Asiamoney 30th Anniversary Brokers Poll of Polls

For our anniversary edition we have tallied the results of the brokers that won the most points over the last 30 years in two categories, the Best overall regional combined research & sales (Asia Pacific ex-Australia/Japan) and the Best local brokerage.

For each year the poll ran, brokers were assigned 20 points if they ranked first, 19 points if they ranked second, 18 points if they ranked third, and down to 0 points if they ranked 20th for each of the two categories.

CLSA-Citic Securities has gone through big changes over the last year, as members of the old guard made way for new appointments. But the company’s exceptional performance over the last three decades is undeniable.

The firm has long thrived on what Richard Gould, chief executive officer since April, calls a “consistent focus on differentiated insights.” 

That may sound like management-speak, but it also happens to be true: CLSA’s research is regularly regarded as among the best in the business.

This is partly because of CLSA’s perceived independence, which gives its research an edge that few banks can emulate. Even after Citic Securities, one of the most powerful financial institutions in China, acquired CLSA in 2013, the research has maintained its reputation.

The merger fostered doubts about whether the combination could be a world-beater. Gould says it provided the perfect entry into China for CLSA’s bankers and analysts, and calls the move the most important change in CLSA’s business over the last 30 years.

“Changes in the equities industry, as well as increased compliance and technology costs, have required us to diversify,” he says. “Through Citic, we have unrivalled access to Chinese capital, deal flows and a far greater platform for international investors looking to invest in China and for outbound Chinese capital investment.”

The acquisition has clearly bolstered CLSA’s China coverage. The firm only began to research Chinese onshore A-shares in April 2017, covering just a few names. In the last two years, that number has grown to 80. CLSA also covers 155 H-shares and 15 US-listed Chinese stocks. Its parent company, Citic Securities, covers 724 A-shares, 138 H-shares and 20 US-listed Chinese stocks.

Although the change in ownership led to changes at the top – chief executive Jonathan Slone and chairman Tang Zhenyi both quit CLSA soon after it was acquired – Gould says most employees have stayed at the firm for 10 years. 

It has made the most of the opening up of China’s capital markets, most notably through the Bond Connect and Stock Connect links between Hong Kong and the mainland. The increasing appetite among global investors for insight into China’s market has played directly to CLSA-Citic’s strengths.

“There are more investors with global mandates than ever,” Gould says. “They need insights and understanding of the public companies driving Asia’s growth. Today, they are very focused on ESG [environmental, social and governance] factors.”

The 32-year old brokerage now operates in 14 Asian market, with 2,000 employees. It has grown into a global investment firm, offering a wide range of services from asset management to wealth advisory, from corporate finance and capital markets to structured financing.

“This expands our client base well beyond institutional investors to now include private family offices, sovereign wealth funds, asset owners and public and private corporations,” Gould says.

Roughly two thirds of CLSA’s revenue comes from the equity business, but Gould expects that proportion to decline given that his goal is greater diversification.

In 2002, the securities house charted the rise of Asia’s middle class in its ‘Asia’s billion boomers’ report that predicted that the region would be the world’s economic driver in the next 20 years. That prediction has largely come true and still seems to guide CLSA on its route to becoming what Gould calls “the most successful Asian equities broker, globally.” 

With that increasing wealth base came the rise in the value of consumer staples and consumer discretionary stocks, Gould says. As China continues to drive Asian growth, the key to unlocking the opportunities in the region is a better understanding of the country and its markets. 

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The number of brokers in Australia has shrunk in recent years, but competition is still fierce among those that remain, according to Kristen Edmond, head of research in Australia and New Zealand at Macquarie.

Over the years, clients have demanded wider global coverage as well as research on little-known local names, Edmond says.

“They are thirsty for strong themes and new ideas and are interested in exploring disruptive business models,” Edmond says. “Clients are looking for ways to find an edge, which increasingly involves interaction with unlisted industry experts and offshore trips for information-gathering.”

