LatAm Research "Crowded Stocks: Quantitative Insights on LatAm – May 202..."

Research evidence excerpt

LatAm Research "Crowded Stocks: Quantitative Insights on LatAm – May 202..."

It is interesting to compare how long-/short-crowding data differ from sector

loading. To analyze that, we only use stocks covered by UBS from the Brazilian Stock

Exchange as a reference. We have imposed no restrictions, so based on our previous

assumptions, we would anticipate crowding to possibly be more apparent in some

industries and shift over time, as investors shift their attention for a variety of

reasons (sentiment, momentum, etc.).

As we expected, there are few changes over time in the weight each sector holds. In

May, Financials and Energy were able to keep their long-held position. Coming next,

Materials stands in the third place. Put together, the above-mentioned sectors have

dominated the picture over time – a direct consequence of the large market shares

of O&G/mining giants Petrobras and Vale, further enhanced by Brazilian banks.

Figure 2: Brazilian Stock Exchange sector weights

ck E

Sto

an

ili

raz

B

xchang secte weior ghts

Source: UBS, UBS Quant, Reuters. Note: This figure only considers stocks covered by UBS Research in Brazil.

However, looking at how the various industries have performed over time, the

crowding statistics show something very different. The initial inference we can

make is that the evidence regarding long crowding is subject to a much higher

degree of variability. In May, Consumer Discretionary had an upward trend, while

Consumer Staples, Communication Services Utilities lost ground during the month.

Figure 3: Brazilian Stock Exchange long-crowded sector weights

xchang longe -crowd seced wetor ights

Looking at the short-crowded side of the market, Information Technology and Real

Estate had increased their weights in the month. On the other hand, Industrials,