CICC
(China A&B shares, China H-Shares, Red Chip and P-Chip, and Hong Kong Local, non-China)
CICC dominates China and Hong Kong sales and research coverage for A, B and H shares this year, a cross-border commanding position that results from the firm’s agnostic approach to covering China-based firms wherever they are listed.
Equally, the 170-strong team of research analysts is organised by sectors rather than share categories.
As for why CICC comes out on top in this year’s Asiamoney Brokers Poll in China and Hong Kong, it is because of the firm’s unwavering belief in the strength of the Chinese economy.
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| Liang Hong, CICC |
“In the past two years, the debate has been on China's hard landing, given that growth has been slowing very fast,” Liang Hong, chief economist and head of the research department of CICC, tells Asiamoney. “But we took a very different, out-of-consensus view. We never bought that hard landing story.” The firm forecast that growth in 2017 would accelerate, went against the chorus on the property sector and, crucially, the renminbi, by not aligning with widely held expectations that further depreciation was on the cards for this year after the near-7% drop against the dollar seen in 2016. As of the middle of November, the onshore renminbi has gained 4.4% against the dollar.
The firm’s optimism came from deep, year-long research efforts across three areas: leverage, Chinese property and industrial overcapacity.
Across all three, the conclusions were similar – namely that things were brighter than the consensus view.
Back to currency performance, the firm was successful in its forecast of one key performance driver, the Federal Reserve interest rate hike plans.
“Last year, we were told we were one of the few Chinese brokers that said there would be only one Fed rate hike. And this year we had a weak dollar view,” says Liang.
The firm expects three more interest rate hikes next year, but while that will put pressure on emerging market currencies, Liang expects the renminbi’s appreciation to continue nonetheless, albeit modestly.
In terms of market performance, a general withdrawal of central bank support and the rise in interest rates should play in the financial sector’s favour in China, in particular for banks.
Onshore capital markets
Another side of China’s story is the continued liberalization of access to the onshore capital markets, with MSCI set to include A-shares in its emerging markets index starting next year. For CICC, that will contribute to the brokerage’s bottom line.
“We have seen the trend of global investors warming up to China,” says Liang. “I have been in the Hong Kong and China market for 15 years; what we see now is similar to 2002 and 2003. The peak exuberance was in 2007, then it collapsed, hitting the worst in 2016. But globally, you have investors being underweight China assets.”
Bond and equity allocations to China remain minimal, at less than 2% for both asset classes, despite China being the second-largest equity market and second-largest bond market in the world. For Liang, the change in sentiment towards China is set to be a cyclical tailwind.
Not that the firm is behind the curve on its portfolio of foreign clients. Despite its clear link to the Chinese market, the firm’s client base is already evenly split between domestic and foreign.
“We have a strong institutional investor client base domestically, but through the offshore offices, we cover clients globally,” she says. “We have dominant market share in QFII [Qualified Foreign Institutional Investor] and a very large market share in Stock Connect trading.”
The firm estimates it has an average 8% to 10% market share of overall Stock Connect trading, with peaks at around 15% of total volumes – no small feat considering this year the scheme has seen an average HK$1.4 billion ($180 million) in daily net inflows on the south-bound channel – in other words, mainland investment flows into the Hong Kong equity market – alone.