Macquarie’s 45 analysts cover a total of 270 stocks in the Australian and New Zealand markets. The firm is also one of the few local brokers to maintain sales teams offshore – for example in the US, UK and Asia – who pitch Australian shares.

The market has seen a shift towards best execution, creating a division between clients who demand low-touch electronic execution and those who want high-touch block trading, Edmond says, and Macquarie has invested in both.

The firm prides itself on the relatively long tenure of its employees as well as its strong cash equities performance and the quality of its research, which is not just stock-specific but industry-wide, pinpointing some of the biggest trends in Australia’s corporate sector.

Technology has meant big changes for the media, retail and distribution sectors over the last decade, and Australia has experienced the effects of structural changes in its shopping centre sector, a trend Macquarie detected in 2011. 

Edmond points to dramatic changes, including the “coming, going and then coming again” of the real estate investment trust (Reit) sector, the transformation of the infrastructure sector into a liquid investment and the resurgence of the Australian tech sector.

“There are many themes that have emerged over time, but the one that has continued to appear is the resilience of the Australian economy and the durability of the market and its continued appetite for innovation,” she adds.

The other mainstay has been Macquarie itself, which remains among the most impressive firms in Australia.

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Many Chinese financial institutions try to have the best of both worlds: combining local knowledge with a global approach to execution. That is a difficult balance to achieve, but it is firmly entrenched at China International Capital Corporation (CICC).

Originally founded as a joint venture between China Construction Bank and Morgan Stanley, CICC has done much to modernize the Chinese market. Indeed, its changing client base can be seen as a proxy for broader changes in the nation’s capital markets. 

Two decades ago, when Chinese regulators encouraged big state-owned enterprises (SOEs) to list offshore, CICC was in the vanguard. The government hoped that the companies that listed overseas would learn international market practices and disclosure standards, eventually bringing these back onshore. But for many companies, that meant a wholesale restructuring – creating a western-style corporation out of a business that often had blurred lines with the state.

“Initially, our clients were mainly big SOEs, and their primary demand was for us to help restructure themselves so as to get listed in overseas markets,” says Xu Yicheng, head of strategic development at CICC.

After getting permission to operate onshore in 2000, CICC pulled off several firsts: it helped China Telecom become the first Chinese SOE to list in Hong Kong; it advised on the first cross-border merger and acquisition deal, when China Mobile acquired Paktel; and it completed a listing for Baosteel, the first onshore Chinese listing that was priced by the market, rather than by regulators.

CICC now has a much broader client base, including private and state-owned enterprises; it manages money for high net-worth individuals and has close relationships with many foreign corporations who want to access the Chinese market, says Xu.

The firm changed its business model after listing on the Hong Kong Stock Exchange in 2015. With more capital to put to work, CICC shifted from a consulting-dominated business model to a more balanced one, lending money to some clients and managing money for others.

Xu is optimistic that the Chinese market will see big changes in future.

“The Chinese economy is transforming from a capital-intensive economy to a technology-intensive economy,” he says. “Soon, the traditional banking system will not be enough to satisfy clients’ needs, which have shifted from securing loans to cross-border M&A and digitalizing the business.”

CICC will still attempt to win more business in developed markets, but it also wants to boost its exposure to Belt and Road projects, Xu tells Asiamoney. And the firm will also seek to collaborate with Alibaba and Tencent, two of its shareholders, to expand its fintech offering in both retail and institutional financing. 

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It might be hard for HSBC’s local rivals to remember a time when the bank was not dominant in local broking, but although HSBC itself has been around since 1865, its brokerage arm was only established in 1982. The firm now offers brokerage services in stocks, bonds, currencies, precious metals, commodities and derivatives – and leads the way in almost all of those markets.

Hong Kong’s mature stock market ensures an extremely competitive local brokerage industry. The increasing importance of links with China is making it even more so. By the end of 2018, the number of active brokers in Hong Kong reached an all-time high of 832, according to data from the Securities and Futures Commission in Hong Kong. The top 100 participants made up 92.2% of the total trading volume.

