Have analysts learned their lesson?

FOUR years on from the bursting of the dotcom bubble, City analysts have twice as many buy and strong buy notes as sell and reduce calls on Footsie firms.

The FTSE 100 index of leading UK share prices has not changed significantly since the start of 2004 and is more than 100 points off its year-to-date closing high of 4575.7 set a month ago, yet the number of straight sell notes in the market has dropped by nearly 28%.

Now, new research suggests the City's armies of analysts are still banking on a rise in the stock market by the end of the year, even though evidence of recent price movements points at best to little overall change, accompanied by volatility.

The evaluations, to 30 April, were compiled by London-based AQ Publications, specifically for the Evening Standard, amid concerns that many highly-paid analysts may once again be making the wrong call.

Big banks have been rapped by securities regulators in the US and London since the market crashed in April 2000 amid allegations of banks issuing biased research on companies' stock prices to help them win lucrative investment banking mandates.

AQ founder and managing director Graham Field, whose research is bought by such banks to evaluate the accuracy of their analysts' recommendations, said: 'Whilst we eliminated the worst of the bias in the boom times, the total number of strong buy and buy notes still outweighs the combined reduce and sell notes by around two to one. In the context of a rising market, that would be justified.

'Analysts would argue we should take a 12-month view, or we are making a medium to long-term view of the company.'

There have also been calls from the fund management community, as well as discussion among analysts, about whether the hold category should be discarded as it may suggest they are not decisive enough.

The findings, drawn from around 50 broking houses, show the number of holds steady at around 500, or a third of all recommendations since the first day of trading this year when the market closed at 4510.

While the number of strong buys have fallen by about 2.5%, combined strong buys and holds have held steady at around 42%, as have combined reduce and sells at around 23%.