For the first time in the nine-year existence of the All-Brazil Research Team, Institutional Investor’s annual ranking of that country’s most highly regarded sell-side analysts, domestic banks capture the top three slots.
São Paulo–based BTG Pactual, which spent the past two years at No. 2, increases its team-position total by more than 50 percent, from 11 to 17, and reclaims the crown from crosstown rival Itaú BBA. Despite slipping to second place, however, Itaú stands strong with 13 team positions — the same number it won in 2011.
Bradesco Corretora is the real stunner this year, rocketing from eighth place to tie for third with last year’s No. 5 firm, Credit Suisse. These banks take nine positions each — for São Paulo–based Bradesco, that’s a gain of five; for the Swiss, an increase of two. Santander dips from fourth place to fifth even though it wins the same number of positions as last year, eight. Survey results reflect the opinions of some 690 buy-side analysts and money managers at nearly 340 institutions, domestic and foreign, managing $252.5 billion in Brazilian equities and $166.5 billion in Brazilian debt.
Rattled by reverberations from the global financial crisis and weighed down by worries about inflation and industrial output, Brazil has experienced sluggish real gross domestic product growth for the past couple of years — far below the 7.5 percent GDP growth it saw in 2010. Many market observers believe a turnaround is imminent, however. In late July the International Monetary Fund lowered its forecast for Brazil’s GDP growth from 3 percent to 2.5 percent for the year but said it expected an uptick in the second half, with growth climbing to 4.6 percent next year.
Itaú’s economists are as upbeat as the IMF regarding growth for 2013 even as they are less optimistic about 2012. “We are still working with 1.9 percent growth in GDP this year, although latest reports already anticipate this number will be revised on the back of the prolonged down cycle we’re seeing in the economy — the latest disappointment came from industrial production figures,” says Carlos Constantini, head of research. “As for 2013 we remain confident the rebound will take place, and our GDP number is 4.5 percent for the year.”
Rodrigo Góes, director of research, sales and trading at BTG Pactual, shares that view. “A potent cocktail of stimulus measures has been put in place, and we expect activity to show signs of reaction between now and the end of the year, with GDP growing nearly 2 percent in 2012 and 4 percent in 2013,” he says.
However, Morgan Stanley’s Guilherme Paiva, No. 1 in Equity Strategy for a second consecutive year, is decidedly more bearish. “Brazilian equities are between a rock and a hard place,” the New York–based strategist says.
“The local economy decelerated strongly in the second half of 2011 and, so far, has failed to stage a solid rebound despite 450 basis points of monetary easing, which began in August 2011.” Brazilian households are struggling with high debt loads, with consumers currently spending, on average, about 20 percent of their disposable incomes to service debt, he adds. “A negative external shock could lead to an amplified delinquency cycle in the country,” Paiva warns.
His advice? Seek opportunities elsewhere. Paiva downgraded Brazil from overweight to underweight back in early May. By mid-July Brazil’s broad market had slumped 9.4 percent and lagged the regional index by 3.3 percentage points, in dollar terms.
Read more in the September issue of Institutional Investor.