After the establishment of Shanghai-Hong Kong Stock Connect in November 2014, the average daily turnover in Hong Kong jumped from HK$68.8 billion ($8.8 billion) in 2014 to HK$104.6 billion in 2015. The second connect scheme, Shenzhen-Hong Kong Stock Connect was completed in December 2016. Local brokers have not looked back – the average daily turnover in the Hong Kong market has been consistently above HK$100 billion since 2018.

But although there is clearly plenty of business to go around, HSBC has consistently led the way. To take advantage of the Stock Connect programme, HSBC set up Qianhai Securities, the first securities company in mainland China to be majority owned by a foreign bank, in December 2017. HSBC holds 51% of the joint venture. The securities house has licences in underwriting equity and debt as well as local broking services.

The Greater China area is undoubtedly top of HSBC’s agenda, and Hong Kong remains a crucial portal to the rest of the region. The bank is keen on increasing investments in the Pearl River Delta region, as well as continuing to be a leading participant in China’s Belt and Road Initiative.

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There was a time in the Indian brokerage industry when clients would thank you simply for providing them with a company’s annual reports, recalls Sanjeev Prasad, co-head of institutional equities at Kotak Securities, which is the winner of Asiamoney’s 30th Anniversary Brokers Poll of Polls in India.

Nowadays, the industry “simply has way too many brokers”, he says, and clients are demanding “not just knowledge of specific stocks, but also insights into sectors.”

Kotak had a joint venture with Goldman Sachs for 10 years. The arrangement, which ended in 2006, instilled good market practices and a welcoming culture that gives employees plenty of freedom, Prasad says.

The last 30 years have brought plenty of excitement and change to the Indian market. In 1991, it opened up to foreign investment for the first time. In 1997, domestic political turmoil and the Asian financial crisis rocked stocks. There were relatively good years, starting in 2004 and ending with the global financial crisis in 2008. The demonetization policy of November 2016 again crashed the market, and the country is still recovering, says Prasad.

Through these times, however, Kotak was able to gradually expand its stock coverage and attract and retain young talent, two things that set it apart from the competition. While most of Kotak’s rivals cover 140 to 150 stocks, Kotak provides research on 210 different stocks.

“ A lot of research on the top 100 stocks has been done and most investors know what to do with them,” he tells Asiamoney. “You need to focus on the next block” of 100 stocks.

What else should investors focus on? Prasad points his clients to India’s consumer sector, which he thinks is set for dramatic changes, in particular driven by competition from disruptive e-commerce firms such as Amazon and the creation of new distribution networks.

“Traditional consumer names have been the darlings of the market for a while and their multiples have gone up to north of 40 times,” Prasad says. “But will the multiples hold for those scenarios? I am not too sure.”

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Bank Mandiri was formed in 1998 during the Asian financial crisis through the merger of Indonesian banks: its securities arm was rebranded two years later, giving rise to Mandiri Sekuritas.

The securities house now boasts 340 employees, including a 14-person macro and equity research team. It covers about 80 stocks,

which represent up to 70% of the country’s market capitalization.

The two pillars of the business are investment banking and equity brokerage, with the focus on local clients. In 2017, the firm expanded to Singapore, primarily so that it could underwrite foreign currency bonds from Indonesian issuers.

When the equity business first started, the firm hired mostly from foreign brokers. But Silva Halim, managing director at Mandiri Sekuritas, tells Asiamoney that this has changed. 

“Now global brokers like to poach people from us,” she says.

Similarly, while the Indonesian equity market used to be dominated by foreign investors, now the foreigners are trying to copy what the locals are doing, Halim says.

For Halim and Adrian Joezer, head of equity research, what distinguishes the firm from other brokerages is its ability to provide “local flavour”.

For example, Joezer says, “the telecom industry is very competitive in Indonesia and has become a buyer’s market.” Unlike overseas markets, he notes, “it’s a 95% prepaid market. Consumers change the behaviour of consuming their telecom packages every single month depending on the promotion. You cannot apply the same analysis that you use for overseas.”

