The Asia ex-Japan region may be the engine of global growth these days, but that doesn’t mean all stocks will benefit equally from rising investor interest. In fact, research directors at the most highly ranked firms on Institutional Investor’s 2016 All-Asia Research Team say selectivity is becoming increasingly important.
To find out which firms and individuals provide the most lucrative suggestions, TIM Group, a London-based operator of the world’s largest network connecting investors with institutional brokerage’s trading ideas, assessed some 33,800 stock recommendations that it distributed last year to hedge funds and traditional asset managers that invest in Asian equities.
“The growth of ideas as a content set in Asia is remarkable,” reports William Herkelrath, New York–based head of business development. “Total stock coverage has doubled in under four years as the buy side has become increasingly interested in moving money into markets like China. Asia now represents approximately a third of the TIM global ideas universe.”
That universe also includes Australia and New Zealand, Europe, Japan and North America. Contributors are evaluated on the basis of idea performance, volume and consistency, among other factors.
With regard to the Asia ranking, “we use local country benchmarks, where available, and default to MSCI Asia ex-Japan where not,” explains Robert Schuessler, director of analytics. “Benchmarking allows us to compare contributor performance across a diverse region without overweighting high or low performance on a specific exchange.”
UBS is not only TIM Group’s top bulge-bracket performer in Asia, it’s also the only firm to finish in the regional top three every year since this ranking was introduced, in 2013. Eligible members of its team produced 685 trade ideas, with an average outperformance of 3.79 percentage points, last year. Bank of America Merrill Lynch claims second place, with nearly 1,200 suggestions that beat the benchmark by 3.65 points, on average. Goldman Sachs (Asia) ranks third; its 256 recommendations likewise generated returns that outpaced the market by 3.65 points.
Among smaller firms, South Korea’s Daishin Securities is No. 1 despite having only one eligible participant, Ester Kang — a remarkable salesperson who came up with nearly 170 suggestions that bested the market by an incredible 20.95 points.
TIM Group recognizes only the top three among large firms; however, it ranks the ten best performers among the smaller brokerages. Here is the full list, with average outperformance included parenthetically.
• Daishin Securities, South Korea (20.95 percent)
• CIMB Securities, Malaysia (7.99 percent)
• Batlivala & Karani Securities, India, (14.03 percent)
• China International Capital Corp. (5.46 percent)
• IndiaNivesh Securities (13.81 percent)
• Nomura (4.07 percent)
• Equirus Securities, India (11.85 percent)
• CLSA (3.93 percent)
• Macquarie Capital Securities (3.86 percent)
• BGC & Mint Partners (3.76 percent)
Bank of America Merrill Lynch lays claim to four of the ten top-performing individuals among Asia’s biggest brokerages:
• Jon Conner, Bank of America Merrill Lynch (9.50 percent)*
• Colin Sim, UBS (6.20 percent)*
• Raymond Chan, UBS (10.26 percent)
• Maryann Tseng, Morgan Stanley (5.21 percent)*
• Kevin Lai, Bank of America Merrill Lynch (7.40 percent)
• Anthony Iser, UBS (5.51 percent)*
• Jeanette Ip, Morgan Stanley (6.32 percent)
• Joseph Mirpuri, Bank of America Merrill Lynch (5.21 percent)*
• Oliver Tetlow, Bank of America Merrill Lynch (5.96 percent)
• Eric Schimmel, Credit Suisse (4.07 percent)
And the winners among the midtiers and boutiques:
• Ester Kang, Daishin Securities (20.95 percent)
• Jongmin Kim, CLSA (11.59 percent)*
• Rankie Wong, Nomura (10.55 percent)*
• Daniel Raats, Macquarie Capital Securities (8.96 percent)*
• Nicholas Lu, China International Capital Corp. (8.94 percent)*
• Mary Beth McNamara, CIMB Securities (6.87 percent)*
• Hari Srinivasan, Batlivala & Karani Securities (14.03 percent)
• Tim Franks, HSBC (6.42 percent)*
• Shirley Zhao, Haitong International (7.02 percent)*
• Vignesh Suresh, IndiaNivesh Securities (13.81 percent)
* Outperforms salespeople ranked lower owing to having provided a higher number of profitable calls and/or those of a longer duration.
Real gross domestic product growth in South Korea rose only 0.4 percent in the first quarter, down from 0.7 percent in the final three months of 2015, the nation’s central bank reported in late April. Daishin Securities’ Ester Kang believes the downturn is only temporary.
“The whole paradigm of South Korea’s leading industry is changing,” she observes. “I think another interesting market will be back with different leading sectors.”
