There is a strong link between changes in consensus earnings forecasts and the performance of Hong Kong shares, according to Macquarie Equities. Macquarie said investors who bought stocks that had experienced upward earnings revisions over the preceding three months could enjoy returns up to 6.9 per cent above the Hang Seng Index performance. 'Our analysis of . . . monthly forecasts from January 1988 has revealed that buying stocks that have had upward earnings revisions over the previous three months has been a winning strategy,' it said. The best correlation was seen among commerce and industry and finance shares, and within six months from the date of the earnings revision, it said. The technique was less effective when applied to property stocks. The strategy added the most value when revisions were made six or more months ahead of earnings announcements. Based on the research, which looked at data in the 10 years from 1988, Macquarie recommended a number of stocks including electronic goods manufacturer VTech Holdings, restaurant operator Cafe de Coral Holdings, red chip China Everbright International and motor-maker Johnson Electric Holdings. Quantitative analyst Nick Bird said the technique was one of the best ways the bank had found to screen firms before starting qualitative research efforts. He said the approach had worked in a variety of market situations, with negative revisions signalling underperformance. The self-reinforcing nature of analysts' earnings revisions was a key factor behind the positive relationship between revisions and share performance, he said. 'Current earnings revisions influence future earnings revisions, which in turn influence future performance,' Mr Bird said. Institutional sales trader Asad Sultan said the strategy was profitable even after transaction costs were taken into account. Research had found analysts' buy and sell recommendations offered a weak correlation with share price performance in Hong Kong.