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Impaired intelligence

Brokers' analysts in Asia have been arrested for taking their duties too seriously. But that's a minor reason for the poor quality of the region's research. Corporate disclosure is limited and accounting standards are poor. And analysts are young, inexperienced, harassed by overmighty corporate finance departments and intent on careers outside research. By Michael Steinberger.

One sweeping observation can safely be made about investing in Asia ­ Asian companies have a problem with disclosure. No incident did more to highlight this than the Tsingtao debacle two years ago. In April 1995, investors learnt that Tsingtao, China's biggest brewery and the best known of the "H" shares (mainland firms listed in Hong Kong), had not, as its prospectus had promised, used $114 million raised during its 1993 flotation to expand capacity. Rather, it had loaned most of the money via banks to other Chinese firms. Tsingtao was apparently better at picking pockets than picking winners: its 1994 net profits fell 42%.

Tsingtao is a particularly egregious example of a problem apparent in markets from Bombay to Bangkok. Investors in Asian equities have learnt the hard way that the stocks they purchase often bear little resemblance to the stories they are sold. This is by no means unique to Asia, and, as the markets mature, disclosure will no doubt improve. But it might improve sooner, critics say, were brokers' research better. "It's easy to say there is a culture of inadequate or even false disclosure," says Anthony Miller, president of Asian Investment Partners in Hong Kong.

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