Asia’s Top Researchers Say the Worst Is Over — but Recovery Is ‘Far From Certain’
Six months into the coronavirus pandemic, members of the All-Asia Research Team weigh in on the path forward.
Between trade tensions with the U.S. and protests in Hong Kong, last year was tumultuous for Asia. But all of that paled in comparison to the coronavirus that would sweep through the continent — and go on to infect the rest of the world.
“For those of us that are Hong Kong-based, the protests led pretty much straight into the pandemic,” said Martin Yule, head of research for Asia Pacific at UBS. “At times, Hong Kong felt like the eye of the storm. Rising geopolitical tensions were definitely the defining macro force at the end of 2019, but Covid pushed these concerns into the background pretty quickly.”
Six months since Covid-19 was first discovered in China, countries in the region are now loosening lockdown restrictions. And many Asian equity markets are rebounding, partly on the back of the large stimulus packages in the United States and Europe.
“The biggest surprise of 2020 thus far has been the speed of the market recovery,” said Yule, who succeeded UBS’s long-time Asia Pacific research head Damien Horth in February.
But the region is by no means out of the woods yet, Yule said. “The speed of the economic recovery is far from certain, and it would appear that epidemiologists seem to agree on one thing: a second wave is likely,” he continued. “That will test equity markets over the back half of 2020.”
Amidst this uncertainty, investors appear to be sticking with their tried and true research providers, based on II’s 27th annual All-Asia Research Team.
Portfolio managers and analysts at more than 1,300 institutions once again voted for Citi and Morgan Stanley as the region’s No. 1 research providers. UBS and BofA Securities took third and fourth, respectively, maintaining their positions from last year, while JPMorgan Chase & Co. moved up one place to fifth.
Citi and Morgan Stanley each earned 35 team positions in this year’s ranking of Asia’s top research teams, while UBS followed close behind with 34.
Like last year, votes were weighted by the respondent’s Asia ex-Japan equity commissions. Participants were first asked to rate their top firms in each sector on a scale from 1-5, then separately rate individual analysts.
In the commissioned-weighted ranking of individual analysts, Citi ranked ahead of Morgan Stanley, holding the top spot with 74 team positions to Morgan Stanley’s 58. UBS once again took third, followed by BofA Securities in fourth and J.P. Morgan in fifth.
When the votes were weighted by respondent firms’ Asian ex-Japan equity assets under management to produce AUM-based rankings for teams and individuals, Citi and Morgan Stanley again topped the leaderboards.
Brent Robinson, head of Pan-Asia research at Citigroup, attributes his firm’s success to its emphasis on “home grown talent.”
“We pride ourselves on promoting from within — we seldom hire MDs — and cultivating top ranked analysts,” he said.
Robinson, who has been head of research for more than 10 years, believes the last few year’s II rankings are a comeback for Citi, which faced significant setbacks after the global financial crisis. “We were No 1. pre-global financial crisis, and our firm was significantly restructured as a result of the GFC,” he said. “But we have been resilient and now we are back as No. 1.”
For Citi and all the other top providers, the work of research is now being done in an almost completely remote environment due to the pandemic. In some ways, this has highlighted Morgan Stanley’s strengths, according to William Greene, head of Asia research at Morgan Stanley.
“The way clients are consuming research nowadays is evolving, this year in particular for obvious reasons,” said Greene. “Having said that, we believe we are at the forefront on how we deliver our research content, from traditional reports to the innovative use of multimedia and Morgan Stanley’s research portal.”
According to Greene, Morgan Stanley has increased its virtual engagement this year via regular webcasts and videos as well as an inaugural Hong Kong Virtual Access Summit in March. Clients wanted more, Greene said, so Morgan Stanley held an additional summit in May and is planning more virtual conferences.
Despite these changes, Greene said Morgan Stanley’s approach to research remains rooted in the firm’s product brands, which emphasize major thematic research. “Thematic research is a major differentiator for our department as it plays to our strengths of thought leadership and collaboration,” he added.
He noted that many of the opportunities in Asia remain the same, despite the shock of the pandemic. “Although Covid-19 has had a profound impact on the region’s growth prospects, the key sector/geographic winners have been remarkably unchanged as the year has progressed,” he said. This includes North Asia, as well technology, internet and communication services, which experienced a surge in demand under lockdown and work-from-home scenarios.
Robinson made a similar observation. “The biggest change are the Chinese listed ADRs” — Chinese companies that trade on U.S. exchanges — “coming back to the region,” he said, adding that Hong Kong would like benefit. “The other stories are the same: China and trade relations, global supply-chain adjustments, structural financial liberalization in China and MSCI A-share inclusion, and Taiwan technology, which is dominant in the global semiconductor industry.”
Right now, however, there is a disconnect between the markets and the economic backdrop, according to Robinson. “The markets are discounting a V-shaped recovery, with the U.S. and many markets worldwide back to near all-time highs.”
The onset of Covid-19 had slowed Asia in waves, Greene said, with China troughing in the first quarter of this year and the rest of Asia likely to trough in the second quarter. “However, as Covid-19 gets under control and economies re-open, high frequency macro indicators suggest the worst is behind us,” Greene said. “Currently, investors’ concerns center around the durability of the recovery, the extent of a potential second wave, what unprecedented policy easing would mean for macro stability and balance sheets, and what US-China geopolitical tension would mean for the region.”