Saturday, May 27, 2006

Analysts and their strange thought processes 1 comments

DanielXX's intro: I am often on the Channelnewsasia MarketTalk forum and some forumers' comments are always a must-read for me. One of the more incendiary characters is Ming who raises peers' ire like no other when he singles out certain stocks (that these forumers undoubtedly hold) for criticism, and gratitude from others who, ahem, learn to separate his incisive insights from his occasionally vitriolic broadsides.

His comments below resonate with my own rather cynical views on the nature of the sell-side analyst industry, and is as always delivered with characteristic sharpness. The thread was titled "The Edge, and the rubbish they write" but I have taken the liberty to title my adapted post as above; the spirit is captured, I believe.

(P.S: The following were extracted from another source and is not my original work.)

It never ceases to amaze me just how much nonsense gets written in The Edge. In this week's edition, Denise Wee decides to write about China stocks listed on the SGX. The headline reads, "Playing China Stocks. Valuations may have fallen, but there are still concerns about their quality." Yet again you have people trying to get investors to sell when prices are low and to buy when prices are high. For instance, they quote Yang Sy Jian of UOB Kayhian (why would ANYONE bother with what UOB Kayhian has to say? ) saying that investors would be best served by sticking to China consumer stocks. The wise head of research at UOB Kayhian quips "China is probably the most positive spot within the whole universe, especially if you are looking at something that is dependent on the domestic Chinese market." What? Am I missing something here? All those macro controls meant to cool down a red hot economy will not do any harm to the companies that are "dependent on the domestic Chinese market?" And with his incomparable vision, Yang Sy Jian tells investors to pile into China Hongxing. Does he have any idea what valuation China Hongxing is trading at?

Deng Jiewen of Philips Securities on the other hand tells you to buy China Merchant Holdings. I wonder how the oracle evaluated China Merchant. Almost all their important holdings are associated companies and thus not consolidated into the listed holding company. How on earth did the genius reach his conclusions or arrive at his earnings estimate?

Nicholas Yeo, an investment manager at Aberdeen, is quoted as saying that he gives Singapore listed China stocks a wide berth because of quality and governance issues. Apparently, the stocks listed on Hong Kong are better. I am a little stumped here as I cannot understand just how the governance problems for State Owned Enterprises listed in Hong Kong would be "better" than private enterprises listed in Singapore. It is a very sweeping statement to say that Singapore listed China stocks are all duds. Furthermore, anyone who has made an effort to examine stocks on both sides of the South China sea will see that there are good and bad in both markets.

Dear Nicholas goes on to say "when it comes down to picking stocks in China, it's really difficult." Given that the good man is paid to make investments and pick stocks on behalf of his clients, he has probably given himself the biggest vote of no confidence anyone possibly could. He goes on to say "if you look at the competition, it's actually quite bad, competition is continually eroding margins." Now that statement is probably the only credible line in the whole write up. And it is something that investors have to bear in mind when investing in China. Companies that have no defensible competitive advantage will see their margins eroded to shockingly low levels. To play it safe, Nicholas has made China Mobile and PetroChina core holdings of Aberdeen. Is it that hard to see that if you are going to invest in China Mobile and PetroChina, you might as well invest in Singtel or any of the oil majors in the United States? The valuations are not any different, and of course, the governance issues are not there as these are the bluest of the blue chips.

When you examine what these institutions say and try to understand how they think, it becomes apparent that they are really not any smarter than the average investor out there. People should know that it takes good marketing skills to become an institution, not investment prowess. With a large enough pool of funds, they simply hug the index as they are measured according to the index. That way, they can never underperform.

When I read the drivel published by our financial journalists, I have to wonder if they are all so gullible or perhaps they are in on it too. There is probably a good reason why The Edge is distributed through brokerages to their "favored" clients; and you probably do not want to know.

(The above was extracted from Ming's thread titled "The Edge, and the Rubbish They Write" on the Channelnewsasia Market Talk Forum, with his kind permission.





These guys are a starnge bunch alright.

2/09/2014 10:34 AM  

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