Who topped our Fixed Income Research Poll?

Did Citigroup retain the top position?

Our Fixed Income Research Poll this year received responses from 449 individual voters, representing over 300 institutions. This marked only a slight increase on last year when we received 435 votes, and that may suggest that we are close to hitting the ceiling of the poll's relevant universe.

Around 82% of the voters were based in Asia, with 11% coming from North America and the remainder in Europe. We sent the poll out five times over a six week period, and asked the fixed income investors polled to share with us their preferred research houses, as well as their outlook for Asian fixed income markets in 2005.

And the winner is...
Citigroup retained top honours in this year's poll, with a total aggregate score of 1056 votes from the six individual categories (Best Investment Grade Research, Best High Yield Research, Best Banks & Financials Research, Best Sovereign Research, Best Asian Fixed Income Strategy and Best Macroeconomic Research).

Citigroup actually increased the number of votes it received. This should be music to the ears of its longstanding team of Ivan Lee (head of credit research), Johanna Chua (sovereign research) and So-Yon Sohn (banks & financials credit research).

Retaining second place was UBS with 726 votes. JPMorgan, Deutsche and HSBC filled the other top five positions (in that order), with scores that put them ahead of the rest by a clear margin. Indeed, a tiering seems to be occurring, placing these big five universal banking powerhouses in one league and the rest in another.

Outside of the 'big five' there was significant movement in the tier below. The biggest mover in this year's poll was Morgan Stanley, which zoomed up the rankings from 11th to 6th. It added 153 votes to earn a total of 395 this year.

Its improved standing can be put down to the firm's decision to refocus on credit research after a three year hiatus. A critical part of that strategy was to hire top quality analysts from other houses. Possibly the most significant hire was Tony Watson from ING - the analyst whose speciality is on the high yield and distressed side.

Indeed, the formerly high-ranking ING team (it ranked 2nd in 2002) has seen some slippage. This cannot come as a major surprise given how many staff changes there have been. Aside from Watson, ING also lost Damien Wood and Eden Wong to CSFB in the past 12 months. Of the original team, Tim Condon is the sole remaining component. According to our poll, ING saw its ranking drop from 5th to 9th and its total vote decline from 570 to 277. It also slipped out of the top 10 in our Asian Investment Grade Research category (last year it was 6th).

Goldman Sachs also slipped in the poll this year - from 9th to 11th overall. That can also be partly explained by a staff departure - although in this case an internal transfer. Goldman's top fixed income analyst, Fan Jiang moved to the private client group as the Asian CIO, leaving something of a void in the firm's fixed income research division.

Those who gained votes in this year's poll included HSBC, Barclays Capital, Merrill Lynch, Calyon, Lehman Brothers and Standard Chartered. All have been beefing up their fixed income research product in the past 12 months.

The notion of 'gaining' votes in our poll this year is more meaningful than on previous occasions since we received an almost identical number of total votes. Just over 5800 aggregate votes were accumulated in both 2003 and 2004 (ie the aggregate of the six individual categories). Indeed, only about 40 votes separate the number for 2003 and 2004 if you strip out Calyon which did not feature in the top 15 last year.

What this means is that votes gained were at the expense of other houses losing them.

Best Overall Fixed Income Research House

    Votes Position last year Votes last year
1 Citigroup 1056 1 878
2 UBS 726 2 772
3 JPMorgan 593 3 689
4 Deutsche 591 4 602
5 HSBC 513 6 491
6 Morgan Stanley 395 11 242
7 CSFB 353 7 371
8 Barclays Capital 310 8 264
9 ING 277 5 570
10 Merrill Lynch 276 10 245
11 Goldman Sachs 210 9 254
12 Lehman Brothers 157 13 108
13 Calyon 141 Not placed Not placed
14 ABN AMRO 138 12 183
15 Standard Chartered 120 14 85
Total Votes 5856   5754

In addition to the usual six categories, we also added a new ranking this year for the Best Sales/Trading Team. However, we did not add the category to the bank's aggregate score - given it was not a pure research category. However, we were advised by the industry that it was relevant to add it to the poll since there is no point having great research if you cannot execute those ideas - and that is especially true when you are dealing with bonds in the higher yielding part of the curve that can be hard to source. Citigroup won this category, closely followed by Deutsche Bank.

