Investors in Asian equities have every right to feel frustrated. Many Far Eastern markets teased them with a rally early in 2002, only to fall later as U.S. export demand faltered and geopolitical tensions rose. Vibrant Chinese economic growth early this year heralded a renewed surge in stock prices, but that was undercut by the war in Iraq and the spread of the deadly severe acute respiratory syndrome, which has limited travel and commerce throughout the region.
Despite these dashed hopes, Asian markets, outside of Japan, continue to hold huge promise for investors. As bad as things were in 2002, certain exchanges did extremely well. Thai shares, for example, jumped by 17.3 percent, while Indonesian stocks gained 9.7 percent. Even the worst performer in Asia -- Taiwan, down 20.1 percent -- bested the 23 percent drop in the U.S.'s Standard & Poor's 500 index and the 31 percent fall in the MSCI Europe index. Bourses in Hong Kong, Singapore and South Korea lost ground but nonetheless showed remarkable resilience in a difficult year for stocks everywhere.
It was certainly a difficult year for Chinese shares, which fell 17.4 percent in 2002 even as the Middle Kingdom's gross domestic product surged 8 percent. China -- with its new World Trade Organization membership and burgeoning export industries -- has become Asia's center of gravity. In 2002, $50 billion in foreign direct investment poured into China. The country's new rules allowing "qualified foreign institutional investors" to buy local currency shares could attract much-needed liquidity and foreign research expertise to its unruly stock markets (see related story, page 92). So far 2003 has been mostly better than 2002: The Chinese economy expanded at a rate of almost 10 percent in the first quarter, helping send the Shanghai composite index up 21 percent. Then renewed fears about SARS lopped off half the gain. Asian markets as a whole eased 2.9 percent in 2003 through mid-April, pretty much in line with U.S. and European losses.
The disparate returns in Asian markets and the gradual opening of China's domestic stock exchanges heighten the need for first-rate equity research like that produced by the winning analysts on Institutional Investor's 2003 All-Asia Research Team. Investors most praise the researchers at UBS Warburg, which retains first place with a total of 28 team positions. Credit Suisse First Boston holds on to second place with 22 team rankings.
The most dramatic gains in this year's poll come from J.P. Morgan Securities and Smith Barney Citigroup, which tie for third with 16 team positions each. J.P. Morgan rises from sixth place and 11 positions last year. Smith Barney Citigroup, meanwhile, gains nine team slots, greatly improving on its eighth-place 2002 finish.
In the year ahead, however, these firms will face new challenges -- and not just from the markets and the global environment. Almost 38 percent of the buy-side respondents to a question about their internal research practices say that they have increased the size of their internal Asian research groups to try to keep pace with regional growth. Our polling also shows that investors, not surprisingly, want still more from their sell-side counterparts. Although 86 percent of respondents say they are "somewhat satisfied" with brokerage firm research on Asian stocks, only 7 percent deem themselves "very satisfied." That number is down from the 11 percent who gave the analysts their highest accolade a year ago (overall, though, 27 percent believe that sell-side research has improved over the past year).
Clearly, there's more work to be done in evaluating Asian markets and meeting the needs of investors. On the following pages you'll find the firms and researchers who have progressed furthest in both of these areas. With a little luck, 2003 may be the year in which these markets start to fulfill their promise.
The rankings were compiled by Institutional Investor under the direction of Senior Editor Jane B. Kenney; Assistant Managing Editor, Research, Lewis Knox; and Senior Associate Editor Tucker Ewing. Knox also wrote the overview. Click here to view the entire 2003 All-Asia Research Team results available in the Research & Rankings section of this site.