Overview

Life keeps getting more complicated for equity sales teams covering China. More than ever, global fund managers want thematic research focusing on Chinese megatrends that require several teams of analysts to cross-reference data over multiple industries and sectors. Demand for such expertise has risen dramatically in the past year, says Huang Haizhou, head of the equity department at China International Capital Corp. (CICC), as have requests for so-called channel checks, whereby analysts seek third-party data to confirm the accuracy of numbers given by a listed company.

“Clients are becoming more and more sophisticated,” says Huang, who heads CICC’s equity sales. “With more interest in and focus on both the A-share and H-share markets, clients are expecting more detail-oriented and high-quality research.”

Delivering comprehensive research that clients will pay for to help develop winning strategies played a key role in CICC again taking the No. 1 position on the All-China Sales Team. Institutional Investor compiled this exclusive annual ranking by polling 880 buy-side analysts and money managers at more than 410 fund houses that collectively manage an estimated $590 billion in Chinese stocks. To select the top sales teams, we asked respondents to name up to four firms that they think provide the best sales support, weighting votes by respondents’ Chinese equities under management and by the place awarded (first, second, third, or fourth).

Finishing second is UBS, which jumps from No. 4 last year. Returning to No. 3 is Morgan Stanley, followed by Credit Suisse, up two notches. Bank of America Merrill Lynch drops three places to fifth.

The past 12 months have been especially challenging for equity research houses devoted to China, which saw the launch of Shanghai–Hong Kong Stock Connect, a program that gives investors in the two cities mutual market access. The program has also allowed global fund houses investing in Hong Kong to invest in Chinese A shares listed on the Shanghai Stock Exchange for the first time, bypassing quotas that limited foreign investors’ participation in mainland equity markets. By the end of the year, regulators will kick off a similar program that links the Hong Kong and Shenzhen exchanges, boosting foreign fund participation in the trading of mainland stocks to unprecedented levels.

CICC has published a series of reports in the past two years to help global fund houses craft strategies for investing in China’s A-share market, says Huang, adding that his research team is preparing to launch another batch looking at A shares listed in Shenzhen in the months ahead.

The key to selling research is “seamless cooperation” between sales and research, says Ronald Cheung, head of Hong Kong and China equity sales at Credit Suisse, who also notes that speed of delivery has become critically important. “We work closely with the research team to ensure that we can provide clients with timely and bespoke research content,” Cheung explains. “The equities markets, not just for Hong Kong and China but globally as well, have been through a volatile year, with a lot of events or regulatory issues that drive extreme market movements.”

The biggest difference this year is that speed to market has become paramount, Cheung observes: “There is little reason to publish unless you are the first couple comments that reach your clients’ in-box.”

Besides working hard to come up with actionable investment ideas in every report, Credit Suisse helps clients to decipher regulatory changes and policy directions within a few hours of their announcement. “That’s why it is important to provide clients with quick and immediate commentary on any key policy changes in China and allow them to speak to the relevant analysts or event industry experts to have a better understanding about these policies or rule changes,” Cheung says.

In addition to new methodologies and rapid analysis, global fund managers still demand “strong fundamental bottom-up research,” says Joseph Lee, head of Asia ex-Japan equity sales at Bank of America Merrill Lynch. The classic equity research method, which requires analysts to closely monitor companies and the industries in which they compete through regular on-site visits and field interviews with rivals, shows no sign of going out of style.

Also, fund managers want cross-asset-class research as well as global context at both the macro and sectoral levels, Lee says. With that in mind, his sales team frequently confers with its analyst colleagues, and both groups stay in touch with BofA Merrill’s fund manager clients. “Coordination is really about a constant dialogue with clients as a team, with both sales and research working together to understand clients’ needs.”

Vincent Chui, head of Asia institutional equity distribution and private wealth management at Morgan Stanley, says he’s as optimistic as ever about market demand for China research. “Liberalization of China’s capital market is a secular trend with significant implications for global investors,” Chui explains. He sees the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights currency basket and the connection of the Hong Kong exchange with its Shanghai and Shenzhen counterparts as catalysts for A shares’ admission to major global equity benchmarks.

“Global firms need to accelerate their China research coverage effort of A shares to help global investors who are also in the ramp-up stage of their learning process,” Chui contends. “This implies significant uptake of investment in onshore research and corporate access products.”

To view the All-China Sales Team, click on the Leaders link in the navigation table on the right.

For details on how we compiled this ranking, click on Methodology.