RESEARCH ALERT - S. Barney LatAm strategy outlined
Reuters, Monday, February 09, 1998 at 11:58
NEW YORK, Feb 9 (Reuters) - Salomon Smith Barney strategist
Jim Barrineau said Monday that money flows indicated optimism
about Latin America and that Mexican fourth-quarter earnings
results could see disappointments.
A partial text of Barrineau's strategy brief follows:
Money Flow:
There seems to be a general sense of optimism from local and
foreign investors, as the Asian New Year started. Note
especially Brazil.
Figuring that the market cap is about twice that of Mexico,
local shares did substantially better than those of Mexico,
while ADRs did worse in terms of simple inflows.
Earnings Forecasts Post-Asia: Examining aggregate earnings
growth estimate evolution since the markets caught the Asian
Flu, we note that the big surprise drop was in Mexico, the
place where investors might least suspect it. Argentina has
held up well.
> ============
> Money Flows and Stock Price Anomalies
>
> Money
Money
> Flow
Flow
> Last Week This Week
> Argentina ======= ========
> Major ADRs 12.8 33.8
> Underlying local shares 16.3 5.2
> Remainder local shares -4.9 8.4
>
> Brazil
> Major ADRs 17.0 73.5
> Underlying local shares 690.3 1,042.4
> Remainder local shares 187.9 666.5
>
> Mexico
> Major ADRs -23.2 89.1
> Underlying local shares -1.3 4.3
> Remainder local shares -1.2 27.9
>
> Chile
> Major ADRs -2.5 9.9
>
> All flows are net in US$ million.
> This week is 1/29 to 2/5. Last week 1/22 to 1/29.
>
> Week's Top 4 Latin American Flow Ideas
> %Price Money
> Change Flow
> ======
=====
> Petrobras PN local -2.2% 749.6
> Bladex BLX -0.3% 4.8
> Contr. Comercial Mex local 0.5% -1.9
> Bco. de Galicia local 8.1% -3.7
>
> %Changes in US$ basis. Flows in US$ million.
> Based on proprietary screen. A significant divergence
suggests stock price
> does not accurately reflect investor sentiment.
> ======================================================
> The Evolution of Earnings Forecasts Post-Asia
>
We take a look here at aggregate 1998 earnings growth
estimates for Latin American markets and what they have done in
the months since Asian turmoil began to takes its toll on the
region. The somewhat surprising conclusion: Mexican
aggregate earnings estimates have come down the most.
While other major markets have all come down to some
degree, Chile has held up pretty well (without accounting for
the recent interest rate hike).
The data below is derived from IBES consensus estimates for
index companies in each market. We would note that many
strategists seem to be somewhat to substantially higher than
these numbers in their own estimates. We believe they are
overly optimistic, but two possible explanations are that they
are using their own analyst estimates for the companies that
they follow, or they are using estimates for companies outside
the indexes. One of the problems of the latter is that the
probability of including small stocks with huge earnings swings
is increased, even though these stocks are thinly traded.
>
> Country Index Earnings Growth -- 98/97
> Oct23, 97 Nov 20, 97 Dec 18, 97 Feb 5, 98
> ======= ======== ======== =======
> Argentina 19.5% 15.0% 15.4% 15.0%
> Brazil 18.6% 26.1% 23.5% > 14.3%
> Chile 12.3% 16.3% 15.9% 15.7%
> Colombia 4.4% 30.6% 31.4% 7.5%
> Mexico 16.3% 10.7% 10.8% 5.8%
> Peru 7.9% 10.3% 11.6% 12.0%
> Venezuela N/A N/A 19.9% 6.1%
>
> We consider the smaller countries numbers somewhat less
reliable as a market indicator, because of the significant
variance in data. We would note that if one takes major
companies in Colombia, growth amounts to less than double
digits.
>
> Points to consider:
>
For Chile, the big hit from Asia is still playing out. The
150-basis point interest rate hike will cause earnings growth
to skid substantially, and it could wind up the lowest of the
major markets. The good news, however, is that some of the
effects of this has already been priced in.
The boldness of the Central Bank's move suggests that they
wanted to get the Asian turmoil behind them quickly. That
suggests to us that Chile could be an attractive market in the
second half.
Argentina after an initial trimming remains virtually flat.
That is good news. We continue to believe that wiith lower
expectations, as demonstrated by analyst's initial reaction,
the possibility of upside surprises remains high. Cyclical
sectors and telecoms would benefit.
Most of the earnings growth story in Brazil is in the
public sector, and we consider these numbers a minor factor in
assessing future market movements behind privatization and
reform progress. Nevertheless, we think the numbers suggest
market sentiment could sour in the second half
post-privatization as investors come to believe that the
advantages of private ownership could be a longer time coming
with lessened earnings growth.
Mexico is a bigger surprise to us. We knew analysts were
revising earnings upward at a slower rate, but the number above
suggests that on aggregate analysts who have revised downward
have done so robustly. Most of the damage, as we have pointed
out in earlier work, has been in the retail and banking
sectors. If we had to choose, we would suggest that downside
surprises are more likely than upside surprises in fourth
quarter reports
Copyright 1998, Reuters News Service |
