GLOBAL - Moves by HSBC to increase the number of sell recommendations its brokers make have not gone far enough, according to critics.
HSBC’s attempt to implement a balanced distribution of buy and sell recommendations follows widespread criticism at the lack of sell recommendations and claims that banks’ in-house research teams are not acting independently.
HSBC global head of research Mark Brown said: “This is not a radical departure from the traditional model but a coherent and consistent way of applying the model more accurately. HSBC has always been at the transparent end of broker research, but the format and tools that we have launched today will set a new standard for the industry.”
Brown added: “The intention behind this way of analysing stocks is to be more transparent and more realistic focusing on performance and so investing in key recommendations in stocks. There is more likely to be a redress of the balance which currently sees bank analysts err on the side of the positive. This will see that bank analysts will be doing a more thorough job.”
HSBC’s approach includes publishing annual reports on the success and failures of recommendations as well as running a fund, which invests in its own research tips to make the process appear as real as possible. But Orbitex global chief investment officer Robin Geffen remained sceptical.
He said: “I don’t think that this model from HSBC will work as it is not an entirely independent research model. Given a choice of this halfway house, many will still opt for their own in-house research.”
Geffen said there was “no substitution” for entirely independent brokering research.
He added: “An alternative would be to have an ultimate separation of the institutional brokering from any corporate finance. Lots of the people currently work on both sides of the fence with analysts also working as corporate bankers.”
FMA director-general Michael Perry also highlighted the in-built conflict of interests where analysts are effectively financed by the equity and corporate finance team. However he added: “Analysts have their own reputation and credibility to protect.”
He continued: “It is an interesting move for HSBC and could well mean that more investors will follow its research. But professional fund managers are already aware of this – and look beyond just recommendations to details of the report.”
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