Investment Research Firms Look East for New Prospects

THE "globalization" of the securities industry - with stocks and bonds being traded around the clock - is helping to shift research analysis overseas, to such cities as Singapore, Tokyo, and Frankfurt.

Most research on companies still takes place in the major financial centers, including New York, London, and Paris. But the most pronounced expansion in corporate research may be occurring in Asia and within medium-sized cities in Europe, where investment houses have established branch offices.

The implications of such a shift are considerable: Many European and Asian companies hitherto unknown to American investors will be given better scrutiny and could gain additional capitalization through the sale of stocks.

Investors, meantime, are better able to expand their financial horizons to look beyond major companies in the United States or Europe.

Since the market crash of 1987, US investment houses have laid off scores of securities analysts.

But the layoffs may have stabilized. In fact, due to a relatively prosperous year on Wall Street, the larger US investment houses actually added analysts last year, according to a survey by Nelson Publications of Port Chester, N.Y.

The survey shows that the 20 largest US investment firms had 833 research analysts last year, up from 751 in 1990.

Merrill Lynch & Co. continues to be the largest employer of equity analysts in the US, followed by Lehman Brothers, Smith Barney, Goldman Sachs, and Salomon Brothers, notes Nelson Publications.

What's equally important, however, is that among the top global research firms, Merrill Lynch ranks only fifth. It is also the only US investment house in the global top 10.

The four largest employers of analysts are British firms: S. G. Warburg, Barclays de Zoete Wedd, James Capel, and County NatWest. One Japanese firm, Nomura Research Institute, is on the top 10 list.

Many of the European investment houses, especially the British, have extensive research operations in Asia, including Japan, says Marcia Boysen, an official of Nelson Publications. Moreover, the overseas firms appear to be expanding their coverage more than US firms. The reasons, she says, are not fully understood. In Europe, coverage may be expanding because many government-owned companies are being privatized.

In Asia, Ms. Boysen says, it could be that more information is becoming available about the extent of research that has been long under way.

Among major global research firms (ranked by the total number of companies covered by analysts), not one US firm is among the top five.

Two US firms are in the top 10, but only one of the two, Goldman Sachs, expanded coverage of companies in 1991; the other firm, Merrill Lynch, cut its coverage by just under 10 percent.

Yet US firms are strongly represented on the global list. Of the top 30 firms, in terms of coverage, 17 are US-based. But of those, seven reduced the number of companies covered during 1991.

Investment firms, of course, can be ranked by other measures than the extent of their research activities. In terms of total capitalization, at least six of the top 10 global investment firms are US-based.

In terms of global underwriting of new issues, at least seven of the top 10 global firms are American.

Undoubtedly, many US investors value broader corporate research. In selecting stocks, it helps them figure out which companies are growing rapidly, which ones are producing new technology, and which ones have financial difficulties. It would be unfortunate if US investors were limited to getting this information from research firms based overseas.