14-02-2013, 07:46 AM
Analysts are paid to do their jobs. They do not invest their own money in the stocks and hence there is a lack of conviction that is lacking in walking the talk. Nevertheless, they remain the ones that conduct detailed analysis and provides a platform for others to form their own judgement in investments.
Analysts miss the mark over longer term
Predictive powers go awry in forecasting underperformers
Published on Feb 13, 2013
Visitors at JCube in Jurong East, a CapitaMalls Asia mall. Analysts got it right on the stock in January last year, with 16 "buys" out of 19 calls, but their average 12-month target price of $1.62 turned out to be too low, given that the counter has almost doubled in price to $2.10 since then. -- PHOTO: CAPITAMALLS ASIA LIMITED
By Goh Eng Yeow Senior Correspondent
analYSTS are regularly scoring bull's-eyes these days with buy calls amid a rising market - but their record is not so great when looked at over the longer term.
Go back to the start of last year, when the benchmark Straits Times Index was at 2,646.35.
What followed was three months of volatility that allowed the STI to hit 3,000 points.
Shares then succumbed to the jitters amid fresh flare-ups in the euro zone crisis, and tumbled back to 2,698.9 in July.
The index then resumed its climb, reaching a two-year high level of 3,270.3 last Friday.
Analysts were spot-on in picking outperformers such as CapitaMalls Asia and CapitaLand.
The shares of both firms staged spectacular recoveries as their extensive China exposure lured investors once the mainland's huge manufacturing sector revived.
But the analysts' predictive powers went awry when it came to forecasting underperformers.
Take plantations giant Wilmar International. At the start of January last year, there were 14 "buy" calls from the 25 analysts covering the counter, projecting an average target price of $5.72.
That turned out to be way too bullish. The stock suffered a beating in February after it released its full-year results, and another in May when its profitability was dampened by losses in its volatile oil-seeds and grain division.
By mid-year, the number of "buy" calls among the 28 analysts covering Wilmar had dropped to only six but the average price target - $4.48 - was still too optimistic.
The counter came in for a drubbing and plummeted to as low as $3 in the next three months.
After that, analysts were not fast enough at playing catch-up in reversing their gloomy assessment of Wilmar. The investment mood in China - the company's major market for cooking oil - turned sweet, but "buys" accounted for only a third or so of the 27 calls on the counter.
Wilmar has risen by around 16per cent since January, leaving the average target price of $3.59 set by analysts behind. The counter ended four cents up at $3.68 last Friday.
It was very much the same story for fellow commodities play Olam International.
In January last year, it attracted 20 "buys" out of 26 calls, with an average target price of $2.92.
Six months later, analysts were still bullish, with 18 "buys" out of 25 calls, although they slashed the target price to $2.33, after Olam reported a 21.1 per cent drop in its first-quarter earnings to $98.7 million.
The analysts' buoyant calls went out of the window when a scathing attack made on the company by US short-selling research outfit Muddy Waters sent the counter to as low as $1.395 in December.
The number of "buys" dropped to just nine, as analysts scaled back their expectations, even as the company successfully raised US$750million (S$930million) from a bond-cum-warrants offering that boosted its shares.
Even among outperformers, analysts sometimes turn out to be a tad too conservative in their projections, causing their target price to miss by a wide margin.
Take CapitaMalls Asia, the best performer among the 30 STI component stocks. No doubt analysts got it right on the stock in January last year, with 16 "buys" out of 19 calls.
But their average 12-month target price of $1.62 turned out to be too low, given that the counter has almost doubled in price to $2.10 since.
So, while dealers look to analysts' reports for ideas, they sometimes rely on other means as well.
Said UOB Kay Hian remisier Charlie Lim: "I depend more on charts for any stock movements. But if there is interest in a particular stock, I will send the report to the clients."
engyeow@sph.com.sg
Analysts miss the mark over longer term
Predictive powers go awry in forecasting underperformers
Published on Feb 13, 2013
Visitors at JCube in Jurong East, a CapitaMalls Asia mall. Analysts got it right on the stock in January last year, with 16 "buys" out of 19 calls, but their average 12-month target price of $1.62 turned out to be too low, given that the counter has almost doubled in price to $2.10 since then. -- PHOTO: CAPITAMALLS ASIA LIMITED
By Goh Eng Yeow Senior Correspondent
analYSTS are regularly scoring bull's-eyes these days with buy calls amid a rising market - but their record is not so great when looked at over the longer term.
Go back to the start of last year, when the benchmark Straits Times Index was at 2,646.35.
What followed was three months of volatility that allowed the STI to hit 3,000 points.
Shares then succumbed to the jitters amid fresh flare-ups in the euro zone crisis, and tumbled back to 2,698.9 in July.
The index then resumed its climb, reaching a two-year high level of 3,270.3 last Friday.
Analysts were spot-on in picking outperformers such as CapitaMalls Asia and CapitaLand.
The shares of both firms staged spectacular recoveries as their extensive China exposure lured investors once the mainland's huge manufacturing sector revived.
But the analysts' predictive powers went awry when it came to forecasting underperformers.
Take plantations giant Wilmar International. At the start of January last year, there were 14 "buy" calls from the 25 analysts covering the counter, projecting an average target price of $5.72.
That turned out to be way too bullish. The stock suffered a beating in February after it released its full-year results, and another in May when its profitability was dampened by losses in its volatile oil-seeds and grain division.
By mid-year, the number of "buy" calls among the 28 analysts covering Wilmar had dropped to only six but the average price target - $4.48 - was still too optimistic.
The counter came in for a drubbing and plummeted to as low as $3 in the next three months.
After that, analysts were not fast enough at playing catch-up in reversing their gloomy assessment of Wilmar. The investment mood in China - the company's major market for cooking oil - turned sweet, but "buys" accounted for only a third or so of the 27 calls on the counter.
Wilmar has risen by around 16per cent since January, leaving the average target price of $3.59 set by analysts behind. The counter ended four cents up at $3.68 last Friday.
It was very much the same story for fellow commodities play Olam International.
In January last year, it attracted 20 "buys" out of 26 calls, with an average target price of $2.92.
Six months later, analysts were still bullish, with 18 "buys" out of 25 calls, although they slashed the target price to $2.33, after Olam reported a 21.1 per cent drop in its first-quarter earnings to $98.7 million.
The analysts' buoyant calls went out of the window when a scathing attack made on the company by US short-selling research outfit Muddy Waters sent the counter to as low as $1.395 in December.
The number of "buys" dropped to just nine, as analysts scaled back their expectations, even as the company successfully raised US$750million (S$930million) from a bond-cum-warrants offering that boosted its shares.
Even among outperformers, analysts sometimes turn out to be a tad too conservative in their projections, causing their target price to miss by a wide margin.
Take CapitaMalls Asia, the best performer among the 30 STI component stocks. No doubt analysts got it right on the stock in January last year, with 16 "buys" out of 19 calls.
But their average 12-month target price of $1.62 turned out to be too low, given that the counter has almost doubled in price to $2.10 since.
So, while dealers look to analysts' reports for ideas, they sometimes rely on other means as well.
Said UOB Kay Hian remisier Charlie Lim: "I depend more on charts for any stock movements. But if there is interest in a particular stock, I will send the report to the clients."
engyeow@sph.com.sg