After an unprecedented year, what one word best sums up the equity markets of Latin America?
“Busy,” according to Carlos Sequeira, head of research at BTG Pactual. While the region as a whole was largely impacted both socially and economically by Covid-19, each country from Brazil to Chile reacted very differently to the pandemic. This is in part due to global monetary policy, as well as each country’s individual government stimulus plans.
With just as varied economic recoveries — despite virus surges — throughout the region, there is cautious optimism across the investment chain in Latin America. But another looming election cycle means there is no downtime for the region’s sell side — or their clients.
“From a market perspective, the countries in Latin America rebounded quite quickly from the shutdowns during the pandemic with tons of transactions,” Sequeira said. “Clients, as well as us, have been very busy with all of the IPOs coming to market.”
This is especially true for Brazil, which in spite of the pandemic, recorded 28 initial public offerings and a total of 53 deals totaling $118 million reals, according to BTG Pactual. With 39 deals already in 2021, Sequeira said this year may be on pace to best 2007’s record of 76.
Mexico is another bright spot in the region, according to Sequeira. “The recovery in the U.S. has been a blessing for Mexico,” he said. “We have been more positive in our outlook first because of the U.S. economy and second because the midterm elections offered some more balance to the political scene.”
The relative attractiveness of Latin America equities has been building since last year, according to Pedro Martins Jr., head of Latin American equity research at JPMorgan Chase & Co. “This constructive view for global equities is backed by a global synchronized expansion, monetary and fiscal policy support, and fading risks,” Martins said. “The tailwind boosted China equities first, then U.S. equities, and now we believe it is time for Europe and emerging markets to outperform — notably, LatAm.”
As Latin America’s markets are buoyed, investors are looking to two equity research firms for investment ideas, according to Institutional Investor’s 29th annual Latin America Research Team survey.
This year BTG Pactual and JPMorgan ranked as the region’s top providers, once again sharing the crown as they did in 2019.
Nearly 650 voters at more than 400 asset management firms with significant securities holding in Latin America participated in the survey, rating their top firms and favorite individual analysts. These votes were then weighted by how much respondents spend on research in the region to create commissioned-based rankings.
In a repeat of last year’s performance, BofA Securities placed third on the commissioned-weighted leaderboard. The U.S. bank was followed by UBS, which improved on 2020’s seventh place finish to take fourth. Bradesco BBI fell one spot to fifth place.
In the individual analyst rankings, J.P. Morgan placed first, followed by BTG Pactual in second and BofA Securities in third. Bradesco BBI and UBS took fourth and fifth, respectively.
The same votes were also weighted by each voting firm’s Latin American equity assets under management to create two additional leaderboards. These AUM-weighted tables mirrored their commissioned-based counterparts closely, with the exception of Santander cracking the top five in both the team and analyst rankings.
Martins attributes JPMorgan’s success to its advisory franchise delivering “business as usual” to clients via research publications, client interactions, conferences, corporate access, and road shows, despite social distancing and remote working. According to Martins, the firm is looking to phase back into the office this year. “In our São Paolo office, we prepared our facilities to gradually accommodate our staff coming back, observing local regulations, focusing on safety and respecting personal and unique conditions,” he said.
Martins himself is back in the office three days a week in person, and he believes in the importance of in-person interactions. “The new normal will be a hybrid approach enabling return to the office while keeping the work from home optionality,” he said. “We firmly believe that working together in person is important for our culture, clients, businesses and teams, and that much of what we do best happens through connections we make and conversations we have when we are in the office together.”
Martins did see a pandemic silver lining in the shape of a faster learning curve for junior analysts that some firms worried about in a virtual environment. “Travel expense was a meaningful barrier for younger analysts to get on the road and aggressively build their franchises,” Martins said. “That barrier is gone in a virtual marketing set-up.”
At BTG Pactual, Sequeira said he and management are big proponents of in-person work and are transitioning their teams back to the office, starting with sales and trading. Still he praised the teams for their efforts while working remotely. “What we lost by having people together in the office was compensated by people working hard and long hours from home — most people adapted well and we were even more productive.”
Between the last quarter of 2020 and February of this year, the BTG Pactual published 11 environmental, social, and governance investing reports and 40 thematic pieces, while initiating coverage on 25 companies. “From March to June, we initiated coverage in an additional 14 companies,” he said. “So, in total, we expanded our coverage by 39 companies in a little more than 6 months.” BTG Pactual also grew its analyst team by 30 percent from 35 to 45 analysts.
JPMorgan, too, is growing its research team and coverage in Latin America. “We are adding analysts to our team following a period of stability over the past 2 years,” Martins said. “Our coverage footprint surpasses 230 companies and should grow larger in 2021.”
With clients and investors feeling the increased workload and information overload, Sequeira said his firm has “had to find balance in producing regular research with investor education.”
That investor education will continue this year as nine Latin American countries hold elections, including presidential races in Chile, Ecuador, Honduras, Nicarauga, and Peru.
This political cycles remain the biggest obstacle for the region, according to Martins. “Elected presidents in the region range from those supporting ultra-liberal macroeconomic agendas to ‘bigger states’ supporting those in need by social transfer and protecting more fragile businesses,” he said. “Most important will be how those governments perform post Covid-19 as challenges have increased. Budget balances were already an issue in LatAm before Covid-19, and all the measures/stimulus implemented to sustain the economies should cause a bigger deterioration in fiscal accounts.”