Archive for the ‘Emerging Market Equities’ Category

Overview of Brazilian Investment Banks – Market Realist

Wednesday, February 27th, 2013

According to Market Realist’s Emerging Market’s Analyst:

In a previous article we reviewed the main Brazilian Retail banks to give investors in EWZ some background on MSCI Brazil Index’s 25% exposure to the Brazilian financial sector.  This article will focus on the domestic investment banks.

Santander and HSBC occupy the #6 and #7 spots in the Top 10 Brazilian Banks by assets, with shares of 8% and 3% respectively.  Other major foreign banks such as Citi, J.P. Morgan, Credit Suisse and Deustche Bank are small market players in the retail banking arena, each with shares between 0.5% and 1% of the total banking assets.

While most of these banks are not leaders in the Brazilian retail banking landscape, all these foreign banks are part of the top 10 banks by investment banks by fees for Latin America (consisting mainly of Brazil and Mexico).  This classification includes fees for M&A (merger and acquisitions advisory), loans (credit lending), DCM (debt capital markets, i.e., bonds) and ECM (Equity Capital Markets, i.e. stock issuance).

The local Brazilian investment banks

The only local banks within the top 10 investment banks are BTG Pactual (leading the table), Itau BBA, and Santander BBI.  The table below shows the league table rankings as of Aug 2012:

BTG Pactual has an interesting story and has been referred to by some as the Goldman Sachs of Latin American or its “tropical version”.  The bank was sold by Brazilian investment banker Andre Esteves to UBS in 2006 for US$3.1bn when he was just 37 years old.  Three years later he bought it back for USD2.5bn when UBS hit a rough patch during the financial crisis.  Pactual currently has a joint venture with Caixa Economica Federal that jointly owns Banco PanAmericano.  This is BTG Pactual’s first acquisition of a retail bank.

Itau BBA, the investment bank arm of Itau Unibanco Holding, was created in 2002 when Itau acquired Banco BBA-Creditanstalt in 2002.  In 2011 it achieved third place in the Top 10 Brazilian Investment Banks table; as of August it was placing fourth for 2012.  Earlier this year it received the Best Investment Bank for Brazil 2012 Award by Euromoney.

Bradesco BBI was #7 in the Top 10 table for 2011 and so far this year its holding the #8 spot, followed closely by foreign banks Santander and HSBC.  Earlier this year it also received the Best Investment Bank – Brazil 2012 Award, this one was awarded by Global Finance.

For more information, please visit Market Realist’s emerging market section: Emerging Markets

Emerging market ETFs are over 50% concentrated in Asian equities – Market Realist

Wednesday, February 27th, 2013

According to Market Realist’s emerging markets analyst:

The MSCI Emerging Markets Index covers the performance of 817 emerging market stocks across 21 emerging markets. The index covers 85% of each country’s free float adjusted market cap, meaning it takes into account only the publicly available shares, as opposed to the total issued shares. In emerging markets it is common for companies to have low free-float percentages (e.g., in Latin American values as low as 10-15% are observable) as many family owners own a large portion of the outstanding stock, making it unavailable to the general public. Naturally countries with larger more and developed stock markets have larger market capitalizations and larger free-float percentages, and therefore end up having the lion’s share of the index.

The chart below shows the concentration for the top 5 countries in the index. China, South Korea and Taiwan account for 44% of the index. Approximately 10% more is accounted by the remaining Asian countries: Malaysia, Indonesia, Thailand and Philippines. Latin America accounts for c. 20% (driven by Brazil) and Africa for less than 10%. The two main ETFs tracking this index, Vanguard’s Emerging Markets ETF (VMO) and iShares Emerging Markets ETF (EEM) suffer from the same bias.

MSCI states that it frequently revises the composition of the index based “extensive discussions with the investment community”, though South Korea is still part of the index despite it is considered an “advanced economy” by the IMF and CIA, a “high income economy” by the World Bank, and a “developed market” by Dow Jones, FTSE and S&P. Additionally, Taiwan is considered an advanced economy by the IMF. Coincidentally, South Korea and Taiwan make up over 26% of the index.

The graph below shows the share by country grouped by regions for VMO, which closely tracks the MSCI EM Index:

For more information please see the full article link: Emerging market ETFs are over 50% concentrated in Asian equities