There’s a New Leader in European Research – Institutional Investor

It has been a volatile ride across Europe’s equity markets this year — with no sign of abating, according to the region’s top sell-side research providers.

“A lot has happened in the last twelve months; the region has actually changed quite dramatically,” said Eric Lopez, head of EMEA equity research at BofA Securities. “There are a lot of questions around not only the economic environment in Europe but also globally.”

As the region struggled to put the Covid-19 pandemic and subsequent variant waves in the rearview mirror, it has also been largely affected by supply chain issues, inflation and rising interest rates, and the invasion of Ukraine by Russia this February, which additionally drove up energy prices.

“I seem to say this more often in recent years, but equity markets remain volatile and the macro-economic outlook is uncertain,” said Theepan Jothilingam, head of EMEA research at BNP Paribas Exane. “We started the year already thinking about European and US rate hikes and inflation, [and] this hasn’t changed, but since Russia’s invasion of Ukraine, we have tried to add even more scrutiny to our analysis on industry trends across defense spend, energy prices, and food security.”

And all eyes remain on Europe to see how the region fares during the winter months ahead, Jothilingam said. “It will provide opportunities for clients to outperform and BNPP Exane research will be here to help,” he added.

One challenge, according to BofA’s Lopez, is the “massive uncertainty” around gas into the region this winter and next year. “You’ve seen gas prices going up five-fold and we are unlikely to see gas being delivered from Russia this winter,” he said.

That leaves question marks on the earnings profiles of a lot of companies that need gas to produce in the region. This uncertainty also extends to individual Europeans around consumption and discretionary spending, Lopez said. “It’s quite a challenging environment for clients,” he added.

Amidst all of this, the buy-side has recognized BofA Securities as the No. 1 provider in Institutional Investor’s annual All-Europe Research Team.

After a meteoric jump from fifth place to second last year, the firm improved its position to take the crown by a slim margin: Only one total team position separated BofA Securities (38) from this year’s second place finisher BNP Paribas Exane (37).

However, BNP Paribas Exane captured the most first team positions for industry research, with 14. Third-place JPMorganChase & Co. earned nine, while BofA Securities got 7.

The leaderboard was weighted by each survey respondent’s European commission spending. An additional leaderboard weighted by assets under management was also produced, which closely resembled the commission-weighted results. 

“This year has been more of a return to normal than what I would have anticipated,” Lopez said, especially with an uptick in travel. “Management has been very keen to go back on the road after two years of virtual.”

For analysts, it has been very much the same, he added. “We were having discussion of the new normal, but in some ways this feels like a return to the previous normal before Covid,” he said. “Analysts are on the road, though sometimes the constraints differ from one country to another. Some are more progressive than others. But most of my team has now been on the road since the beginning of the year. They are enjoying it, and the clients are enjoying it.” 

“Our job is to provide memorable investment advice to our clients, and it has been easier and better for relationships to be able to do that in person,” he added. 

BNPP Exane has likewise seen high demand for physical meetings and events. “Clients and corporates really want to engage again with in person meetings,” Jothilingam said. “Particularly in challenging markets, we find that our clients need help from top-ranked analysts. As a result we found we did more physical meetings in April and May of this year than in the same period pre-Covid in 2019.” The firm’s flagship CEO conference in Paris also returned in-person and attracted record attendance in June.

In the competitive European market, Lopez credits BofA’s success to its global reach, especially in volatile times. “We are a global firm and cover everything, everywhere, and across sub classes,” he said. “That is always a positive especially in uncertain times where things change and change fast. For example, if we understand that the European consumer is slowing down, but what is happening in China or the U.S.? We have that advantage as well as access to fixed-income and in today’s environment of rising rates that is a positive.”

At BNPP Exane, Jothilingam said the firm has focused on attracting and retaining talent. That, combined with very low turnover mainly on the senior end, has helped the firm differentiate its offering, he said. BNPP is now also investing more directly into U.S. research. “We’ve hired across autos, medtech, REITs, food and beverages, and semiconductors,” he added. “We’re excited that these new analysts will work with our teams in Europe and that we can replicate some of our high-quality content offering to global clients as the bank grows its equities business.”

Firms in the region reported that the long arm of 2018’s Markets in Financial Directive (MiFID II) — which unbundled research from trading and triggered disinvestment and juniorization of sell-side research industry — has largely stabilized.

“The impacts of MIFID-2 have largely run their course,” Jothilingam said. “Research wallets in Europe are more stable. That said the buy-side are more selective on who and what they value. Our strategy is to invest, adapt where appropriate, and grow our market share.”

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