Mifid II having impact on Asia-Pacific companies

Jun 12, 2018
Regulation has deep bearing on how companies engage with investors

A survey by the Australasian Investor Relations Association (Aira) finds that while the Europe-based Mifid II doesn’t in principle directly apply elsewhere, it is nevertheless forcing companies in the Asia-Pacific region to find new ways of communicating with global investors.

The survey of 54 companies, mostly in the ASX 200 and NZX 50 indices, shows that research coverage from investment banks has fallen sharply. At some companies this is a direct result of many investors refusing to pay new charges required under Mifid II for research, conferences and meetings provided by brokers.

The survey also finds that fewer investors attended global investment conferences held in recent months. This occurred even outside of Europe, in major financial centers like Hong Kong.

Many companies are now being forced to hire internally to bolster their capacity to engage directly with existing and prospective investors.

‘The new regulation is having a rapid and deep impact on how companies engage with their owners,’ notes Aira’s chief executive, Ian Matheson, in a statement. ‘The global nature of investing means a law passed in one continent can have a rapid knock-on effect elsewhere.

‘Investment banks were already cutting their research coverage, but that is being slashed even further. Our survey finds 40 percent of respondents had fewer analysts covering them over the last six to 18 months. If that’s not enough, 47 percent say research quality had also decreased. This is, at least in part, likely to be because many leading analysts are being poached by new independent research houses and fund management firms.

‘This is also having an impact on consensus earnings estimates, used by investors to make decisions on whether to buy, sell or hold. Not only is there less research on which to base the estimates, but many listed entities also report that the quality of research – and therefore many forecasts – has declined, making the consensus or average of the analysts’ forecasts less reliable.

‘Companies are increasingly concerned about the accuracy and timeliness of consensus estimates. The worry is that fewer brokers will issue these numbers, and investors will be less informed. Some investment banks no longer make them available through third-party platforms.’

Respondents to the survey also note they are now increasingly being asked to make their own appointments with investors directly rather than have them arranged by an investment bank: 27 percent of survey respondents who recently attended broker conferences were asked by investors to line up meetings directly.

‘It is clear that IR activities are going to be managed more in-house by companies as a result,’ Matheson adds. ‘More than half (54 percent) of respondents agree that they need to change how they engage and communicate, and more are now saying they will employ more staff.

‘Shareholder engagement is such a critical matter for listed companies that it seems inevitable firms will become more involved with their own programs and budget for higher costs.’

In a separate survey of members, Aira identifies 46 moves among stock broking analysts over the last 12 months: nearly one third of the movers are understood to be moving to the buy side while 15 percent say they are going to a new independent research firm.

These moves are indicative of the structural changes occurring in sell-side research, making it even more important for listed companies to build strong relationships with portfolio managers and analysts. 

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