Wednesday, September 05, 2007

Analysts back in favour !

Analysts were in the doghouse after the American stock market bust of 2001. There were sweeping changes in the leading investment banks relating to research (including the much-trumpeted separation of analysts from investment bankers). Now, the Economist reports, analysts are back in demand. For various reasons:

  • In bad times, analyst calls and research in general are more valued than in good times- in good times, everybody is just focused on piling on to the usual stocks.
  • Analysts performance is better monitored and rewarded at investment banks with bold (and correct) calls earning high bonuses.
  • Quantitative models have performed badly of late leading to a revival of "fundamental analysis".

The Economist contrasts the improved performance of analysts with the miserable performance of the rating agencies.

The audacity of some analysts stands in contrast to the spinelessness of Moody's and Standard & Poor's, which showered complex structured products with top-notch ratings and then twiddled their thumbs until they could no longer avoid downgrading them. By growing too cosy with their paymasters in structured products—the banks that package them—the rating agencies have ended up hopelessly in knots. A bit like equity analysts during the dotcom boom, in fact.


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