DEV/DOC(2007)1 country in the EMBI-Global (Emerging Market Bond Index) that can be used as the magnitude of each Latin American country in the Secondary Bond Market. The weight of each emerging country in this database is similar to that obtained in other databases. For example, by comparing the EMBI-Global with the Joint External Debt Hub (JEDH) database38 which provides the stock of international debt securities, we get a high correlation between both weights for the Latin American Emerging Countries (0.70 and 0.98 by excluding Argentina). In order to analyse if investment banks’ recommendations could depend on the size of the market of each emerging economy, a first step is to compare the EMBI-Global weight of each Latin American country with the average of the total investment banks’ recommendations between July 1997 and July 2006. As shown in Table 7, by realising a simple cross-section analysis, we reveal that, excluding Argentina, there is a high correlation between investment banks’ recommendations and the size of the markets (0.8 for 10 Latin American Countries). Table 7. Recommendations vs. Credit Risk and Size of the Countries (Average 1997-2006) Average Recommendation (1: over; 0: neutral; -1: under) Argentina Brazil Chile Colombia Dom. Rep. Ecuador Mexico Panama Peru Uruguay Venezuela
EMBI-Global country weights (%)
-0.14 0.35 0.00 0.12 -0.01 -0.03 0.29 -0.03 0.05 -0.32 0.16
11.1 19.3 1.0 2.2 0.3 1.3 16.8 1.9 1.7 0.7 5.3 0.65 0.81
Correlation with recomm. (with Argentina) Correlation with recomm. (without Argentina)
EMBI-Global spreads Basis Points (bp)
2536.7 774.9 139.1 496.1 656.4 1391.6 342.0 376.4 486.5 609.5 798.7 -0.30 -0.04
Source: the authors, from Investment banks’ publications and JP Morgan, 2006.
Including Argentina, the correlation is lower (0.65) because their size in the market was substantial (11.1 per cent) vis-à-vis their recommendations (-0.14). In fact, if we compare the average of the recommendations for Argentina (1997-2006) with the present weight in the EMBIGlobal (1.8 per cent in March 2006), the correlation between both variables for the total of Latin American countries is 0.8 (see Figure 3).
38.
This database is jointly developed by the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD) and the World Bank (WB). See: http://devdata.worldbank.org/sdmx/jedh/jedh_dbase.html
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