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Brazil: Do LatAm equity issuers need foreign bank leads?

As domestic equity markets grow, Wall Street firms will lose their dominance of new issues.

With the Bovespa down 10%, Brazil’s equity market is among the worst performers this year. In part this is for technical reasons. Bankers say that with global emerging equity funds so overweight Brazil, investors have to sell existing positions in Brazilian companies to buy new shares. Throw in the large outflows of emerging markets equities earlier this year and the impact that the sell-off of commodities has had on some of the Bovespa’s leading companies and explanation of the index’s poor performance becomes clearer.

Brazil’s difficulties, however, are proving a boon to Latin America’s other equity markets, which have been largely dormant until recently. Non-Brazilian equity deals have fared well – note the IPO of Argentine fast-food operator Arcos Dorados, which attracted over $10 billion of demand for a $1.25 billion offering. Other deals are expected in Argentina as well as in Colombia and Chile. Mexico too is reported to be particularly strong for the second half of the year. And Brazil, though probably more fitful, is still going to provide at least half the region’s supply for the foreseeable future.

But which banks will benefit from Latin American equity deals? The R$5.5 billion Brazilian steel company Gerdau follow-on transaction was managed by BTG Pactual, Bradesco and Itaú – all local firms.

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