TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
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By R SIVANITHY
01 March 2001
Last week’s collapse in the shares of popular commodities stock Olam International was widely attributed to a ‘sell’ issued by a foreign broker, with the issuing analyst then coming under fire for allegedly not being wholly familiar with the complexities of Olam’s business and accounting practices.
Granted, a ‘sell’ with a target price that is almost 50 per cent lower than the prevailing market price would surely draw some adverse reaction. However, whether or not the entire blame for the stock’s plunge can be laid at the analyst’s door is debatable since Olam’s fall came on a day when the global markets were under tremendous pressure because of a surge in oil to US$119 per barrel brought on by the political upheaval in the Middle East.
Moreover, calling into question the competence of the recommending analyst and raising absurd questions such as whether legal action might be considered are also, in our view, only useful as intellectual exercises but achieve little in terms of advancing the interests of investors.
Much more important than trying to assign blame or question the usefulness of investment research is to ask: What can be done to improve the usefulness and reliability of research reports?
It has always been our contention that although opinions vary over the usefulness of investment research - particularly ‘sell side’ reports written by stockbroking houses on individual companies - without honest, objective and thorough research it is not possible for brokers to build a sustainable business.
It is also our belief that any improvements within the present governance framework should always be disclosure-based, and in this regard, more information is always better than less.
Based on these considerations, it would be useful if investment recommendations include a summary of the writer’s experience and most recent relevant track record in order to assist the reader make a fully-informed decision on whether to rely on the report or not.
The writer’s qualifications may also be considered, but this is not absolutely vital - much more important from the recipient’s viewpoint is how accurate the writer has been in the past and how experienced he or she is when it comes to the company or industry being covered.
Admittedly, past performance is no guarantee of future returns but a summary of past performance does at least give the reader some basis for deciding whether to act on the recommendation being presented.
For example, a ‘buy’ or ‘sell’ from an analyst who has covered the stock or industry for, say, five to 10 years would surely carry more weight than if it came from someone with just one to two years’ experience. How much weight would then be left to the reader to decide since recipients of ‘sell’ side research can be assumed to be sophisticated investors capable of forming their own opinions on the efficacy of research they have presumably paid for, either directly or indirectly.
In this connection, it’s interesting to note that one of the major findings by the Hong Kong Securities and Futures Commission in its 2003 Investor Survey on Investment Research Activities was that institutional investors may be more interested in factual details than they are in specific recommendations and target prices - 86 per cent of institutional respondents said they wanted analysis on specific stocks while only 36 per cent indicated interest in specific recommendations.
This implies that these investors tend to make their decisions based on facts and the depth of analysis rather than by simply looking at target prices or relying blindly on the recommendation.
Note that even if this were true of all players - sophisticated or otherwise - an accompanying mini-CV of the recommending analyst would still be useful.
Undoubtedly, some might even come up with plausible arguments against the idea - ‘overdisclosing’ is one; another is that it can be counter-productive if the information leads the reader to make the ‘wrong’ decision.
All such arguments should be easily set aside if one remembers that the end game is to provide investors with as much information as possible to help them make their decisions. And if more sudden shocks can be avoided by better disclosure, so much the better.