Mandiri’s macro team publishes monthly trackers on a range of metrics covering the wider market, while its equity team tracks investors’ positions in more than 600 stocks, which is almost the entire Jakarta Composite Index. This broad-brush approach has helped Mandiri Sekuritas hold the top spot in the local market, and that looks set to stand it in good stead in the years to come.

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It may come as little surprise that Nomura won the top spot in Asiamoney’s Brokers Poll of Polls over the last 30 years. But those working at the firm in that period have had to deal with their own set of surprises, including a series of global crises that caused serious volatility in Japan’s domestic market.

“The bursting of the bubble economy and the 2008 financial crisis have had a particularly big impact on the market,” Hideo Kitano, Nomura’s global head of equities, tells Asiamoney. “Various policies and regulations have been introduced since then, and the structure of the market has changed significantly.”

One change Kitano remembers well is the rise of electronic trading and the consequent popularity of passive investments.

“High-frequency trading has emerged as a new market participant,” he says. “More investors are changing their investment strategy from active to passive management, and investment in index-based ETFs has increased.”

Those two trends, as well as Japan’s ageing population, declining birth rates and the low interest-rate environment, have forced Nomura’s clients to demand more access to global markets, especially the US and emerging markets, according to Kitano. That has played to the bank’s strengths.

Nomura plans to tap into mass retail segments with digital platforms in Japan as well as building a presence in high-growth markets in other parts of Asia, especially China. But the firm will also continue to increase its coverage of small and mid-cap names to enhance its competitiveness, Kitano says.

Nomura is known as the most international of Japanese financial institutions, but that reputation largely resulted from its acquisition of Lehman Brothers’ businesses in Europe and Asia. Still, the firm has not overlooked the potential of China. It has already applied to local regulators to establish a securities joint venture, says Koji Nagai, group chief executive officer.

Nomura has had a tumultuous time since the global finance crisis, and its acquisition of Lehman appears to have had little long-term impact on business and competition in both the local and offshore markets. But our poll of polls took a long-term view, and over the last 30 years, there have been none better in Japan.

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Things have changed a great deal for Korea Investment & Securities (KIS). Two decades ago, brokerage fees accounted for a chunky 62% of its total revenue. But as the firm expanded its services to asset management and investment banking, those fees declined to a much smaller 18% of revenue by 2018.

The shift illustrates many of the changes in Korea’s financial landscape. When it comes to capital markets, the 1997 Asian financial

crisis improved the fundamentals of Korean companies a lot, according to Yeong-geun Joo, KIS’s head of international business division.

When it comes to the local brokerage industry, the biggest change in recent years has been the emergence of mega-investment banks, Joo tells Asiamoney. Six banks now have shareholders’ equity of more than W4 trillion ($3.4 billion) each. Only two banks were that size in 2015.

“Securities companies have been able to take on more risk and expand principal investments into real estate portfolios, pre-IPOs, acquisition financing and bonds and derivatives trading,” Joo says.

In response, KIS developed its own ‘investment banking-asset management’ model, sourcing new financial products through investment banking deals and offering them to retail clients. In addition, it has been able to cater to clients that are demanding a wider range of services, from startup investments to researching overseas stocks, Joo says.

KIS has made headway internationally too, taking on more foreign clients; by May this year, the firm accounted for about 10% of the foreign brokerage market, while revenue from overseas operations reached $60 million last year.

What’s next for KIS? Jung Il-moon, chief executive of the firm, is targeting W1 trillion in operating profit this year, up from W600 billion in 2018. KIS is also hoping to reach W1 trillion in net profit within three years, up from W503.5 billion last year. With its strong credentials, KIS, the winner of Asiamoney’s 30th Anniversary Brokers Poll of Polls in South Korea, appears well positioned to meet its goals.

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CIMB, winner of Asiamoney’s 30th Anniversary Brokers Poll of Polls in Malaysia, covers 131 stocks out of 927 listed companies in Malaysia — equal to a whopping 72% of the stock market capitalization. It’s not stopping there.

