US, WASHINGTON (ORDO NEWS) — “Buy”, “sell”, “keep”? In the current turmoil in the financial markets, the simplest recommendations of the big investment banks have lost their relevance or quickly become obsolete. So much so that many analysts prefer to sit on the sidelines while the storm fades.
Because those who still venture to publish opinions and recommendations are likely to be wrong.
On March 6, for example, BofA changed its advice on the European air transport sector, passing to “overweight” by explaining to its customers that these values should appreciate despite the risks linked to the coronavirus.
For the bank, the sector offered “an upside potential of 8% even in our dark (epidemic) scenario”. Since then, European airline prices have dropped by more than 40%.
BofA’s research department was not immediately available for comment, but a spokesperson said advice to clients had not been updated since March 6.
BofA is obviously far from being the only player in the markets to have been taken aback by the deterioration of the health situation on the one hand, by the shifting of the markets to bearish mode on the other hand. We no longer count the recent course objectives and the already obsolete recommendations, which retrospectively highlight the misreading by analysts of the magnitude of the pandemic.
For its part, Exane BNP Paribas (PA: BNPP ) published an opinion of “outperformance” on Air France-KLM (PA: AIRF ) on February 27. Three weeks later, the share price fell by more than 40%, even stronger than that of the CAC 40 over the same period (-32%).
The title now evolves more than 60% below the median of the price objectives (9.90 euros) of the 21 analysts who follow it according to Refinitiv data.
“We use ‘sell side’ elements in special cases but we have our own strategic research and we do a lot of in-house modeling”, explains Justin Onuekwusi, manager at Legal & General.
“Many analysts have been mistaken about the impact of containment. They may not have fully appreciated the domino effect of (business) closings and border closings.”
The air transport, tourism and leisure sector is obviously not the only one concerned: the situation is the same in energy and other sectors affected by the crisis.
And now, the multiplication of earnings warnings and the renunciation of many listed companies to their financial forecasts complicate the task of analysts who strive to adjust their price targets.
“There is very little data available to analysts,” Barclays equity strategist Emmanuel Cau (LON: BARC ) told Reuters. “As many companies simply cancel their forecasts, they simply no longer provide updated data to analysts on the impact of the crisis on their results.”
Traders who usually study sell side research closely can therefore rely only on their own work before making a decision.
“Everyone does their own job, takes their own risk and ends up selling anyway,” says Keith Temperton, sell side trader at Tavira Securities.
“We are in unknown territory. The nature of this crisis has nothing to do with that of 2008, during which there was a systematic rescue by central banks.”
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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.