The Best Analyst category was once again won by Stephen Cheng of UBS (see box). The well-liked Cheng seems to have an iron grip on this accolade. Not surprisingly, however, his nearest competitors for the laurels both came from Citi (Ivan Lee and Johanna Chua).

Among the credit rating agencies, Standard & Poor's yet again retained the top rank as the agency that most strongly influences investors' investment decisions with 244 votes. Moody's was runner-up, and Fitch slightly increased its vote from 15 to 30.

Best Sales/Trading Team

1 Citigroup 116
2 Deutsche 91
3 UBS 90
4 JPMorgan 71
5 HSBC 67
6 Morgan Stanley 55
7 Barclays Capital 51
8 CSFB 43
9 Merrill Lynch 35
10 Goldman Sachs 30

Best Analyst

1 Stephen Cheng UBS 38
2 Ivan Lee Citigroup 29
3 Johanna Chua Citigroup 26
4 Tony Watson Morgan Stanley 9
5 Andy Xie Morgan Stanley 8
6 Tim Condon ING 7
6 So-Yon Sohn Citigroup 7
6 Damien Wood CSFB 7
9 Martin Hohensee Deutsche 6
9 Charles Ooi UBS 6
9 Eden Wong CSFB 6

International rating agency whose research and ratings action most strongly influence your investment decisions in Asia

S&P 244
Moody's 154
Fitch 30

Investors' market view

The second section of the poll asked fixed income investors to share with us their views about the markets in the next 12 months.

Obviously, there are two components to making a fixed income investment - the credit and the interest rate outlook. We therefore asked investors to forecast where the 10-year US Treasury yield would be on October 1, 2005. We thought this would be an interesting exercise given how unpredictable this rate has proven to be in 2004 - indeed who would have started 2004 with a prediction that it would go below 4% in the second half of the year?

We received 346 predictions, with the lowest being 1% and the highest 6.3%. However, the mean average was 4.64%. At the time of writing the 10-year Treasury yield was around 4.19%, suggesting further rate rises.

We also asked investors to predict new issuance levels for Asian international bonds in 2005 (non-Japan, non-Australia/ New Zealand). Only 144 took a stab at forecasting this, and the mean average was $38.33 billion. The level for 2004 as of mid-November was $35 billion (according to Dealogic), which means the forecast is suggesting a only a moderate rise.

We also asked whether investors would change their exposure to Asian fixed income in the year ahead. Out of 423 responses, 212 said they would increase their exposure, 163 said they would maintain their exposure and only 43 said they would decrease their exposure.

When asked if they felt Asian sovereign spreads still offered value versus other global peers, the answer was slightly positive. Out of 419 responses, 248 said Asian sovereigns still offered relative value.

More of a mixed bag was the response to whether Asian spreads would widen or narrow over the next 12 months. In a sign that no one really has a firm conviction, 131 said they would widen, 154 said they would narrow, and 140 said they would stay about the same.

There were firmer views on the subject of which Asian sovereigns would receive upgrades and downgrades in the next 12 months. The overwhelming view (with 205 votes) was that Malaysia would get upgraded. Likewise, the overwhelming view (with 247 votes) was that the Philippines would get downgraded.

Slightly more philosophically, the bulk of respondents thought the Asian Bond Funds set up by the region's central banks would improve the overall attractiveness of Asian fixed income markets

For a more detailed breakdown of the ranking in individual categories, plus respondents' picks of the best research calls, see the November issue of FinanceAsia Magazine. The magazine version also contains a list of the institutions that participated in the survey.

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