Asia Analyst Rankings

Investing Scents

It used to be that research is only distributed and read by institutional investors. Individual investors in Asia, by and large, tend to ignore research and stayed with speculative stocks. However, we have witnessed that more private investors are embracing research as a necessary tool for their investing decision. Not just in Malaysia but similar patterns were seen throughout Asia – a sign that Asian investors are maturing. A good sign, indeed.

In the absence of access to sound research, the market becomes a prime feeding ground for “syndicate plays” as individual investors can only jump into what's hot. It used to be that you can't find research reports at all for the majority of the top 20 stocks that are most actively traded. But that has certainly evolved substantially. When there is no research available but investors are piling in funds into these high volume stocks, it's a casino.

The most respected annual analyst rankings come from Institutional Investor, which compiles its annual survey from December till February. They have just released the results. Following are the rankings in Asia for 2008 (2007 ranking in parenthesis):

1 (2) JP Morgan

2 (3) Citigroup

3 (1) UBS

4 (6) Credit Suisse

5 (7) Goldman Sachs

6 (4) CLSA

7 (5) Deutsche Bank

8 (8) Merrill Lynch

9 (11) Lehman Brothers

10 (10) Morgan Stanley

The list is interesting for a few reasons:

a) JP Morgan came out of the sub prime mess relatively unscathed. The structure and professionalism of the company speak volumes. They have also invested well in Asia and is a respected force.

b) Citigroup maintained its improvement despite their parent company woes over the last 12 months. Three years back Citigroup was not even in the top 5 and the entire Asia research went through a wholesale change and the new team for the last 3 years have shown remarkable improvement in perception by institutional investors.

c) Goldman Sachs in Asia is still more of a deal making investment banking machine, and seems happy to play that role.

d) UBS seems to be on its way down as staff defected and the parent company's woes were felt throughout the organization. We may see more pullback in investments in Asia by UBS. The same seems to be happening for Deutsche Bank.

Citigroup deserves a bit more mention in that the new CEO has wisely concluded that the banking behemoth needs to stay as one big unit, and not to be dismantled owing to problems related to sub prime. Citigroup has been built into a very strong brand, especially in international markets. This valuable franchise should not be tempered with just because of one mistake by a few select people somewhere in the US office. The survey also has a break down based on countries. The following are the 2008 rankings for Malaysia research:

1 (1) Credit Suisse

2 (5) Citigroup

3 (2) UBS

6 (3) Deutsche Bank

7 (12) BNP

9 (6) CLSA

10 (9) Macquarie

Considering that proper broking licences have been issued to Credit Suisse, UBS, JP Morgan, CLSA and Macquarie in Malaysia, Citigroup and BNP moving up the ranking without the license ought to be viewed with more merit.

Solid Research Base

Few general reasons local research houses do not perform well in research rankings:

a) They are unwilling to pay good price to attract good analysts

b) They have a poor understanding of the value of research and as such, it is viewed as a major cost burden

c) Generally perceived as not a major revenue driver

d) Don't see the point in going after institutional business

e) Viewed as backyard champs and do not feel they would be competitive in the region (somebody should tell CIMB that)

Even if they do all of the above well, many still fall short because they do not give research the independence it needs. Even rated research firms have this problem. Research takes too many instructions from sales, remisiers, private bankers, the CEO, etc. A proper research outfit should come out with their own strategy and the way they view the markets. If they get it wrong a few times, they ought to be replaced. At no time should investment bankers or aggressive dealers point out to research what they should or should not be covering or promoting. Too many dealers think they have the right to be offering research input just because they have a few big clients.

A proper broking house with professional sales should regard research as a product on its own and try to defend the product. If it fails to deliver, the axe should fall on research. No one else in the firm should pretend to be analysts.