Good article from Bloomberg:
"Every Stock Was a Buy to This Analyst Team, Then Shares Tanked"
Some snippets:
Companies probably love getting attention from analysts at Emperor Securities Ltd. in Hong Kong. Investors who followed their advice for the past year, not so much.
The unit of Emperor Capital Group Ltd. issued buy recommendations on every one of the 173 companies it reported covering from April 2015 through May 16. Its target prices, which the company says forecast trading levels within weeks, predicted gains of 25 percent on average. They are frequently the most bullish among analysts who cover the same stocks and list their calls with Bloomberg, including those based on the standard 12-month horizon.
The picks ended up being so wrong during the past year’s rout of Chinese and Hong Kong stocks that shorting every one would have resulted in gains of about 6 percent after just four weeks and almost 13 percent if all were held through last week.
I wrote before about "SFC reprimands and fines Moody’s over Red Flags Report". An overall good report, but with a negative bias and a small error led to Moody's being punished despite many good calls.
However, if one just makes sure that all recommendations are bullish, then no punishment will be meted out, even if the contents are rubbish.
The difference in treatment of writers of positive and negative reports is very worrisome.
Showing posts with label SFC. Show all posts
Showing posts with label SFC. Show all posts
Tuesday, 31 May 2016
Saturday, 9 April 2016
SFC reprimands and fines Moody’s over Red Flags Report
I have written many times (for instance here, here and here) about the need for negative viewpoints (on particular companies, or the market as a whole), to balance out the predominantly positive reports from brokers, research houses and journalists.
Relevant for this specific case: "Moody and its Chinese red flags".
Not everybody seems to share that stand, as witnessed by the decision of the SFC in Hong Kong:
David Webb wrote about this subject "SFAT's red flag on Moody's chills negative research".
His conclusion (emphasis mine):
Could the report have been better-written, and clearer in the limitations of its findings? Yes it could.
Could the flag-tests have been better than 98.8% correct? Yes, they could. Was the report of a lower standard than all the other pieces of (mostly positive) research that the SFC has allowed to circulate without interference? Certainly not. That's what makes a market - and research firms rise and fall based on the quality of their output.
We liked the Moody's report, and we want to see more of that kind of critical research - but what licensed firm will now dare to publish such a report if the regulator is going to pick it apart afterwards and then slam them with a fine and potential loss of licenses for the individuals involved?
If listed companies disagree with research reports, they are of course entitled to respond with rebuttals, clarifications of their past disclosures or explanations, to ask for corrections, or even to sue for libel or defamation. As far as we know, none of the companies involved has sued - the criticism wasn't that far wrong.
Not only has the SFC pursued a licensee's report, they have also gone after an unlicensed person in the Market Misconduct Tribunal for expressing his negative opinions about a company while putting his money where his mouth was and being short: Andrew Left, of Citron Research, writing about Evergrande Real Estate Group Ltd (3333). The verdict in that case (also Chaired by Justice Hartmann) is awaited. In our view, unless the SFC can show that Mr Left didn't believe what he was saying, then the statement of his opinion cannot be false - however wrong his opinion turned out to be.
The SFC, and now the SFAT, has done Hong Kong a disservice by chilling negative criticism of companies, thereby skewing the market even further towards positive research. "Sell-side" investment banks world-wide tend to withdraw coverage of a stock or use euphemisms rather than issue a sell note on a potential client. They will say "reduce", "hold", or "buy on weakness" (when it goes down) rather than say "sell". Hong Kong sits on the doorstep of a country which stamps out all forms of criticism. We need to strengthen and encourage, not weaken, freedom of debate and criticism of companies.
All very relevant also for the Malaysian and Singaporean markets.
Relevant for this specific case: "Moody and its Chinese red flags".
Not everybody seems to share that stand, as witnessed by the decision of the SFC in Hong Kong:
David Webb wrote about this subject "SFAT's red flag on Moody's chills negative research".
His conclusion (emphasis mine):
Could the report have been better-written, and clearer in the limitations of its findings? Yes it could.
Could the flag-tests have been better than 98.8% correct? Yes, they could. Was the report of a lower standard than all the other pieces of (mostly positive) research that the SFC has allowed to circulate without interference? Certainly not. That's what makes a market - and research firms rise and fall based on the quality of their output.
