. Braskem paid a high price
for Quattor, and after the acquisition shares underperformed
the Bovespa by 10 percent. In June, after the euphoria
died down, Kovarsky switched directions and upgraded the
company to outperform, at R11.70, citing cost-cutting
initiatives and operational improvements at Quattor. By late
July the stock had bubbled up 12.9 percent, to R13.21. During
the same period the sector slid 4 percent.
Taking a contrarian stance also worked out well for
BofAs Felipe Hirai, a runner-up last year in Natural
Resources. This year that sector was divided into Metals &
Mining and Pulp & Paper, and Hirai skyrockets to the No. 1
spot in Metals & Mining. The New Yorkbased analyst
insisted in July 2009 that the market was underestimating just
how high the price of iron ore might go, and he upgraded the
ADRs of the worlds largest iron-ore producer, Vale, from
neutral to buy.
The stock was trading at $16.37 and went up 10.4
percent on the day of our upgrade unusual movement,
given Vales high liquidity, says Hirai, 31. By
mid-January the ADRs had shot up to $30.12, but Hirai
believed investors were still being overly bearish, so he
reiterated his recommendation. We had an
out-of-consensus call that iron-ore prices were going to
increase by 50 percent in 2010, while market consensus was at
20 to 25 percent.
The price of iron ore skyrocketed in the second quarter
and Vales share price rose along with it, peaking at
$34.31 in mid-April before being dragged down by market
volatility. The stock closed July at $26.94, gaining a whopping
64.6 percent since the first upgrade. Hirai, who earned a
bachelors degree in business at São Paulos
Fundação Getulio Vargas in 2001, joined Merrill
in 2006 after working as a metals and mining analyst at
Hedging-Griffo, an asset management firm headquartered in
São Paulo that was later acquired by Credit Suisse.