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The 2003 Latin America Research Team

Click here to view the entire 2003 Latin America Research Teamresults available in the Research & Rankings section of this site.

"Markets reacted very positively to a fear that never became a reality." So says Andrew Shores, chief of Latin America equities at Credit Suisse First Boston in São Paulo. Shores has a point. Investors' worst fears about Latin America -- that Argentina would collapse completely and that Brazil would embrace antimarket economic policies -- haven't come to pass. And Latin markets have shown their gratitude.

After falling in 2001 and 2002, Latin shares, as measured by MSCI's emerging-markets free Latin America index, rose 15.5 percent on a dollar basis through early May. That performance trounced Asia, afflicted by severe acute respiratory syndrome, and competed with surging Eastern European and Middle Eastern stocks. And which country's shares led the way? Argentina's. After plunging 51 percent in 2002 (in dollar terms), shares on the Mercado de Valores de Buenos Aires spiked 35 percent, making it the world's top emerging market through early May. Not far behind: Brazil and Chile, up 21 percent and 22 percent, respectively.

These countries still face problems, but they've taken steps to cope with them. Worries about the election of left-leaning Luiz Inácio Lula da Silva drove Brazilian stocks down 34 percent in 2002. Since taking office, however, Lula has reined in government spending and pressed for pension reform, reassuring the markets. In Argentina the default- and devaluation-weakened peso has promoted surging exports and economic recovery, and the outgoing government, including Economy Minister Roberto Lavagna (retained by president-elect Néstor Kirchner), has kept inflation in check. As a result, investor confidence in Latin markets, weakened for three years, is rebounding (as is the Argentinean peso).

"Appetite for risk has increased dramatically," says Dario Lizzano, head of Latin America equities and Latin strategist at Santander Central Hispano Investment Securities in New York. Lizzano leads the firm's top-ranked Argentina squad in Institutional Investor's 2003 Latin America Research Team.

That's good news indeed for the analysts we honor in these pages. Their markets have taken such a beating that demand for their services has withered. Indeed, the number of analysts receiving votes in our 2003 survey -- a proxy for the analyst population -- fell 20 percent from 2002. Bankruptcies and foreign takeovers have thinned out Latin bolsas; today MSCI's Latin index contains just 24 Mexican companies worth $44 billion and 22 Chilean stocks valued at $10 billion.

With few big stocks Latin equities are less frequently viewed as a separate asset class. In 1998 mutual fund tracker Lipper counted 43 Latin American funds with $3.9 billion in assets. As of last month some 32 Latin funds were running a scant $761 million.

Little wonder, then, that sell-side research coverage has shrunk. "There are fewer analysts, and they are covering many more sectors per person," says José Luís Garcia, head of Latin America equity investments at Boston's MFS Investment Management, which runs $12 billion in global equities.

Despite the lean times some brokerages are still thriving. UBS Warburg, lauded by one investor for its strong local coverage in Brazil, Chile and Mexico, rises from third place last year to No. 1 in the 2003 rankings; Bear, Stearns & Co. and CSFB tie for second. Bear Stearns was fourth in 2002; CSFB falls from a first-place tie with J.P. Morgan, which this year shares the fifth slot with Merrill Lynch.

Several brokerage firms have rolled their Latin equity research into global emerging-markets teams. Will the smaller, sometimes less-focused research efforts work? "The increased coordination with other emerging-markets teams is beneficial in certain global sectors, such as materials and technology. But on the other hand, you lose a bit of insight in more local sectors, such as banking and retail," says Michael Reynal, portfolio manager at Des Moines, Iowa-­based Principal Global Investors, which runs about $700 million in emerging-markets equities.

When Institutional Investor asked respondents to its Latin survey how they thought the quality of Latin research had changed in the preceding year, almost 39 percent said it had deteriorated, compared with 27 percent in 2002. "It's not that the analysts have gotten worse," says Christopher Smart, portfolio manager at Boston-based Pioneer Investments, which runs $300 million in Latin equities. "But because there are fewer of them, the coverage is not as good." 

The rankings were compiled by Institutional Investor under the direction of Senior Editor Jane B. Kenney, Assistant Managing Editor for Research Lewis Knox and Associate Editor Sivert Hagen. Knox wrote this overview.

Click here to view the entire 2003 Latin America Research Teamresults available in the Research & Rankings section of this site.