When investment research comes into its own

Market journalism in the globalization era has been marked by content on, among others, latest research reports, industry surveys by securities firms or iconic portfolio managers. Retail investors are easily impressed by such stories in the mainstream media. They also welcome them in the hope of sniffing out a potential profit opportunity or sensing which way the market wind is blowing.

I'd, however, argue research conducted by securities brokerages and asset management companies is of greater importance. But a caveat would be in order here: they need to discover emerging industries or companies that promise much growth potential. In a sense, that should be their mission.

Am I not glad that some, if not all, are trying to champion that cause. For example, companies specializing in synthetic biology, intelligent cockpits and smaller metal providers — they don't quite receive prominent media coverage nor investor attention that are typically hogged by hot themes like artificial intelligence and chipmaking — have been the focus of several research reports of late.

Such research reports may indicate to investors the investment value of certain companies or industries. But they are of greater value to the surveyed companies as the latter may adjust their development strategies based on the questions raised in the brokerages' research reports, which represent market trend or demand most of the time.

The surveyed companies may be also inspired to discover new business opportunities or tap into new markets based on insights in research reports. Of course, not all research reports are positive; some may prove challenging, but even they could help the companies concerned to find the right positioning in the market and/or target the right group of clients, besides helping improve their own competitiveness. More importantly, critical reports could prod the surveyed companies to get their corporate governance practices right.

To be sure, research reports can help get recognition for the surveyed businesses among investors. This aspect is of much importance in the Chinese market. For, on the one hand, the Chinese household savings have continued to rise, reporting an incremental size of 7.32 trillion yuan ($1.01 billion) in the first four months of this year. On the other, the A-share market has been relatively stagnant over the past few years and its performance is incongruent with China's economic size and GDP growth rate.

China's top financial regulators have called for additional efforts to direct more household savings into the stock market. Retail investors still account for the majority of A-share market investors. Therefore, financial intermediaries such as brokerages should attach greater importance to their research to discover the true investment value of listed companies and IPO aspirants.

When investors are content with brokerages' investment findings, they will likely be more inclined to part with their money to part-own listed companies. The companies will thus have more capital for their business expansion or R&D activities. A virtuous cycle can be thus created.

In recent times, the central regulators have stepped in to straighten out securities firms' research activities. Securities firms used to sell their research reports to mutual fund companies to earn commission. That led to multiple research reports being published every day. Some market mavens bemoaned that quantity came at the cost of quality.

Not for long though. According to the mutual funds' securities trading fees management regulations released in April and set to take effect from July 1, a ceiling has been set on securities firms' commission. This would mean an end to "easy money" for securities firms that commercialized market research.

That's good news for the market. Hopefully, brokerages will put their heads down and use some advanced technology and tools to discover trends in industry developments and companies with true investment value. That would be positive for companies specializing in new quality productive forces.