Despite a political fog in Brazil, there is continued clarity on the firm providing the best equity research in the country.
“I think foreign investors have been trying to understand what has happened in the political environment in Brazil, which is very hard to decipher even for locals,” said Carlos Sequeira, head of equity research at BTG Pactual, which topped Institutional Investor’s All-Brazil Research Team for the third year in a row. The 16th annual ranking comes seven months after the general election of President Jair Bolsonaro and his government last October.
“Some of our clients have been avoiding a bigger exposure to Brazil simply because they cannot understand what is happening on a political front,” Sequeira added.
The new government’s current push for pension reform illustrates this uncertainty. After a promising vote in late April, momentum and support have flagged for the plans that originally aimed to save more than a trillion Brazilian reals over the next decade. “I think the size of the savings is important,” Sequeira said. “The markets would take it far more seriously if we end up with a reform that would save between R$600 to R$800 billion (US$147 to $196 billion) in the next ten years in Brazil.”
“We see an opportunity, for more money to flow into the country once the reform is approved,” Sequeira added. “But at this point, it’s so hard to read what is happening that most of the investors are going to wait on the sidelines for more visibility before jumping in.”
Pedro Martins — JPMorgan’s chief emerging markets equity strategist and head of Latin American equity research — agreed that there are positive indicators and reported that his team is overweight on the country. “A change of macro policy direction after four consecutive terms of the same party in power should pave the way to solid earnings expansion, thus softening concerns on elevated multiples,” Martins said. “The reform agenda — despite noisy implementation — moves ahead, allowing for re-rating.”
JPMorgan took fourth place in this year’s ranking of research teams, tying with UBS. Last year’s second-place finisher Itaú BBA did not actively participate in the rankings this year, making room for another domestic firm, Bradesco BBI, to jump two places to move into its spot. Credit Suisse improved on its 2018 performance as well to capture the No. 3 ranking. The ranking was compiled by aggregating votes for individual analysts at the same firms.
When votes for individual analysts were not combined, BTG Pactual and Bradesco BBI tied for first place.
[II Deep Dive: The 2018 All-Brazil Research Team]
In addition to these two rankings — where participants’ votes are weighted based on respondents’ assets under management — this year’s survey featured two new leaderboards which were weighted by voters’ commission spending. However, weighting the ranking of analyst teams by commissions produced little movement within the top 5, with BTG Pactual and Bradesco BBI again taking the No. 1 and 2 spots, respectively. Credit Suisse and J.P. Morgan tied for third, followed by UBS in fifth position.
These results are based on responses from nearly 700 buy-side analysts and portfolio managers, representing about 400 institutions that manage an estimated $178 billion in Brazilian equities. The survey covered 17 equity industry sectors and macroeconomic disciplines.
In addition to leading the Brazil survey, BTG Pactual also topped the broader Latin America Research Team. Sequeira reported no major changes to the firm’s research team, which maintains a strong presence in all of the Latin American countries as a regional provider, as well as a partner-model that contributes to long tenures. The lead analysts have worked at the firm for an average of 14 years, and three clocked in with more than 20 years.
“We don’t have the biggest team, but we do have the most senior one,” Sequeira said.