Tokyo's analysts outperform on a bad metric

Pax Global Technology

30/08/2016 04:18

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are his own.) 
    By Quentin Webb 
    HONG KONG, Aug 30 (Reuters Breakingviews) - Japanese 
analysts are outperforming on a worrying metric. Groupthink is a 
common problem and sell-side researchers in many markets face 
pressure to be kind to companies. Japan, however, stands out for 
the uniformity of opinions, according to a screening of $1 
billion-plus companies by Breakingviews.  
    Most companies stop short of throwing negative analysts out 
of briefings, as Hong Kong outfit PAX Global  0327.HK  did 
recently. But bosses everywhere want to look good. Firms can 
quietly hobble sceptics by limiting access to information or 
people. Or they may pass over a critical analyst's 
investment-banking colleagues for deals. 
    To see where analysts most accentuate the positive, 
Breakingviews screened large companies listed on Hong Kong, 
Tokyo, London and New York's main indexes, looking at what 
proportion of firms followed by five or more analysts had no 
"sell" or "underperform" ratings.  
    Of course, buy or sell ratings are not the only valuable 
ingredient in research. Good write-ups contain all kinds of 
other information. But this is still a useful yardstick of 
diversity of views. 
    British audiences proved the sternest: only 27 percent of 
blue chips had no critics. Hong Kong does not do too badly on 
fostering a marketplace of ideas either, with a buy-to-neutral 
consensus only covering 36 percent of stocks. That seems 
surprisingly robust, given the PAX kerfuffle and recent rulings 
in the city against Citron Research and Moody's for publishing 
critical studies. 
    Meanwhile 45 percent of S&P 500 companies had no negative 
ratings - perhaps not surprising to anyone familiar with fawning 
U.S. conference calls full of analysts hailing "great quarters". 
    Yet for Japan's Topix index, the percentage of firms with no 
sell ratings was an astounding 52 percent. Some stocks will be 
so good or cheap that no one would recommend selling them. But 
it very is hard to believe half of Japan Inc fits the bill.  
    Japanese analysts may just be less willing to step out of 
line in a society that prizes consensus. However, the 
consistency is worrying. Huge accounting scandals at Olympus 
 7733.T  and Toshiba  6502.T  add to the impression that Japan's 
companies get an easy ride. No wonder foreign short-sellers, 
like Glaucus and Citron, are circling. 
     
    On Twitter https://twitter.com/qtwebb  
 
 
    CONTEXT NEWS 
    - Breakingviews looked at analyst coverage of companies 
listed on the FTSE 100 and 250 indexes in Britain, Hong Kong's 
Hang Seng Composite Index, Japan's Topix and the U.S. S&P 500. 
 
The screen, conducted in mid-August, used Thomson Reuters Eikon 
data and excluded companies with market capitalisations below $1 
billion, and those covered by fewer than five analysts. The 
number of eligible companies ranged from 278 in Britain to 497 
in the United States.  
 
The analysis examined the proportion of stocks with no "sell" or 
"underperform" recommendations, and found these made up 27 
percent of stocks in Britain, 36 percent in Hong Kong, 45 
percent in the United States and 52 percent in Japan. 
 
 
 
     
    - For previous columns by the author, Reuters customers can 
click on  WEBB/   
 
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 (Editing by Una Galani and Katrina Hamlin) 
 ((quentin.webb@thomsonreuters.com;)(Reuters 
Messaging:)(quentin.webb.thomsonreuters.com@reuters.net)) 
 
Keywords: STOCKS ANALYSTS/BREAKINGVIEWS