Corporate sentiment levels in earnings calls have rebounded to pre-Covid levels, according to Iridium Quant Lens, a proprietary AI-platform that analyzes sentiment in earnings calls from listed Gulf companies.
The overall sentiment expressed in companies' first half earnings calls is now back at 2019 levels, having climbed consistently from their all-time lows of the first quarter 2020, when the pandemic was at its most disruptive.
Iridium Quant Lens, developed by specialist investor relations consultancy Iridium Advisors, decodes earnings calls, including company presentations and analyst question-and-answer sessions, before performing a "robo-analysis" of the call transcripts to reveal sentiment, confidence, and levels of certainty displayed by corporate executives.
For this quarter, Iridium analyzed earnings calls from July 1 to August 31 for 80 listed companies, representing 73 percent of the GCC's total market capitalization.
The average number of mentions of Covid and other health-related words in corporate presentations peaked at 26 per call in the first quarter of 2020, but is now down to eight mentions per call. Before the virus appeared, health topics were mentioned just four times per call on average.
"This rebound in corporate sentiment reflects the return of corporate profitability," said Oliver Schutzmann, CEO of Iridium Advisors. "First half net income of most reporting companies in the Gulf has now returned to pre-Covid levels, so we would expect to see a rosier outlook from companies as they present their results to investors and analysts."
While this surge in confidence is to be welcomed, there is a risk that companies could become over-bullish, a factor that is revealed in the "Sentiment Bias" measure. This measure charts the difference in sentiment between the language used in management presentations and the question-and-answer session with analysts and investors.
Sentiment Bias has increased sharply since the fourth quarter of 2020, indicating that management confidence has raced ahead of the analyst and investor community. This should be a warning sign for management: Left unchecked, an imbalance between what management says, and how investors interpret that sentiment, could result in damage to management credibility and reputation, and a fall in trust in the company.
The largest global financial institutions regularly deploy similar technology in their analysis of company earnings calls, identifying clues to sentiment and outlook, looking for trigger tells that management subconsciously give, from basic fact and consistency checks to sentiment analysis and truth detection, all the way to prediction of share price performance.
"As foreign investment in the region's markets continues to grow, companies must get used to the fact that the audience for their earnings calls comprises language processing robots, as well as human investors," said Schutzmann.
Other key findings:
• Sentiment improved markedly in Saudi Arabia, the UAE and Qatar, with Saudi Arabia showing the highest rebound from its trough during the first half of 2020, followed by the UAE, where sentiment is at its highest point since 2015.
• Sentiment has rebounded the most in the financials, real estate and materials sectors, all of which have now recovered to their pre-Covid levels or above.
• By contrast, the industrials, consumer discretionary and energy sectors were more muted in their recovery, an indication of the ongoing impact of Covid on these sectors. – TradeArabia News Service