Research analysts in Asia have been preparing for a higher interest rate environment in a peculiar way - by stamping 'buy' recommendations over all the region's corporate sectors. Last week in Hong Kong, for instance, 60 per cent of recommendation changes were upgrades, according to data from one of the leading electronic research distributors. In the first week of last month, 68 per cent of recommendation changes were upgrades while the second week of March saw 59 per cent of revisions on the upside as analysts were largely impressed with what companies had to tell them during the February-March reporting season. The three months of bullishness has coincided with a declining Hang Seng Index, which closed yesterday 18.68 per cent below its March 28 peak of 18,301.69 points. SBC Warburg Asian equity strategy head Ian McLennan said: 'The proportionality of buys is continually rising post-crisis. It is something to worry about. At the bottom of the crisis the ratio was opposite, with an unheard amount of reduce-or-hold relative to buys.' The upgrades have accompanied positive earnings revisions and are being piled on to an already bullish outlook. Consensus recommendations from First Call-Thomson Financial show most brokers have buy or outperform recommendations on Hong Kong's biggest blue chips, including China Telecom (Hong Kong), Hutchison Whampoa and Cheung Kong (Holdings). Even HSBC Holdings, a stalwart of the unfashionable old economy, has resoundingly bullish recommendations. The May edition of Barra Global Estimates shows 18 recommendations equivalent to a buy compared to six neutral and one sell recommendations. Not a single house has a sell on Hutchison, according to Barra, although one brave bear put a hold on the conglomerate. Research houses in Asia were famously slow at adjusting their earnings outlook following the financial crisis of 1997 and some critics are now wondering whether those lessons have been forgotten. A United States investment bank strategist recently reviewed his company's Asian recommendation history in the past several years and found the highest percentage of bearish recommendation was found in the summer of 1998 - just before markets in the region came bounding back. 'It's the 'the forest for the trees' problem,' the strategist said. 'Analysts are more likely to focus on that tree in front of them so they can't see the forest fire in the distance.' HSBC economist Geoffrey Barker said bullishness was the weakness of the analyst as much as pessimism was of the economist. 'You know the old saying - economists called five out of the last three recessions. Economists are too early and wrong and analysts are too late and wrong,' he said. Mr Barker's macro outlook for Hong Kong is cautionary, having recently warned of economic and deflationary pressures that will ensue in Hong Kong if United States policy-makers engineer an economic slowdown, as debt and equity markets have predicted. Yet he felt recent earnings upgrades, at least, might be valid in the short run as Hong Kong's economic expansion should stay on target of more than 5 per cent this year. 'Earnings will be the last to change; first interest rates rise and economies peak out and then earnings fall,' he said. Others defend the bullish recommendations as reflective of a divided market. 'Analysts in the new economy have buys because there has been good price momentum there. Analysts in the old economy have buys because their stocks have all been hammered and they look cheap,' Mr McLennan said. Investec Guinness Flight chief investment officer Robert Conlon said he believed Asia, as a whole, deserved a bullish rating as positives outweighed the overhang of rising rates. 'We are still in an environment of people increasing earnings on most companies,' he said. Mr Conlon pointed out many Asian economies were insulated from rising US rates. While Hong Kong was not in that category, its economy was expanding and even its most interest-rate sensitive sectors had strategies to deal with rising borrowing costs. 'It's not necessarily that banks are losers, for instance,' he said, pointing to the use of derivatives to hedge against the margin squeezes caused by rising rates.