“We have seen a lot of Malaysian companies going regional in the past 10 to 20 years,” says Ivy Ng, head of Malaysia research at CIMB. “To stay in line with our clients’ needs, now our Malaysian team does not only cover Malaysia. Some of the members are Asean specialists, covering also Singapore and Indonesia.”

CIMB is the first strong local securities house that has also gone regional, and that sets it apart from its local competitors, according to Ruzi Rani, head of Malaysia equities.

The firm has expanded over the last 15 years, acquiring Singapore’s GK Goh Securities in 2005, Southern Bank in 2006, BankThai in 2008, and the Royal Bank of Scotland’s equity capital market business in Asia Pacific in 2012. That expansion enabled CIMB to distribute regional IPOs and execute cross-border selling, according to Ng, services that are becoming increasingly important.

Rani adds that clients are becoming more cost-sensitive these days: “In the 1990s, we were paid 100 basis points for care orders; now as the biggest fund in the country we are only charging 15bp.” 

The bank is also planning to expand its coverage of environmental, social and governance (ESG) companies. 

“It’s to cater to the future generations of investors,” Rani says. “There is a demand for ESG companies. Malaysia, of course, wants to be there in terms of providing exposure to ESG companies. We are already working on developing this market and bringing out the corporate governance of Malaysian companies.”

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When Merrill Lynch decided to quit the Philippines in 2001, Jojo Gonzales and a few of his colleagues offered to acquire the international bank’s brokerage business – and Philippine Equity Partners was born.

While initially the bulk of the new venture’s clients were Merrill Lynch’s foreign investors, these days clients are split equally between foreign and domestic, and are mostly institutional. Only 3% of the firm’s turnover comes from retail clients.

Unlike the other 12 country and regional winners of the Asiamoney 30th Anniversary Broker Poll of Polls, Philippine Equity Partners says it is not going to expand beyond equity brokerage in the near term.

“The only expansion we are looking at is deepening our existing coverage rather than going into new areas,” says Gonzales, managing director of the firm.

He has his reasons. Falling commission rates and the changing demands of foreign clients force brokerages to either improve their advisory and research quality or quit the industry altogether. Indeed, the number of brokers in the Philippines has halved since the early 1990s.

“In the early 90s, brokers were charging anywhere from 1% to 1.5% on each trade,” Gonzales says. “Today there is a minimum commission of 25 basis points. I think rates are falling so fast that the exchange actually stepped in to put a floor on commission rates.”

With just 4% to 5% of the market share, Philippine Equity Partners does not stand out for the number of clients it serves, but for its extensive experience in the brokerage business and its independent, unbiased research.

“We are not an investment bank,” Gonzales says. “We have not been really involved in underwriting, so we can claim independent research. We have not been in other businesses apart from stockbroking. There’s no distraction.”

What has also helped Philippine Equity Partners is a change in foreign investor behaviour.“Twenty years ago foreign investors were more like macro investors,” Gonzales says. “They just looked at trends like GDP growth, demographics, urbanization, consumer trends – [they] picked the best conglomerates that represented these trends.”

In the last decade, however, there has been more demand for bottom-up analysis. As a result, Philippine Equity Partners changed the make-up of its research team to recruit more chartered financial analysts and certified public accountants who can dig deep into companies, Gonzales says. Now, the firm has six analysts covering 42 companies, or 70% of the country’s market capitalization.

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The equity brokerage arm for DBS Bank, DBS Vickers, is the winner of Asiamoney’s 30th Anniversary Brokers Poll of Polls in Singapore. 

The firm was able to stay on top of the game because of an important strategic move made 13 years ago, says Kenneth Tang, global head of institutional business.

“Over the last 13 years, we embarked on a fairly different strategy vis- à-vis other brokers,” Tang says. “We decided that it makes a lot of sense to focus on Hong Kong and China because these are cornerstones to any Asian brokerage business.”

DBS Vickers now boasts a Hong Kong research team roughly twice the size of its Singapore counterpart. The number of stocks covered in Hong Kong has reached 274, compared with 98 in Singapore.

