Nearly a year and a half after the onset of the Covid-19 pandemic, one word has best summed up the equity markets of Asia: resiliency.
“Since June, markets across Asia have proved resilient to swings in capital flows and have taken an especially long‐term focus, not just looking through Covid‐related challenges but also anticipating secular change in themes such as decarbonization and the impact of digital technologies across industries,” according to William Greene, head of Asia research at Morgan Stanley.
Greene cited the strength of the region’s IPO pipeline as a testament to this investor interest. While Covid‐19’s resurgence in parts of Asia has been a setback for domestic demand, there is ground for optimism as both vaccination technologies and global capacity ramp up through 2021.
After a period of substantial uncertainty, the markets surprised everyone with the sustained bounce seen over the course of 2020 and into 2021, with indices up more than 30 percent year-over-year, and up 60 to 80 percent from the lows, according to Martin Yule, head of Asia-Pacific research at UBS.
“Perhaps more illustrative is the 20 to 30 percent move of most Asia indices from pre-Covid levels, despite the economic headwinds created by the virus,” he added. “Accommodative monetary policy is a major influence, but so is the belief that vaccinations will quickly return life to normal. Suffice it to say, the world was at a far more optimistic point for this year’s survey than it was last year.”
It would appear that this staying power applies to the region’s top equity research providers as well, according to Institutional Investor’s 28th annual All-Asia Research Team.
Morgan Stanley Is Still No. 1
Last year’s top research provider Morgan Stanley was once again elevated the firm to the No. 1 spot based on the opinions of some 3,800 portfolio managers and analysts who participated in the survey. UBS, meanwhile, improved one place to second this year, while Citi took third. JPMorgan Chase & Co. and BofA Securities swapped spots to capture fourth and fifth place, respectively.
Only two team positions separated the first and third place firms in these team-based rankings, which were weighted by each respondent’s equity commissions for Asia ex-Japan. Credit Suisse, which came in sixth place, was the most improved provider: The firm earned 17 team positions this year, up from 2020’s five.
Participants were also asked to rate individual analysts for a separate leaderboard. This ranking mirrored 2020’s results with Citi taking first again, followed by Morgan Stanley in second and UBS in third. JPMorgan improved one spot to take fourth, with BofA Securities rounding out the top five.
Two further leaderboards were produced by weighting responses by firms’ Asia ex-Japan equity assets under management. Morgan Stanley placed first in the AUM-weighted ranking of teams, while Citi led the AUM-weighted ranking of individual analysts.
Brent Robinson, head of Pan-Asia research at Citi, credited the firm’s success to its “barbell strategy” of longer-term thought leading publications and actionable, monetizable ideas. “We also focus heavily on cross-border and cross-asset coordination in order to put investment ideas in a global and multi-asset context,” Robinson said.
The lines are increasingly blurred between many key industries and countries today, according to Robinson. “We are in the process of combining teams into ‘super sector’ structures,” he said. “A read across overnight from China can make you money in the USA during the next day’s trading session. It’s critical that we are connected cross border and cross asset to give our clients the perspective that will allow them to make better investment decisions.”
The way clients are consuming research nowadays is evolving, according to Morgan Stanley’s Greene, with remote working over the past year and a half only accelerating a trend toward virtual engagement with analysts via regular webcasts, streaming, and online conferences.
“We believe Morgan Stanley is 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,” Greene said, adding that the firm recently redesigned its research app. “Through careful curation of our written, video, and audio product we can improve the user experience by delivering the right content to the right client.”
Erica Poon Werkun, head of Asia-Pacific securities research at Credit Suisse, reported that Covid-19 has ushered in “a heightened sense of urgency to help our clients stay on top of the market, by giving them the most relevant content through frequent interactions. Indeed, the number of research reports and client interactions have increased since before the pandemic.”
“Challenge and Opportunity”
When it comes to region, Asia is not a monolith and each country has been grappling with different stages of the pandemic and restrictions, especially in India where a new variant of the virus is surging.
“The largest concern we hear from clients is their inability to do on-the-ground due diligence on companies as a result of the various travel restrictions,” reported Yule of UBS, who cited the firm’s presence in all of the major APAC markets as a strength to continue to perform the appropriate due diligence on companies across the region. “For many, the inability to travel to China for example has hampered the pace of their education on A-shares,” he said. “We continue to invest in on-shore A-share coverage to help clients supplement their own virtual due diligence on these investments.”
China’s A‐share market stood out for most of 2020 with its strong performance among global peers, given the country’s rapid and strong macro recovery thanks to effective containment measures and supportive fiscal and monetary policies, according to Morgan Stanley’s Greene. “The A‐share market also has suffered more than many other regions this year as these policies started to exit,” he added. “Long‐term opportunities stay intact as A‐shares should benefit from further capital market reforms and thematic growth initiatives in green technology, urbanization, etc.”
But the firm continues to see rising opportunities in the A‐share market as its accessibility by foreign investors improves with the expansion of the Qualified Foreign Institutional Investor scheme and Stock Connect link between mainland China and Hong Kong. “Helping investors navigate through a market with over 4000 listed companies — and still growing rapidly — is both a challenge and an opportunity,” Greene said. “We see many thematic opportunities related to corporate governance and growth initiatives as the market structure improves with more institutional participation.”
Client interest in Asia, and particularly in the China A-share market, continues to grow rapidly, according to Yule. “This will continue to drive investment across sell-side research as well as from asset managers,” he said. “Regulatory barriers will remain a challenge, but should at the margin come down. The prize for those that can navigate this opportunity is literally huge.”
Citi’s Robinson concurred: “It’s increasingly critical to get China right in the Asia-Pacific Region. As China continues to liberalize the finance industry the structural growth opportunities are the largest worldwide.”
Research providers also agreed that greater workplace flexibility is here to stay — both for their clients and their own employees, which comes with its own pitfalls. “The other challenge has been to make sure that we have enough interaction with staff who are spread 13 offices throughout the Asia-Pacific region, particularly juniors, as working from home can be isolating,” Credit Suisse’s Werkun said. She added that Credit Suisse has recently held a virtual “onsite” for the department with brainstorming breakout sessions and chances to socialize.
At UBS, Yule believes it will be key to strike the right balance between flexibility and developing the next generation of top analysts. “It will be important that our junior people get appropriate oversight and development, but also that we accommodate a clear desire for people to have more flexibility,” he said. “An increased allocation of tech spend towards remote connectivity is likely to continue for some time.”