Retail investors should be cautious about buying or selling shares simply because they read in the news that an analyst has changed a recommendation, says NTU finance professor Roger Loh.
A close-up shot of a trader's hand on a trading platform. (Photo: iStock/primeimages)
SINGAPORE: Shares of at least two Singapore-listed firms made headlines last month after their shares fell sharply following downgrades by stock market analysts.
OCBC shares tumbled nearly 6 per cent on Oct 7 after Citi cited softer-than-expected third-quarter earnings expectations and downgraded the bank to “sell”. Days later, Sheng Siong shares fell as much as 3 per cent on the back of a downgrade by Maybank to “hold” and a cut in target price.
How can a single analyst’s opinion have such a dramatic impact on a company’s share price? Should retail investors follow these recommendations?
NOT ALL ANALYST REPORTS INFLUENCE THE MARKETS
Analysts employed by financial institutions study the companies they cover, forecast their earnings and recommend whether investors should buy, hold, or sell their shares. Their research helps institutional investors assess what companies are worth, with the information ultimately reflected in market prices. A vibrant analyst research sector is therefore an important part of a well-developed equity market.