JAMES Capel Asia is debunking regional research in a survey showing there is little industry correlation in stock price movement in Asia. Analyst Chris Edwards, in a broker bulletin, said: 'On average only two per cent of stock price movement is explained by the corresponding region sector index.' The brokerage undertook its controversial work to establish whether there was any value in theme or industry research. It found 37 per cent of stock movement of companies in a cross section of industries was explained by domestic country factors, up to 10 times more important than industry or regional trends. The research flies in the face of United States investment bank work, which tends to be sector orientated when viewing regional stocks. Mr Edwards said: 'It is more important to pick the right countries than the right regional sectors. 'A sector approach to regional investment is inappropriate and premature at the very least.' Although research could be organised on an industry basis for economies of scale, investment decisions should be based primarily on the local market and local sector outlook, along with the individual stock, he said. The brokerage said the high and persistent growth rate in Asian economies had attracted international investors. Many have been attracted to the regional sector approach towards research as this is very common in the more mature Western equity markets. Under regional sector research, the argument goes, it is easier to monitor what is going on by region as opposed to individual markets. This disentangles the impact of new domestic listings, changing economic circumstances and different reporting standards. The emphasis tends to be on large liquid companies in distinctive economic sub-sectors. There are normally few home market comparisons and the only comparable listings tend to be on other exchanges in the region. However, the apparent regional effect, even in sectors where there is an acknowledge and accepted global rating, appears not to have any significance on investment returns in practice. The brokerage looked at banking, airlines, cement, electric utilities, steel and telecommunications. Mr Edwards said: 'A simple, and therefore not exhaustive, test for the regional sector approach as an investment technique is to measure how much of individual stock return is explained by the domestic market, and how much is explained by its corresponding regional sector index.' Two key industries, where the global sector approach is acknowledged, are airlines and telecommunications. Only one per cent of airline stock return could be explained by the regional sector index, yet 34 per cent of return could be explained by domestic market factors. More than 60 per cent of the return could be said to be stock-specific. Under telecommunications, five per cent of stock returns could be explained by the regional effect, while 48 per cent of returns could be put down to domestic market factors. Of the total return in telecommunications, 47 per cent was said to be stock-specific. The electricity industry was the only other sector with a regional correlation as high as telecommunications, at five per cent. Of the total returns in the sector 55 per cent was put down to domestic factors and 40 per cent was said to be stock specific. For cement, property and industrial conglomerates no regional effect was found at all. In construction and steel the regional effect could only explain one per cent of returns. A factor militating against the regional effect is the huge variation in price earnings-ratio valuations across the region. Although this is only one parameter of value, many investors look closely at this benchmark as one tool in the investment decision-making process. Looking at domestic factors, Mr Edwards says: 'The market, on the other hand, can have a powerful influence on individual stock returns, especially for the larger listed companies in a market.