Latin Finance - December 2008 - 9

Equity A Bounce to Recession LatAm indices continue to wade through an unpleasant mix of high volatility and down-trending performance since their last big plunge in early October. Jumpy trading sessions dominate and lack of conviction and direction in the secondary puts all big decisions on ice. EM’s high correlation to US markets is an omen of a worsening ECM Rank by Volume, Year to November 17 farther down the line. Moving into Itaú wins shuttered market late November, however, crisis Finding the sectors and companies headlines had subsided, bailout that outperform during recovery, Rank Bookrunner Value $m # deals announcements waned and choppy whether it comes in late 2008 or 1 Banco Itaú 4,532.96 6 conditions took over. mid 2009, is the big question facing 2 Credit Suisse 4,074.93 9 Market watchers have been investors. A consensus appeared to 3 JPMorgan 3,773.40 7 sniffing for a bottom despite the fact be building around names whose 4 Unibanco 1,847.40 2 businesses rely on domestic that regional stocks appeared mired in 5 Banco do Brasil 1,744.95 2 consumption. With strong internal quicksand. LatAm indices were down 6 UBS 1,711.68 4 growth rates and solid 35% on average year to date through 7 Bradesco 1,605.93 1 fundamentals, including relatively November 17, according to 8 Citi 1,333.03 6 low inflation and a committed Economatica, with the biggest drops at 9 Santander 1,207.96 4 central bank, Brazil falls in the the Bovespa (-44%), Peru’s IGBVL (10 HSBC 530.28 2 sweet spot for most investors 58%), Mexico’s Bolsa (-34%) and Subtotal 22,362.53 22 looking to jump back in. Argentina’s Merval (-54%). Total 25,539.94 31 “Brazil has an opportunity to “The source of this crisis not Latin Source: Dealogic expand its domestic demand,” says America so you have to wait it out,” says Juan Bosch, Buenos Aires-based Bosch. Being a recipient of $30 portfolio manager for Compass billion in swap lines from the Fed is Core IB Rank by Fees, Year to November 17 Group’s LatAm portfolios which has a major endorsement that provides Credit Suisse steals the show $100 million invested in equities in the a financial boost to the country’ economy, he adds. region. “There’s not much you can do Rank Bookrunner Revenue $m % Share “EM countries are having strong but try and stay more defensive.” 1 Credit Suisse 226.33 21.16 growth. China and Brazil probably Bosch adds that despite the difficult 2 UBS 115.76 10.82 won’t decelerate as much as other environment, he sees good 3 Citi 105.92 9.90 countries,” says Carlos Eduardo opportunity within the region, as 4 Banco Itaú 102.15 9.55 Ramos, portfolio manager at Bank many of its economies have strong 5 JPMorgan 86.73 8.11 of New York Mellon’s ARX Capital, fundamentals that should boost the 6 Rothschild 45.11 4.22 in Rio de Janeiro, which manages private sector. 7 Merrill Lynch 33.42 3.12 close to 7 billion reais. Strategists say they see an eventual 8 Santander 31.71 2.96 move out of slump. “We are positioned Ramos sees a strong bounce 9 Goldman Sachs 30.31 2.83 for a transition from a crisis trade to a back in companies with exposure to 10 HSBC 25.63 2.40 recession trade,” says Ben Laidler, domestic demand, such as Wilson Subtotal 803.06 75.07 LatAm equity strategist at JPMorgan. & Sons, Lupatech, Marco Polo, Total 1,069.7 100.00 “Our view is of cautious optimism,” he Cesp, Equatorial and Bematech, as Source: Dealogic well as in global industrial and adds, noting the shop’s unofficial 12commodity-related companies like month projection for the region’s CSN, Gerdau, Usiminas and Vale. While his bottom up indices is some 15%-20% higher than mid-November. portfolio strategy involves holding the paper for years, rather Other strategists agree. “A violent downward movement like than weeks or months, Ramos sees annual IRR of up to 30% the one we’ve seen tends to be followed by wide trading range,” on his positions over the coming four years. LF says Michael Hartnett, head of EM equity research at Merrill Lynch. The MSCI Latin America’s 42% bounce in less than a week is indicative of what this range may be, says Citi in a midUPDATE November report. The MSCI LatAm hit 1,675 on October 27 and For daily ECM news and an exclusive pipeline of deals see then rose to 2,374 on November 4. www.latinfinance.com “Once you’ve established the floor and perhaps even a ceiling, you tend to find a group of stocks that does much better than the rest,” adds Hartnett. “For LatAm, the trick will be finding these best of breed companies,” adds the strategist. Earnings will be a key determinant, he observes, noting strong balance sheets and good management will make the difference. Laidler notes that at 6.5x 12-month forward PE ratios, LatAm companies are trading well below the 10.7x average of the past 15 years. Domestic Fortitude December 2008 LATINFINANCE 9

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Latin Finance - December 2008

Table of Contents for the Digital Edition of Latin Finance - December 2008