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Emerging Market Equities: Institutional Portfolios Grow Amid Volatility
( Greenwich Associates )
(September 11, 2008)

In Greenwich Associates Rankings, UBS Named Top Equity Broker in Latin America, Merrill Lynch Earns Top Honors in Emerging EEMEA

Thursday, Sept. 11, 2008 Stamford, CT USA -Investors in stocks from the emerging markets of Eastern Europe, the Middle East, Africa and Latin America entered 2008 with bullish expectations and were adding to their portfolios right up to the recent downturn in returns.

Among the European institutions that dominate investment in emerging Eastern Europe, the Middle East and Africa (EEMEA), the average emerging EEMEA portfolio grew by 50% from Q1 2007 to Q1 2008 - a period in which the MSCI Emerging EEMEA Index was up slightly more than 12% but was well off its prior three-year average of more than 20%.

Emerging market investments in Latin America come mainly from institutions in the United States. Among these investors, the average Latin American portfolio grew by nearly 30% from 2007 to 2008. Investors were bullish with good reason: Returns on the MSCI Latin American Index topped 45% for the period.

"Although performance has obviously tumbled in both, increases revealed in the research findings suggest that Latin America and emerging EEMEA remain attractive long-term growth markets in the eyes of institutions in Europe and the United States," says Greenwich Associates consultant John Colon.

The growth in emerging EEMEA and Latin American portfolios was driven primarily by the fact that investment performance in both regions remained strong relative to returns on developed market equities from Europe and North America. Also contributing to the continued expansion: a move by institutions to diversify their portfolios by taking on added exposure to international equities. Additional research by Greenwich Associates suggests that the emerging markets will continue to benefit from that trend in coming months, despite the downturn in equity market performance. Among the 419 European institutions interviewed by Greenwich Associates as part of its 2008 investment management research study, nearly 20% reported that they were looking to increase their allocations to international equities, while less than 7% said they were looking to cut back.

Country Allocations: EEMEA and Latin America
About 50% of the investments made by European institutions in emerging EEMEA are in Russia, with a stable 25% invested in Eastern Europe. U.S. institutions hold a diminishing 36% of regional assets in Russia - down from 41% in 2007 - and a growing 20% in Eastern Europe. U.S. investors showed a marked increase in their exposure to the emerging markets of the Middle East and North Africa, where assets jumped to 13% of regional portfolios in 2008 from only 4% in 2007. At the same time, they lost some of their prior enthusiasm for South Africa, which fell to 16% of emerging EEMEA investments in 2008 from 30% in 2007. South African equities were stable at 10% of European institutions' emerging EEMEA portfolios from year to year.

Investment in Latin America remains a tale of two countries: Brazil and Mexico together account for about 80-85% of all equity investments in the region for both European and U.S. investors.

Bulge Bracket Dominates in LatAm, Country Specialists Thrive in EEMEA
Institutions use an average eight to nine brokers for equity research in Latin America, with most relationships in Brazil and Mexico. Those numbers are slightly lower than the historic norm, largely because many of the big local brokers have been purchased by global banks; Credit Suisse bought Brazil's Garantia in 2001, and UBS bought Brazil's Banco Pactual for $2.5 billion in 2006. "The global firms still have huge presences there and everybody uses them," says Greenwich Associates consultant Jay Bennett.

In fact, only one more regionally oriented firm, Santander, places among the top 10 Latin American brokers in Greenwich Associates' 2008 Equity Brokerage Rankings. When it comes to service quality, UBS is well ahead of the pack in Latin America. The bank outscores its competitors by a wide margin on the Greenwich Quality Index, which is compiled by Greenwich Associates from service quality ratings provided by brokers' institutional clients in the region. Merrill Lynch has made steady progress in terms of GQI scores, and now ranks a solid number two in terms of coverage quality, followed by a tier of five or six brokers active in the region.

In emerging EEMEA equities a number of the larger, more global firms have acquired local firms and local talent across the region, so it is the European and U.S. firms that are really driving the business at the institutional level in EEMEA as well. Merrill Lynch ranks tops in terms of both research and quality scores in emerging EEMEA equities and Deutsche Bank figures prominently as well. Other firms with strong presences in individual markets throughout the region also make an appearance, including Renaissance, Unicredit and Investec, followed by a second tier of a half-dozen global firms.

For more information contact:
Jeanine Canneto
+1 (203) 625 4342

Greenwich Associates is the leading international research-based consulting firm in institutional financial services. Greenwich's studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with additional offices in London, Toronto, Tokyo, and Singapore, the firm offers over 100 research-based consulting programs to more than 250 global financial-services companies. Please contact us for further information or to arrange an interview with one of our consultants. You can visit our website,, for more information.



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