We liked the Moody's report, and we want to see more of that kind of critical research - but what licensed firm will now dare to publish such a report if the regulator is going to pick it apart afterwards and then slam them with a fine and potential loss of licenses for the individuals involved?
If listed companies disagree with research reports, they are of course entitled to respond with rebuttals, clarifications of their past disclosures or explanations, to ask for corrections, or even to sue for libel or defamation. As far as we know, none of the companies involved has sued - the criticism wasn't that far wrong.
Not only has the SFC pursued a licensee's report, they have also gone after an unlicensed person in the Market Misconduct Tribunal for expressing his negative opinions about a company while putting his money where his mouth was and being short: Andrew Left, of Citron Research, writing about Evergrande Real Estate Group Ltd (3333). The verdict in that case (also Chaired by Justice Hartmann) is awaited. In our view, unless the SFC can show that Mr Left didn't believe what he was saying, then the statement of his opinion cannot be false - however wrong his opinion turned out to be.
The SFC, and now the SFAT, has done Hong Kong a disservice by chilling negative criticism of companies, thereby skewing the market even further towards positive research. "Sell-side" investment banks world-wide tend to withdraw coverage of a stock or use euphemisms rather than issue a sell note on a potential client. They will say "reduce", "hold", or "buy on weakness" (when it goes down) rather than say "sell". Hong Kong sits on the doorstep of a country which stamps out all forms of criticism. We need to strengthen and encourage, not weaken, freedom of debate and criticism of companies.
All very relevant also for the Malaysian and Singaporean markets.
Friday, 29 May 2015
Hanergy: SFC is investigating
It seems that the SFC has started an investigation in the remarkable rise and fall of Hanergy, according to this article in The Financial Times. Some snippets:
Hong Kong’s securities watchdog has confirmed Hanergy is under investigation — hours after the troubled solar panel maker’s chairman dismissed any such probe as “purely rumour”.
In the interview with Xinhua, China’s official news agency, Mr Li lashed out at reports that followed the spectacular crash of its share price, which wiped nearly $19bn off Hanergy’s market capitalisation.
He said: “We can say that in Hanergy has never in its history been better than it is today, our business is prospering, and this is a great time for Hanergy.”
In his interview Mr Li said it was impossible for any investigation to be under way without his knowledge — a sentiment undermined by the SFC statement.
“This is purely rumour, there is no such possibility,” he said. “I would be the first to know if the authorities were really planning a probe. But I know nothing about such news.”
Mr Li, in the Xinhua interview, also appeared to address concerns that he had used shares of the company as collateral to secure loans, saying the company did not owe overdue bank loans or interest payments to any bank.
“We never did before, we don’t now and I believe we won’t in the future,” he said.
If those statements are "entirely true", I have strong doubts about that, time will tell. The stock is still suspended.
In the mean time, at least one complaint has been filed in Hong Kong, by none other than David Webb.
Hong Kong’s securities watchdog has confirmed Hanergy is under investigation — hours after the troubled solar panel maker’s chairman dismissed any such probe as “purely rumour”.
In the interview with Xinhua, China’s official news agency, Mr Li lashed out at reports that followed the spectacular crash of its share price, which wiped nearly $19bn off Hanergy’s market capitalisation.
He said: “We can say that in Hanergy has never in its history been better than it is today, our business is prospering, and this is a great time for Hanergy.”
In his interview Mr Li said it was impossible for any investigation to be under way without his knowledge — a sentiment undermined by the SFC statement.
“This is purely rumour, there is no such possibility,” he said. “I would be the first to know if the authorities were really planning a probe. But I know nothing about such news.”
Mr Li, in the Xinhua interview, also appeared to address concerns that he had used shares of the company as collateral to secure loans, saying the company did not owe overdue bank loans or interest payments to any bank.
“We never did before, we don’t now and I believe we won’t in the future,” he said.
If those statements are "entirely true", I have strong doubts about that, time will tell. The stock is still suspended.
In the mean time, at least one complaint has been filed in Hong Kong, by none other than David Webb.
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