All signs had been pointing to a better year for Brazil.
“2019 was a good year for the Latin America region, of which Brazil is the biggest,” said Carlos Sequeira, head of research at BTG Pactual. “The country may not have been growing the economy, but reforms were on track and indicating an improvement in 2020.”
In late October, for example, the country’s senate had approved President Jair Bolsonaro’s proposed reforms to Brazil’s social security system, which are expected to generate estimated savings of 800 billion reais over the next decade.
The changes, including introducing a retirement age, were decades in the making — but the country’s appetite to finally embrace them was noteworthy, according to Pedro Martins Jr., head of Latin America equity research at JPMorgan Chase & Co.
“Brazil is the largest country in LatAm, has the largest population, the largest number of listed companies, and is also the market with the largest capitalization and liquidity,” he said. “That is an important combination for emerging market investors. From a more top-down point of view, Brazil is one of the few countries in the region that is implementing a reform agenda that is inducing higher long-term growth.”
The reforms, combined with higher economic growth predictions and record low interest rates, had Brazil’s top research analysts feeling optimistic about the county’s prospects. But the paralyzing impact of the coronavirus pandemic has now put that rosy future into question.
There have been more than 160,000 confirmed cases of Covid-19 in Brazil and 11,000 deaths, according to the country’s Ministry of Health. Reports as recent as May 10 have suggested that Brazil could become the next global hot spot for the virus, as criticism against Bolsonaro mounts for his inconsistent handling of the crisis.
“The reform agenda is now on hold considering that both the legislative and executive branches are focused on dealing with the Covid-19 crisis,” Martins said.
In these times of uncertainty, investors may be looking for clarity from top research providers like JPMorgan — the No. 1 firm in Institutional Investor’s 2020 All-Brazil Research Team.
The 17th annual ranking of Brazil’s best equity research teams was determined by nearly 470 investment professionals across 316 asset management firms with significant Latin American holdings. Respondents rated research teams across 17 industry and economic sectors, with their votes weighted by how much they spent on sell-side research.
In this year’s commission-weighted ranking, JPMorgan just edged out last year’s incumbent BTG Pactual, earning 17 total team positions to the Brazilian bank’s 16.
Bradesco BBI tied with BTG Pactual for second, while Credit Suisse dropped one spot to fourth place. BofA Securities and UBS tied for fifth place with 7 positions each.
When votes were weighted based on assets under management instead of commissions, JPMorgan and BTG Pactual tied for first place, while Bradesco BBI took third.
[II Deep Dive: BTG Pactual Wins Again in Brazil]
Investors also voted for their favorite analysts to form two additional leaderboards based on individual researchers. In the commission-weighted ranking, BTG Pactual continued its reign, breaking last year’s two-way tie with Bradesco BBI to keep the No. 1 spot. Bradesco BBI and JPMorgan tied for second. These results did not change when votes were weighted by assets under management.
At BTG, Sequeira believes that local, veteran analysts will be best poised to help investors through the coronavirus pandemic. “The crisis will only reinforce the importance of being locally based,” he said. “That is showing up in the content already.”
BTG Pactual has 20 equity analysts based in Brazil, along with six macroeconomists, Sequeira said. Twelve additional analysts and macroeconomists are based elsewhere in Latin America, while four analysts work in New York. “Some pillars will not change,” he added. “These are experienced analysts, seasoned team, and knowing the sectors they cover in the region very well. These will continue to make a difference.”
As for Brazil’s immediate future, JPMorgan’s Martins said that there likely won’t be time for the country’s legislature to return to the reform agenda this year, considering that mayoral elections are scheduled for October.
“We believe, however, that some issues that were already in advance stages of voting could be approved, such as the sanitation bill,” he said. “A reform agenda could resume in 2021, as Covid-19 is hopefully a lesser shock than at the current moment.”
