Analysts at Beijing-based China International Capital Corp. tend to be optimistic about their country’s economy – even when the global consensus has soured on China’s declining growth and rising corporate debt levels.
“We expect the Chinese economy to maintain a robust growth rate close to 7 percent next year,” said CICC’s head of research Hong Liang. In the last year, she said CICC has continued to invest in its China research team, upping the writing analyst headcount from 123 to 129.
“We will continue to expand our coverage as more Chinese companies get listed in the domestic and overseas equity markets and more investors globally become more interested in investing in Chinese assets,” Liang said.
This year, CICC was rewarded for its faith in the Chinese economy, which grew 6.7 percent in 2016, the slowest in more than two decades. Global fund managers polled by Institutional Investor picked 11 of the firm’s analysts as the best in their respective sectors, giving CICC a total of 38 total team positions and helping it remain the top-ranked Chinese equity research firm for a sixth year in a row.
Among voters based in mainland China, CICC did still better, earning 17 first team positions and 47 positions total. Voters based outside of China, meanwhile, awarded CICC analysts 14 positions total.
Institutional Investor’s eighth annual All-China Research Team, conducted in partnership with Beijing-based media group Caixin, was based on the results of a poll of 2,150 investment professionals at more than 620 institutions managing an estimated $895 billion in Chinese equities.
UBS came in second place with 22 team positions, followed by Citi, which had 14 team positions, and Shanghai-based Huatai Securities, which had 11 team positions. Rounding out the top five was Credit Suisse, which earned 10 team positions. Huatai made this year’s most spectacular rise, climbing from eleventh place last year, when it had just three team positions.
The same investment professionals surveyed for the All-China Research Team were also asked their opinions of the leading Chinese equities salespeople. Top-three research firms CICC, UBS, and Citi extended their dominance in the All-China Sales Team, earning identical rankings in equities sales. Credit Suisse ranked fourth, while Hutai Securities came in fifth.
[II Deep Dive: The 2016 All-China Research Team: Top Analysts Upbeat on Growth]
Ting Lu, Huatai’s head of research and chief economist, said he expects China’s growth to moderate in 2018, following the impressive recovery the economy has made the spring of 2016. According to Lu, the recovery was driven by a depreciating currency, the government’s deflation-ending supply-side reform, and a comprehensive stimulus investment program focused on infrastructure, real estate, and auto sales.
“Despite the inevitable slowdown, the Chinese economy will remain robust as growth drivers will shift to consumption, services, and innovations,” Lu said, adding that Huatai’s H-share analyst team has expanded to 35 this year, up from 10 analysts only a year ago. Lu joined Huatai in 2015 from Bank of America Merrill Lynch, where he was the head of the bank’s greater China economics team.
Yankun Hou, the head of China research at UBS, said his firm is committed to expanding its China research team beyond the current headcount of 40 or so, especially in light of MSCI’s inclusion of Chinese A shares in its China Index and rising interest among global investors in the Stock Connect channel that connects Hong Kong with China’s mainland markets. Hou predicted that MSCI inclusion could “trigger” more than $14 billion in inflows into the mainland markets.
“The flows through the Stock Connect have been surprisingly strong this year,” Hou said. According to UBS, the average daily net inflows amounted to 1.79 billion yuan ($270 million) in southbound trades and 1.1 billion yuan in northbound flows in the first 10 months of this year.
CICC’s Liang, who was voted by fund managers as this year’s top economics and strategy analyst, said she believes China’s economic growth “has troughed over the medium term,” adding that the economic recovery “has more legs to run on.”
In 2018, Liang expects real GDP growth to be around 6.9 percent, and nominal GDP growth to stay above 10 percent for the foreseeable future. “Compared to the consensus, we are more optimistic on the demand growth in consumption, property investment, and manufacturing capital expenditure,” she said.