Analysts are doing precious little to support the investor MARKET INSIGHT
When examining the real estate market literature, something curious leaps out almost every time: the subset of analysts and that of market participants rarely overlap. In other words, the commentators are rarely the ones that have “skin in the game” so to speak. While this is supposed to lead to “objectivity”, in post of fact what oftentimes happens is the opposite; a regurgitation of ideas (oftentimes with a sceptical viewpoint).
This is compounded by the fact that most of the research conducted is not paid for by the client, resulting in research that is oftentimes pointless. Consequently, the commentary gets divided into two parts: 1) The analyst community, which by and large miss out on the trends, until after the inflection point has been reached and 2) The market participants, which more often than not comment on positions that they have already taken on, thereby creating conflicts of interest as they talk up their “book”, leading to further scepticism being expressed on the part of investors. As Lenin famously asked: “What is to be done”?
Recent reforms conducted in Europe for research mandates that this will now become a paid service, there removing some of the conflicts of interest that investment banks have. However, in this age of instant communication, transparency in the research industry starts from basic regulatory principles: a) A framework where all analyst have to disclose their holdings (whether held in personal and/or by their employer) and b) An audit of their forecasts on a periodic basis against a benchmark that is not shape shifting.
The first (which is already mandatory for equity capital markets in Europe and America) immediately allows readers to know where the conflicts of interest lie. The second allows for a uniform benchmark price index (and/or methodology) that is independently established by the regulator, against which all analysis can be benchmarked against. This allows for a transparent mechanism by which analysis can be audited by individual as well as institutional investors.
The current state of the industry is where a game of “hide the ball” is being practised; consequently, at a time where transparency should be at its highest given the level of technology and the investment in big data, we have increasing numbers of clients approaching us in a state of bewilderment. To be sure, there will always be differing points of view in any industry; these are healthy in an environment that is constantly changing. Investors want a variety of viewpoints as it helps them to make better informed decisions. However, it becomes problematic when certain basic principles and facts are being contested; figures from transactional data to price direction and delta changes then becomes the focal point of the discussion rather than an informed conversation of the nuances and opportunities in the industry.
The state of the real estate analyst industry in the UAE, in the absence of these principles, has become somewhat irrelevant for a large subset of the investible population. Even as quantitate analytical techniques have improved, large swathes of data remain ignored (off-plan activity and the resultant adjustment for the incentives that have been offered by developers). It becomes even more problematic when certain data points are just ignored, without any evident explanation for why this has been done. Instead, analysts resort to a series of sound bites, which then become headlines. While this may add to the sensationalism, it does little to aid the investor.
As the data of money flows indicate, investors have a mind of their own, and for the most part, have chosen to ignore most of these analysts who have continued to press for doom and gloom. In the final analysis, this is the greatest indictment against the research industry. Clearly, changes need to be made. The writer is head of IR and research at Global Capital Partners. Views expressed are his own and do not reflect the newspaper’s policy.