In an unprecedented year, domestic and international investors in Chinese equities stuck with a precedented sales team.
China International Capital Corp. was once again voted the No. 1 firm in Institutional Investor’s ninth annual All-China Sales Team. The incumbent has topped the ranking — which ranks overall sales coverage as well as specific coverage of the mainland China, Hong Kong, and Taiwan markets — every year since the survey’s inception in 2012.
Down the leaderboard, however, there was a lot of movement. This year a pair of international providers rounded out the top three, with Citi making a leap from last year’s sixth place finish to take second. UBS, meanwhile, repeated its third-place performance. Domestic provider Hautai Securities dropped two spots to fourth place, while Orient Securities improved from eighth to fifth.
More than 650 buy-side analysts and money managers at some 380 firms judged providers on a range of attributes that included adding value to research, idea generation, service and responsiveness, and understanding client needs. These were important traits before 2020 but became paramount in a year that has been dominated by the Covid-19 pandemic and its associated volatility, with the MSCI China index swinging 57 percent from trough to peak.
“To deal with the Covid-19 pandemic crisis, our sales team adapted to changing client services quickly and smoothly,” said Huang Haizhou, head of the equities department at CICC. “We did a lot more online conferences via the internet, via Zoom and other means. As the market conditions improved, we also visited our clients and ran regular meetings and conferences. Our quality services during the challenging time have been highly appreciated by our clients.”
Both Citi and UBS reported that client engagement was at record levels this year, which made collaboration between sales and research more important than ever. “In the face of this unprecedented crisis, our sales team adapted to the situation with maximum flexibility,” said Danny Chiang, the head of greater China equities at Citi. “We were able to stay connected with our clients and colleagues via emails, IB chats and Zoom calls.”
Client needs also evolved rapidly during the pandemic, and competition for their limited time ramped up. “Clients could fit in more virtual meetings in a typical work day and were able to access resources from a wider range of providers,” Chiang said. “In some ways, virtual corporate access leveled the playing field for brokers, and required us to come up with more creative and differentiated contents to capture a bigger share of clients’ time and mindshare.”
This dedication paid off in the international sales ranking, where Citi rose one spot to unseat CICC as the top sales team catering to overseas investors. UBS also improved one spot in this ranking to place second, while CICC took third.
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A third leaderboard provided the mainland view of China sales teams. A trio of domestic firms dominated this ranking, with CICC once again in first. Huatai held second place, while Orient Securities improved from fifth to third. UBS was the highest-ranking international firm in fourth place.
“It’s truly [been] an extraordinary year where we balance physical distancing, and social/team solidarity in a virtual world we’re still navigating,” said Chaplin Tong, head of Hong Kong and China Advisory Sales for UBS. “Technology played an instrumental role, and was a major enabler amid the pandemic. Clients have been receptive to this change, with virtual interactions up three folds and a record of two times turnout at our A-share Conference.”
The ongoing inclusion of China A-shares in the MSCI indices is a part of the wider financial service reform and rebalancing of the economy away from traditional bank finance, which is critical to longer-term growth sustainability, according to UBS. Foreign investors have been an increasingly important force in the A-share market, Tong said. “In our bull-case scenario, we estimate inflows from funds tracking MSCI indices will eventually be equivalent to [approximately] 10 percent of A-share free float,” he added. “This could lead to A-share market’s growing institutionalization from a longer-term perspective.”
As A-shares inclusion drives structurally higher foreign ownership, the needs and wants of domestic and international clients are also merging, according to providers.
Increasingly, they are framing investment debates through each other’s lens, with domestic clients now willing to pay a higher price for companies that produce consistently high return on equity and have strong economic moats, according to Citi’s Chiang. International clients, meanwhile, are increasingly recognizing how the role of government policy can have a far-reaching impact on the valuation and price momentum for certain sectors or companies.
“The perception used to be domestic investors tended to focus a bit more on thematic and news flows, while international investors paid more attention to financial analysis and valuations,” Chiang said. “In recent years, especially since the MSCI inclusion, the A-shares market has rapidly become more institutionalized. The two sides are gradually converging.”