Death To The Analysts!
Well, not to all of them. Some in Asia’s investment research community deserve to be heard — and heeded
BY CESAR BACANI
ALSO
Where to Put Your Money: Asiaweek profiles 16 of the most respected stockwatchers and asks them for advise on where investors should put their money
The veteran fund manager’s voice drips with contempt. "Quite frankly, I’d rather not rely on investment research and the analysts who do it," says Hugh Young, managing director of Aberdeen Asset Management Asia in Singapore. "Some of these guys had reports not so long ago that had a ‘strong buy’ on PCCW at HK$28 ($3.60) or Asia Pulp & Paper at S$10 ($5.65). Thank God, we didn’t listen to that sort of crap and all the rubbish about the Internet, telecoms and the new paradigm last year."
PCCW, Hong Kong’s dominant telecom-services provider, has just announced losses of $886 million and was trading at HK$2.60 ($0.33) last week. Indonesia’s Asia Pulp & Paper recently defaulted on its bonds. "There are some very bright and talented people in investment research," concedes Young, whose company has some $3 billion under management. "I read a lot of it, but only to look at ideas or see if there is something I may have missed. At the end of the day, if I make a bad investment decision, I blame myself, not some analyst who was pushing the stock."
Ouch. It’s open season on analysts once again. This always happens when high-flying stock markets get their inevitable comeuppance, but the bashing seems more intense this time around. Egged on by the media, investors are blaming over-bullish analysts, especially those covering the Internet and technology, for making them believe tech stocks would soar forever.
Many are also disturbed by recent revelations of conflict of interest. "There’s no question that the quality and intelligence of investment analysts in Asia today are excellent," says Mark Mobius, the globe-trotting president of Franklin Templeton Emerging Market Group, which manages more than $12 billion. "But some write favorable reports on companies that their corporate-finance division is wooing for new business." Says Sheree Tan, chief investment officer of Morley Funds Management in Singapore: "Analysts are sometimes more reactive than proactive because of the relationships of the investment bank or brokerage. They can be very quick to tell fund managers what to buy, but are often too slow to tell us when to sell." A Financial Times editorial even suggests metaphorical murder. Its headline: "Shoot All the Analysts."
Well, not all of them. Though admittedly few in number, there are independent-minded and insightful analysts out there. Asiaweek knows who they are from professional and personal contacts, as well as our tracking of their recommendations. They top the annual surveys of fund managers and other institutional investors carried out by organizations like Reuters news service and partner Tempest Consultants, and specialist publication Institutional Investor. These analysts are occasionally wrong, but they don’t hesitate to make a U-turn and explain the misstep.
Some figure in apparent conflict-of-interest situations, such as Goldman Sachs energy analyst Paul Bernard, who led the team that brought PetroChina to market last year (see profile page 42). End-users do not seem to mind so long as they fully disclose their participation. Bernard, 33, continues to top the surveys. Goldman Sachs says its analysts are barred from covering companies the investment bank helped list within 30 days of the initial public offering. "An analyst’s reputation depends on his research and expertise, and the last thing he would want to do is compromise that in any way," says Peter Rose, Goldman’s corporate communications manager in Hong Kong.
Of the hundreds of analysts who cover Asian economies, markets and companies, we profile 16 top-ranked men and women who have earned respect for their tough and accurate prognostications (the stories start on page 36). One of them is economist Jim Walker of CLSA Emerging Markets in Hong Kong, who continued warning against the overvalued baht in 1996 despite flak from Thai senior officials. "My job is to analyze economies and give my clients an unadulterated view," he says, not to sugarcoat reports to win powerful friends. In India, analyst Rukhshad Shroff, 32, wrote one of JPMorgan’s first "sell" company reports on a leading tobacco firm and found himself cold-shouldered by that company’s officials for a year. This has not stopped him from downgrading other stocks and whole sectors, such as his controversial but ultimately correct move to place a "sell" on Indian software shares in August 2000. Even Goldman’s Bernard advised clients at one point to sell PetroChina, the mainland oil giant he helped list, because he felt the price had surpassed the fundamentals. "I feel proud of that decision," he says, despite misgivings that his call could have hastened the stock’s price fall.
So what are these analysts telling their clients about where to put their money? Not surprisingly, most are advising caution. "We’re looking at a sharp slowdown all across Asia this year because of slowing U.S. economic growth and the global technology spending downturn," warns Walker. "We believe that the U.S. will do significantly worse than what most people are anticipating. China will also slow substantially this year, though it may be more noticeable in the second part of the year as U.S. growth starts to appear much more sluggish than it does now." Daniel Fineman, a Singapore-based regional equities strategist for JPMorgan, assigns a 35% probability to a U.S. recession. "If there is one, it would be U-shaped (meaning a gradual recovery) rather than V-shaped (a sharp upturn)," he says. Interestingly, influential Goldman Sachs investment guru Abby Joseph Cohen, who gave Asiaweek a rare interview (see page 48), believes the U.S. will not slip into a recession at all.
The sector to watch is technology. "We’re just skeptical that business spending on I.T. (in the U.S. and elsewhere) will rebound as quickly as some people imagine," says Fineman. "And that means that tech earnings will still be weak in the second half of the year." That is why he is wary of stock markets in tech-dependent South Korea and Taiwan. Bhavin Shah, head of Asian technology research at Credit Suisse First Boston in Hong Kong, agrees that the second half of 2001 will see the worst part of the tech down cycle. "A lot of Asian countries are export-oriented, and when demand for semiconductors (and other tech products) slows, they get affected," he says. But he notes that burgeoning domestic demand for personal computers could help drive growth in China.
We asked our chosen analysts to give us their top stock picks, and to explain why they chose them. You may or may not choose to trust their judgment. Many freely admit to being wrong in the past, and what is a "buy" to one analyst can be a "sell" to another. "But I think people who make good analytical calls are valued by investors, even if they might get it wrong sometimes," says Shah. "Investors listen to us because they want to have different views." Read on and distill for yourself the collected wisdom of some of Asia’s most respected investment analysts.
With reporting by ASSIF SHAMEEN and bureaus
Write to Asiaweek at mail@web.asiaweek.com
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