In a recent report, Credit Suisse analysts updated their outlook for Latin American banks and gave their top picks in the sector. While the report is generally bearish about Latin American banks, analysts do see potential investment opportunities in the space.
Falling commodity prices
The recent drop in commodity prices is a major blow to all major Latin American countries, and analysts predict that the weak commodity environment will lead to below-average GDP growth in Latin American countries in 2015 and 2016. Banks will likely see a drop in lending and pressure on earnings. In that respect, Latin American banks are top a top pick in the global banking sector at least until commodity prices recover.
Banks as a safe haven
Despite their weak position compared to other banks globally, analysts see Latin American banks as a safe haven for local investors relative to their countries’ benchmarks. In times of economic and potential currency weakness, banks are one of the only sources of relatively stable earnings growth.
Most and least preferred markets
Analysts believe that Mexico is the country with the least exposure to weak commodity prices, and Mexico’s ties to the U.S. economy will provide additional support. Even though it is hurt by lower copper prices, Chile is the only major Latin American economy that benefits from lower oil prices.
Columbia and Brazil are the least preferred markets.
Top picks
Credit Suisse chooses GFInbursa and Banco Santander-Chile (NYSE: BSAC) as its top two banks in Latin America. Analysts also upgraded Santander Mexico Financial Group SAB de CV (NYSE: BSMX) from Underperform to Neutral.
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