When Valeant slashed its guidance back in March, we took a look at what the analysts were thinking just prior to that announcement and what we found was troubling, yet predictable.
And now, the "morning after", we finally have the unwind of the sellside narrative.
Recall that as recently as yesterday,there were 11 buys, 10 holds, and just 2 sell recommendations, with an average 12 months price target of $131.
But those Valeant analysts are nothing compared to their counterparts over at Emperor Securities Ltd. in Hong Kong. From April 2015 through May 2016, every single one of the 173 stocks that Emperor analysts covered had a buy recommendation.
The analysts were so wrong that shorting every one would have yielded 13 percent through last week, and if investors bought the stocks on the day of Emperor's recommendation, they would have lost 6.1 percent after just four weeks, with 119 of the stocks falling according to Bloomberg.
"It's our style to have a buy with a target price and a stop-loss price and not have hold or sell recommendations. The small, local brokerage offers trading ideas based on market sentiment, news, events or momentum. We pick stocks with a one-to-two week horizon" said Stanley Chan, director of Emperor Securities Research.
Emperor's "style" is apparently also to hang target prices that imply an increase of at least 25 percent or more.
As we reported last year, Chinese retail investors opened enough brokerage accounts for every man, woman, and child in LA. As it turns out, that's precisely how Emperor was making its money, by securities turnover and margin loans due to an influx of new retail customers. The firm threw day trade buy recommendations out on every single stock and watched new inexperienced "investors" trade on that data. That effort takes Wall Street's lazy clustering to an entirely new level.
Here's more from Bloomberg
The company’s latest annual report, for the year ended Sept. 30, said it enjoyed an influx of customers following the relaxation of cross-border trading rules for individuals in November 2014 under the so-called Shanghai-Hong Kong Stock Connect program. New clients and increased “securities turnover” fueled a 65 percent increase in brokerage revenue, to HK$151.5 million, the company said. Commissions and fees income on dealing in securities rose to HK$115 million, from HK$46 million.
Emperor’s latest earnings statement, released May 18 for the six months ending March 31, reported another 20 percent increase in brokerage revenue from a year earlier. Revenue from margin loans and other lending rose 141 percent to HK$373 million. At the end of the period, the company was holding HK$13 billion worth of securities as collateral for margin loans.
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And that dear reader, is how to successfully fleece retail investors.
via http://ift.tt/1PdIh4P Tyler Durden