Hi Ray,
That’s a great question with a relatively simple answer.
Stocks often move following upgrades/downgrades for two reasons: Larger houses have an “army” of brokers looking to follow their companies “House View” hence if they say sell clients will have the message communicated to them.
And as you highlight Ray, there are also computer driven models that will trade broker moves, trying to get in ahead of the expected flow from the point above. This should not be under estimated, with the clear implication of increasing underlying stock moves.
In the case of AGL, Macquarie moved to a hold equivalent recommendation, which in our experience is often taken as a ‘sell’ by the market, when it comes from an analysts that has previously been bullish. However, track record is important, Ian Myles (the MQG analyst who covers AGL), has a very low rating on this stock. i.e. – his calls have not been good in recent times as the below chart shows.
We do consider upgrades/downgrades, and place more weight on moves coming from analysts with a good track record on a particular stock, and we always try to read fresh research to assess what that analyst is seeing that perhaps we aren’t.
