Analysts hitting the streets to mine trends
Last year, Hong Hyun-pyo, a senior researcher at KTB Investment and Securities, became a regular visitor to Seocho-dong in southern Seoul. He was attending court hearings on U.S. buyout fund Lone Star’s involvement in Korea Exchange Bank’s credit card stock manipulation.
For analysts, time means money, and spending hours at a court room means hours not dedicated to other projects. However, Hong said the opportunity cost was worth every penny.
“I got a lot out of the court hearings,” said Hong. “Not only did I learn information that I didn’t previously know, but it also gave me hints and inspiration for writing my corporate reports.”
Hong said analysts can only write creditable reports these days by digging up information from the field and reaching outside the company they are looking into.
Meeting chief executive officers and visiting companies’ production lines and operating offices are now considered just the tip of the iceberg. Today, analysts are doing more by actually hitting the streets and observing social trends.
Lee Chang-hee, head of Korea research at Daiwa Securities, headed out into central Seoul in December despite the freezing temperatures to meet with smokers for his survey regarding the government’s move to ban public smoking.
He wanted to know what kind of effect the Seoul government’s regulation would have on the stock value of Korea’s largest tobacco company, KT&G.
His survey found that 80 percent of the smokers questioned had no intention of quitting, but that some welcomed the new measure.
As a result, Lee proposed putting a ‘hold’ on KT&G investments, adding that since the Seoul regulation would have little impact on the tobacco company, as investors would be unlikely to profit from selling the stock.
“In the past, all analyses needed to be considered in-depth to be relatively first-class,” said Shin Sung-ho, managing director at Woori Investment & Securities. “But today, on top of those qualities, original and perceptive insights that offer value are also necessary.”
Shin said social trends and movements that were often overlooked before have now become the kind of material that analysts prize.
Shinyoung Securities analyst Hong Jung-hye has been compiling reports focused on how the recent social phenomenon of widespread public anger over worsening living conditions affects government policy.
In a recent report, Hong found evidence that the Bank of Korea had raised the nation’s key borrowing rate due to a nationwide protest by college students over high tuition fees. Since the 2008 global economic crisis, the government has kept a loose monetary policy by keeping the borrowing rate low.
However, this led jeonse - or long-term housing deposit - prices to shoot up while inflationary pressure continued to grow. As living conditions became more difficult, the public started to hold mass protests.
The government concluded that it could no longer maintain its current monetary policy if it hoped to win over the public, and geared its policies toward improving the livelihoods of middle- and lower -income households, according to Hong’s analysis.
Meanwhile, another analyst, Woo Won-sung at Kiwoom Securities, recently advised investors to buy shares in Ottogi, a food manufacturer specializing in instant products. Woo said that as women are becoming more active economically, families with one or two members are increasing, and demand for Western-style meals is growing.
The shift has gone to such extremes that some reports make no mention of the stock market, while others study subjects as seemingly arbitrary as the weather or other natural phenomenon. Industry insiders said that such unorthodox reports are a result of excessive competition among analysts.
Since there are literally several hundred reports being released everyday, analysts have to find an angle that would attract the eyes of investors.
“On the outside, their analysis seems eye-catching, but sometime it lacks information on stocks that fund managers desire,” said a fund manager who requested anonymity.
Now the trend is spilling over to fund managers.
“To understand more about the entertainment industry, I invested my own money to watch a YG Family concert held in Osaka, Tokyo, last month,” said Cho Woong-pil, a fund manager at KB Asset Management. “I invest only in stocks that I am certain of after seeing the research with my own eyes.”
By Sohn Hae-yong [firstname.lastname@example.org]
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