Bank of America Merrill Lynch Is Year’s Top Global Research Firm

The firm widens its lead over second-place J.P. Morgan in annual ranking of aggregated survey results.


Jin Lee

Bank of America Merrill Lynch is Institutional Investor’s Top Global Research Firm of the Year for a fifth year running. It has amassed 242 positions across the 12 research team surveys II published in 2015. In second place, with 201 spots, is J.P. Morgan. Last year a total of 39 positions separated the two, which have finished in first and second place, respectively, since this roster was introduced, in 2011.

Morgan Stanley, with 160 spots, and Deutsche Bank, with 136, repeat in third and fourth place, respectively. UBS jumps from No. 7 to No. 5 after increasing its total by 14, to 119.

Click on the Top Global Research Firms in the navigation table at right for the final results of the 101 research providers that earn a place on an II team this year. Other links lead to tables showing how these firms fare in coverage of developed markets, emerging markets, equities, fixed income and so on.

Even before the U.S. Labor Department announced last week that employment growth was robust in November, with the domestic economy adding an estimated 211,000 jobs, top research directors were convinced that the U.S. Federal Reserve was poised to raise interest rates for the first time in nearly a decade.

“We expect a quarter-point hike at the Fed’s December 16 meeting, and we’ve been saying that for quite a long time,” affirms Candace Browning, global head of research at BofA Merrill in New York. “We think the markets are going to take this rate hike very much in stride. The bond market might sell off a little bit, but the equity markets might like the move, for it shows a Fed vote of confidence in the health of the U.S. economy.”


Joyce Chang, Browning’s counterpart at J.P. Morgan, agrees. “The end of the zero interest rate policy is in sight, with a very high likelihood for liftoff in December,” she says. “Normalization may mark the end of ZIRP and a return to policy rates above zero, but it is not taking us to any sort of precrisis normality. The Fed will remain very accommodative and active in the management of short-term rates.”

Yields are likely to move higher by more than what is implied by current forward rates, she adds.

“We expect a dollar peak to come — but not at the first Fed hike, and maybe not until mid- to late 2016,” Chang contends. “We expect at least one more dollar surge this cycle, with 2016 gains of 4 percent.”

The currency, she notes, is up some 22 percent since the so-called taper tantrum — the global market sell-off in 2013 sparked by concerns that the Fed’s program of quantitative easing was about to end.

J.P. Morgan is predicting that the U.S. economy will expand by roughly 2.3 percent next year, with global growth approximating 2.8 percent. “Domestic demand in the U.S. will likely continue growing at the solid pace seen in the second half of this year,” Chang believes, “but a strong dollar and weak global growth will continue to be a drag on exports.”

Economists at BofA Merrill are more upbeat. They anticipate real gross domestic product increases of 2.5 percent in the U.S. and 3.4 percent around the world.

Two developments that roiled markets throughout the past year — slowing output in China and plunging commodities prices — are likely to have a much smaller impact in 2016.

“Concerns peaked in August and September and will continue to weaken over the next year,” Browning insists. “Chinese authorities will continue to apply stimulus measures — further cuts in interest rates, spending, possibly devaluation — so growth concerns will fade slightly.”

As for the commodities price shock, “we think the worst of that is also behind us,” she says. “The big cut in commodities prices caused a dramatic drop in mining investment in the U.S. — it cut half a percentage point off U.S. growth this year — but prices will stabilize in 2016 even as mining investment remains flat.”

Chang maintains that China will be a “two-speed economy” for the foreseeable future, with service sector expansion outpacing that of manufacturing. “Despite the downshift to [annual GDP] growth under 7 percent, China’s rising share of global output has kept its contribution to global growth stable in recent years — nearly a sizable 1 percentage point annualized, or one third of global GDP growth since 2011,” she adds.

With regard to commodities, “oil markets are still working off the excesses of the last boom, and oil prices hitting $30 a barrel is a possibility, but that’s unlikely to be sustained,” she says. “Expectations for declining non-OPEC supply and demand resiliency are likely to lead to a tepid second-half price recovery for crude oil. By the fourth quarter, we forecast, Brent will reach $62 a barrel and West Texas Intermediate will reach $59 a barrel.

The price of Brent crude fell to $41.90 a barrel in early December, the lowest since March 2009, while WTI slipped under $40.

J.P. Morgan analysts also remain bearish on base and precious metals, Chang adds, and believe that prices will decline across the board. “The broader mining supply and demand cycle still has one to two years left to bottom out,” she adds.

One issue certain to be on investors’ minds is the U.S. presidential election, but neither of these research directors expects the run-up to have much impact on economic policy.

“I really don’t think the election will figure significantly into the Fed’s normalization plans,” Browning says. “Four of the last five tightening cycles either started in an election year or the year before and continued into an election year.”

Chang shares a similar view. “There is a common misconception that the [Federal Open Markets Committee] won’t hike ahead of general elections, but the historic record — including the last Fed hiking cycle of 2004 through 2006 — contradicts this view,” she reports. “We expect the normalization process to begin this December and continue at a pace of 25 basis points each quarter during 2016.”