Such an environment creates opportunities, the Seoul-based salesperson adds. “The best part of this job is when you uncover a stock with much potential for growth, and the market comes to agree with you,” Kang says. “South Korea still has many great companies that have not been properly introduced to investors.”
She credits Daishin’s research department for triggering her best ideas but also notes that “monitoring news updates plays a big part in making decisions.” For example, when word broke in mid-May that IMM Private Equity, one of South Korea’s largest private equity funds, planned to invest 500 billion won ($428 million) in online marketplace operator SK Planet, she decided to take a closer look at parent company SK Telecom as well as its proposed acquisition CJ HelloVision, the nation’s leading provider of Internet TV content.
Kang has taken a circuitous route to equity research sales. She earned a degree in clothing and textiles at Seoul’s Yonsei University, then worked for 11 years in the investor relations department of Korean Air Lines Co. before joining Daishin in 2012. “I guess we never know what life holds out there for us,” she says of her varied career. “I was supposed to become a fashion designer!”
Jongmin Kim, who celebrates his third appearance in four years as one of TIM Group’s top performers in the region, followed a more traditional path to his current position. “I joined CLSA in 2004 initially as a research assistant after a three-month internship at HSBC,” says Kim, who earned a bachelor’s degree in economics at the U.K.’s University of Bristol.
“When I was first moved onto the sales desk, the person who hired me left for a bigger role within the firm shortly thereafter,” he recalls. “I was clueless as to what I was supposed to be doing, but my mentor had simple words of advice: ‘Learn from your clients not from other brokers.’ So I just called my clients all day. I must have been very irritating and useless in the beginning, but then a few used me as the young, locally based assistant to gather data by visiting companies, and visiting all these companies enabled me to form an independent view to complement that of the research analysts.”
Frequent meetings with management teams and animated discussions with analysts and investors remain Kim’s greatest sources of inspiration, he adds.
As for independent views, the Seoul-based head of country sales for South Korea was largely on his own in late 2014 when he began urging clients to buy shares of Kolon Corp., a holding company whose chemicals subsidiary had lost a very high-profile intellectual property lawsuit brought by U.S.-based E.I. du Pont de Nemours and Co.
“Everybody hated that group,” Kim recalls. “Its largest operating affiliate, Kolon Industries, had been ordered to pay $920 million to DuPont on infringement accusations, and two thirds of its market cap was lost.”
That was in 2011. Three years later a U.S. federal appeals court overturned the ruling, and in late December the parent company announced that it was buying an additional 594,000 shares of Kolon Industries — upping its stake to roughly 30 percent — so that it could exert greater control over the unit.
“The core operations of Kolon Industries have high market share and would be a likely beneficiary of low oil prices,” Kim explains. “So I recommended both entities on the notion that too heavy a discount was placed on the entire group.”
Kolon Corp.’s stock advanced 261.5 percent last year, while shares of Kolon Industries gained 29.9 percent. During the same period, South Korea’s benchmark Kospi Index inched up 2.4 percent.
Last month the holding company agreed to pay DuPont $275 million to settle the case.
In mid-May 2015 he told clients to short Leaders Cosmetics Co. (then known as Sansung Life & Science Co.). “The stock had risen sixfold since the beginning of the year, but it’s a one-product wonder, and too many people were suggesting ambitious mathematics on how its face masks were going to sell in China,” Kim reports. “My Chinese colleagues were telling me how its products were increasingly losing shelf space — market euphoria was typical of what you see quite frequently in Korea on all things China consumer–related, and thus the decision to short it. The stock eventually ended the year where it began.”
These days he is recommending other ostracized stocks such as Hanjin Transportation Co., which is “overly depressed and heavily discounted due to problems within Hanjin Shipping Co. that are more perceived than real — it owns a significant amount of property and terminal assets that have not been marked to market, and its core logistics business has always shown great volume growth.”
The subsidiary, South Korea’s largest container carrier as measured by capacity, reported a first-quarter net loss of 261 billion won, largely owing to low rates and weak demand, but Kim believes a turnaround is in the offing.
“The best part of being an equity salesman is the exposure to the analysis and opinions of people far smarter and superior to your intellectual capacity, both within and outside your firm,” he says. “Salespeople can essentially piggyback off others without putting in the hours of analytical work — sorry guys! — and have the luxury of connecting the dots others strived to provide. In an era that is increasingly dominated by machines and quant strategies, the back-to-basics approach of focusing on the very human element of getting out there to kick the tires and basically extracting discovery value is still what I get out of bed for!”
Follow Thomas W. Johnson on Twitter at @tjohnson_nyc.