The pace and magnitude of change in the Australian cash equities business is causing a tectonic shift for sell-side equity research firms. The exponential rise in passive investing, growth in automated trading, recent regulatory changes (MiFID II) and ultimately a reduction in the pool of Australian cash equities revenue are reshaping this brave new world.
For ASX listed entities and their investor relations teams, this change in sell-side equity research has driven reductions in analyst coverage, less frequent publishing and a trend to ‘juniorise’ bulge bracket equity research teams.
It has created complex and unexpected challenges for listed entities when managing sell-side equity research relationships especially when measuring and managing consensus forecasts against internal estimates/earnings guidance. Alongside listed entities, the ASX has been following these developments very closely and the recent revisions to ASX’s Guidance Note 8 Continuous Disclosure provide further clarity when managing analyst forecasts and consensus estimates particularly around dealing with stale analyst forecasts.