As an entry point, DBS Vickers leveraged its research experience in Singaporean real estate investment trusts to analyse the real estate sector of Hong Kong. Apart from this industry, the firm established two other pillars: small-cap and mid-cap stocks, and consumer goods, Tang says.

While coverage of small-cap and mid-cap stocks has proved a challenge for many other firms, Tang says that DBS Vickers was able to crack the market by devoting its most senior analysts to cover the sector.

“ I think we have managed to do quite well because we take it seriously,” he tells Asiamoney. “For small and mid-caps and emerging markets, China included, if you do not put senior analysts in place, it’s almost a recipe for disaster.”

Looking at the Singapore brokerage industry, Tang says that one trend is certain: it is becoming increasingly difficult for single-country brokers in Singapore.

“Clients increasingly don’t want to access multiple markets through multiple brokers,” Tang says. “If you are a broker offering single-country service, the range of clients you will be able to appeal to will increasingly narrow.”

Luckily for DBS Vickers, that won’t be an issue.

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Yuanta Securities, established back in 1961 when the Taiwanese market was in its youth, takes the gong among brokers for Taiwan. It’s the winner for good reason. In the three decades since it opened for business, the firm has completed a series of mergers and acquisitions and became Taiwan’s biggest broker by market share in 1995.

It has also successfully tackled obstacles to the business. When the government re-imposed capital gains tax in 2016, Taiwan’s stock

market took a knock and average daily trading volumes declined.

“To overcome the changing market situation, Yuanta Securities started its transformation,” Bobby Hwang, president of Yuanta, tells Asiamoney. “We transitioned our business model from ‘flow bases’ to ‘assets under management bases’, and restructured our 147 traditional brokerage branches into comprehensive wealth-management branches.”

That’s not all. Since the establishment of the Hong Kong branch in 1994, the firm has started expanding offshore and connecting markets in Taiwan, Shanghai and Hong Kong. Yuanta has also extended its business to Korea, Vietnam, Indonesia, Thailand, Cambodia and other Asean countries.

The moves have paid off. Last year, income from overseas subsidiaries accounted for 20% of Yuanta’s total revenue.

Yuanta will continue to expand into southeast Asian countries, Hwang says. That is not surprising, given the rapid development of Asean economies. While economic growth in Taiwan has slowed to between 1% and 2% from more than 10%, many southeast Asian countries have higher rates and set foreign-friendly investment policies, Hwang adds.

“Plus, Taiwan’s geopolitical advantages have drawn thousands of Taiwanese enterprises to locate in [Asia], and IPOs may soon be required, making it the best timing for Yuanta to run its investment business [in southeast Asia],” Hwang adds.

Yuanta has also put user experience on its radar. The brokerage house launched ‘Mr Yuanta’ last September, an app that uses artificial intelligence and cloud computing to screen stocks, according to Hwang. 

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Phatra Securities stands out in Thailand. The firm has evolved from being a stock punter in 1997 to becoming a more balanced securities house, offering derivatives, fixed income and other products.

It had to shift strategy when the big banks entered brokerage in 2004. Before that, the banks were only allowed to do commercial banking, Therapong Vachirapong, head of equity research at Phatra, tells Asiamoney; but as competition grew more intense and clients demanded more diversity, Phatra had to rejig its structure.

The result? The 17-strong brokerage team now covers 90 stocks – 50 large cap and 40 small cap. Wealth management and institutional brokerage make up about 60% to 70% of revenues. Investment banking accounts for 10% to 15% and investment units account for the rest of the firm’s income, Patchanee Limapichat, president of Phatra, adds.

Clients are increasingly looking outside Thailand for more business, a trend that has caught the attention of Phatra’s senior brokers. Since Thailand lacks the two main drivers of the global stock market – technology and e-commerce – its domestic equity market has very limited offerings, Vachirapong says. So investing both regionally and internationally seems to be the only way to remain meaningful. 

“Now, clients demand investment elsewhere, not just in Thailand,” says Limapichat. “We know Asean better, but nowadays they also want to pick stocks in the US, especially some leading sector names.”

Phatra is well on its way to capture those opportunities.

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