[SINGAPORE] You think of them as serious-minded individuals, poring over financial data and meticulously separating the stock market winners from those who fall short of their exacting standards.
They think of themselves as detectives.
And for having an excellent "detective" team, Citigroup was ranked the top broker in two categories under the BT-Starmine Brokers Rankings. The broker was ranked first for its recommendations of Straits Times Index (STI) stocks last year, as well as for its calls made on small- and mid-cap stocks.
"We basically analyse situations," said Citigroup research head Lim Jit Soon. "Sometimes you don't have all the data, all the information. And based on your experience, you make a judgement call on whether something should be pursued or not, in terms of finding out the cause of a company's situation. So in a way, there's a lot of detective work involved, in analysing, interviewing, gathering information, and developing 'gut feel' in situations."
Citigroup was followed by Goldman Sachs and Credit Suisse in both categories.
Goldman Sachs' head of Asean research Rick Loo said: "There are basically three things we have: consistency of approach, a rigorous internal process, and stock picking ability, which we actually put as part of internal compensation." And its analysts' calls are rigorously checked by senior management, he added.
Credit Suisse's head of equity research Sean Quek says that the house takes pride in its more considered approach. "We try to look at things from a different angle. And we do take longer than most houses, I think, when we come to initiate coverage," he says.
Fellow Credit Suisse analyst Lim Keng Hock, lauded for his accurate calls on Creative Technology and STATS ChipPAC, said: "But nothing bad lasts forever, and with stocks, the first thing is to get in at the right price because, if you do, the downside is protected. The next step is to wait for things to turn, for positive triggers to come."
Citigroup was lauded for its calls on Singapore Airlines, Noble Group, OSIM International and Tat Hong Holdings. In 2007 alone, crane specialist Tat Hong has seen its share price rise 180 per cent to $3.42.
Goldman Sachs made noteworthy calls on Pan Ocean, Wilmar International, SGX and Total Access Communication. Its analyst Tom Kim kept a "buy/ attractive" on Pan Ocean for 12 months as it soared 253 per cent and outperformed its benchmark by 156 per cent.
Mr Lim of Credit Suisse, whose calls on Creative were consistently proven right, said that it was a matter of knowing the seasonal impact on the counter and understanding the fundamentals of the company.
While the company tends to do better during the year-end festive season, "last year we did not revisit this Christmas play, simply because the core business was doing so badly". He added: "Right now I'm still negative on the stock." This, despite Creative reporting a profit last year.
"You take out the one-off gains, and this being the Christmas quarter you expect something nice, but by and large I don't think it's anything to shout about. Fundamentally nothing's changed," he said.
For accuracy in earnings forecast, Goldman Sachs emerged tops in its coverage of STI component stocks. JP Morgan and CIMB-GK took the second and third spot respectively.
OCBC Investment Research took top honours for its earnings forecast on small- and mid-cap stocks, followed by CIMB-GK and Kim Eng Securities.
While acknowledging the recognition of their work, analysts agreed that they are not always right. And even when they are, the market may not always agree with their analyses.
"I think the good analysts are those who continue to stick to their recommendations but who examine their assumptions to see whether they have missed anything," said Citigroup's Mr Lim. "And if they are convinced that their call is correct, to continue to run with it. They should also have the courage to change if they believe they have missed out on a major factor or driver on that particular stock."
Technological advances, have also led to mounting challenges.
"Over the past few years, with a lot of emphasis on equal corporate disclosure, it is now tougher for analysts to gain superior insights into some companies," said CIMB-GK research head Kenneth Ng. "This is a challenge because the information an analyst has is not necessary complete. One has to make do with this information and appreciate the upcoming news flow and potential changes, in order to make a judgement call.
"In the S-chip space, the main challenge lies in trying to find enough data points to paint a good picture. Most of the Chinese managements tend to be genuinely optimistic of their business and might not flag the challenges/ risks as soon as analysts require. Furthermore, only a few China stocks have comparable listed companies across the same space in Singapore, making sectoral cross-checks somewhat more difficult."
