Sell-side research on Latin America is particularly strong across the board. But then, three of the leading global emerging market research providers have heads of EM research who hail from the region – Alberto Ades at BofA-ML, Guillermo Mondino at BarCap and Pablo Goldberg at HSBC.
Barclays Capital has maintained its constructive outlook on Latin America, correctly calling that imported inflation pressures would be less pronounced than in other regions.
In a report published in June, the bank’s Latin American research team also calculated which countries in the region would be hardest hit by a drop in commodity demand from China. They concluded that Venezuela and Chile would be hardest hit given the strong correlation between terms of trade and growth.
Brazil’s correlation between growth and terms of trade is much smaller, but a commodity downturn would hit Brazilian equities given the strong representation by commodity producers.
Meanwhile Brazilian bank BTG Pactual, last year’s Emerging Markets’ research award winner in the region, has continued its strong analysis of Brazilian interest rate movements, with economists Eduardo Loyo and Claudio Ferraz downplaying expectations of significant further rate hikes early in 2011 amid signs of a dovish tone from Banco de Brazil. Along with most analysts in the region, however, they expected rates to remain on hold during H2, rather than forecasting the surprise rate cut in late August.
But in terms of combining strong data and trading ideas with insight and in-depth analyses, Ades’ Latin America analyst team at Bank of America Merrill-Lynch have had an outstanding year.
In a report by the bank’s LatAm Fixed Income and Strategy team published in October last year, BofA-ML predicted that neutral rates would likely decline in 2011 amid a global environment of lower yields and lower growth. BofA-ML’s Latin American team have also been proactive in their analysis of unorthodox monetary policy tools implemented by a number of policymakers in the region, Brazil in particular.
In February, BofA-ML constructed a Financial Conditions Indicator for Brazil (BFCI) to assess whether financial conditions in the country were expansionary, given the central bank’s reliance on reserve requirement hikes rather than interest rate hikes in late 2010 and early 2011.
It found that conditions were contractionary in January, and that policy rates act with a substantial lag (eight months) on activity, compared to a lag of five months for reserve requirements, predicting further RRR hikes and downgrading the bank’s outlook for interest rate hikes for the remainder of the year.
Given renewed challenges for monetary policy, innovative statistical exercises like these have helped BofA-ML stand out from the crowd.