Brokers Poll 2016: The right call
Analysts in Asia are used to dealing with dynamic and unpredictable markets but the events of this year provided a real test of mettle. Against a backdrop of global political upheaval and worsening economic outlook at home, the winners of Asiamoney’s 2016 Brokers Poll have proved they have what it takes to impress their clients.
Christopher Wood, CLSA
The word legend should be used sparingly, but it is fair to say that Christopher Wood has attained that status among market-
watchers. His wide-ranging, meticulously argued and often hard-hitting weekly GREED & fear is avidly read with a loyal following around the world. (He wrote the latest issue during roadshows to India, Australia and New Zealand.). He called the sub-prime mortgage debacle in the US before it morphed into the Lehman Brothers bankruptcy and the global financial crisis. He is witheringly critical of central banks’ resort to quantitative easing, zero rates and negative rates. “They have had the precise opposite effect of what's intended, in the sense that they are deflationary, not inflationary, and boosted asset prices but haven’t helped the ordinary economy,” he tells Asiamoney. He correctly forecast what would happen to the bond market in the event of a Donald Trump victory in the US presidential election.
Wood was born in the UK, and educated at Eton and Bristol University, where he graduated in 1979. Three years later, he became Hong Kong bureau chief of the Far Eastern Economic Review, and after 10 years at the Economist, working in London, New York and Tokyo, he left journalism to become an emerging markets analyst with Deutsche-Morgen Grenfell. Two more jobs followed – at Santander’s Asian securities unit and ABN Amro – before joining CLSA in 2002.
His tall frame and distinctive shock of hair make him instantly recognisable at conferences. Brand-conscious, he astutely copyrighted the title, GREED & fear.
Eric Fishwick, CLSA
“One of the strengths our client base appreciates is breadth rather than segmentational silo-isation,” says CLSA’s head of economic research Eric Fishwick. “It’s problematic, for example, that most of the work on China is done by analysts who don’t look at any other countries. That means you miss regional trends.”
No one would ever accuse Fishwick of being siloed. In a lengthy interview with Asiamoney, he ranges from the revival of Keynesianism to how China “has left Western economies completely backfooted”. Readers of CLSA’s quarterly Eye on Asian Economics and the Infofax Daily will be familiar with the guiding intellect.
For the past couple of years, he thinks CLSA has been “ahead of the curve in spotting links between the supply cycle in commodities and global trade.
“We have seen enough supply contraction that you can actually make a bullish forecast for 2017 in terms of global trade growth. It’s not yet picked up in any aggregate numbers, but it is, I think, starting to be picked up in the most successful Asian exporters’ data.”
His biggest miss-call this year has been doubting China’s ability to manage its currency and capital account.
“At the start of this year I feared China would be forced to abandon its defence of the renminbi, and objectively they have been much more successful in controlling capital flows than I anticipated.”
Within CLSA Fishwick is renowned as a tech geek. The converted barn where he lives has 48 Ethernet ports, and at a time when TiVo was unavailable in the UK, he built his own hard disc video recorder able to pause live TV. “I probably have 3,000 DVDs plus 1,500 Blu-Rays.”
BEST TECHNICAL ANALYST
Laurence Balanco, CLSA
As global technical analyst at CLSA, Laurence Balanco says he has to cover “pretty much” the whole world. “That’s the great thing. I don't just have one sector to look at, a few stocks. You are looking at what’s topical, or what’s trending, or where the momentum is at the end of the day; what clients are talking about; where the risks are.”
Investors value Balanco’s willingness to challenge received wisdom. For example, he found that equity prices do not always fall when bond yields rise. The negative correlation did not hold between 1999 to 2016.
As long as yields remained below 4% or so, he found “you can have a positive correlation between rising rates and rising equity markets, but once you get above 4% an increase in interest rates will be seen as negative for equities”.
CLSA’s best technical call in 2016 “was when we thought the yield on bond markets was making a low and you wanted to be selling bond proxies, so we recommended getting out of the Reits. That was our most commercial call,” Balanco says.
“Japan has been a market we have called well, the swings through the year. We started off by suggesting you take profits in Japan and there was a big sell-off in January. We expected to retest those lows in June and it played out to plan. We have since been bullish on Japan and it has worked out well. For Japan and the yen, I would say we have been able to consistently call both the tops and the bottom ends.”
BEST BANKS ANALYST
Michael Chu, HSBC
Back in steaming July, HSBC published a jumbo report on Asian banks called Winter is coming. The main thesis was that Asian banks are dogged by low interest rates, lack of macro growth and weak asset quality.
The section on China did not mince words. Deteriorating bank asset quality “raised concern over a hard landing scenario, together with the lack of proper disclosure” and a growth in off-balance sheet shadow banking. Raising the red flag was Michael Chu, who covers China banks and e-finance at HSBC. “China faces the problem of NPL [non-performing loans] recognition. We estimated it will likely take 2-3 more years to resolve,” he tells Asiamoney. “Growth of shadow banking is slowing but the existing scale is still large and lacks buffers in case of defaults.”
Chu is more upbeat about China’s e-finance market, calling it the most promising in Asia. He attributes this to infrastructure (74% smartphone penetration), culture and competition.
South Korea is a laggard by comparison. It has the right infrastructure but lacks the competitive space. “It is a highly developed market where banks and non-banks dominate, leaving limited room for e-finance firms to penetrate to their target customers – the mass retail and SMEs.”
Chu’s insights draw not only on his work at HSBC but his previous experience of working at a hedge fund and a Korean brokerage. He also speaks five languages – English, Cantonese, Mandarin, Shanghainese and Japanese.
His best call was Credit China FinTech, which HSBC started covering three years ago. Its stock price has since risen nearly four times.
BEST CONSUMER DISCRETIONARY ANALYST
Charlene Liu, HSBC
Charlene Liu heads Asia Pacific gaming research at HSBC, a job that mainly involves tracking casinos in the only place in China where they are permitted, Macau.
The once sleepy Portuguese colony, which reverted to China in 1999, now has 38 casinos and their combined revenue is estimated to be seven times that of the Las Vegas strip. Liu follows industry practice in dividing customers into mass, mass premium and VIP. Mass revenue is called ‘grind’ and high-rollers are lured to the tables in all-expenses-paid junkets. President Xi Jinping’s crackdown on corruption dealt a blow to Macau but in her latest reports Liu finds that VIP demand is returning, along with overnight visitors from the Mainland.
Her best call was a Reduce on Wynn Macau before their hotel and casino opened on the Macau waterfront. “We thought expectations were too high.” Wynn Macau’s first set of results, for the third quarter of 2016, were duly disappointing.
In hindsight, Liu wishes she had been “less sceptical on the VIP recovery and turned more constructive on the sector earlier”.
Her biggest challenge is time management, which is understandable, given that she now has a baby.
She told Asiamoney that she would like to help develop “a new business model for equities as commissions are coming off and clients will have to pay for research. Quality of research will become a key emphasis”.
Asked whether she likes to gamble, Liu replied, “No. I am trained to check risk against reward so naked risk has no appeal to me.” Best keep that to a whisper in Macau.
BEST CONSUMER STAPLES ANALYST
Christine Peng, UBS
The explosive growth of e-commerce in China has created new niches for analyst research.
Christine Peng at UBS has examined in depth changes in the Chinese market for infant milk formula (IMF) and instant noodles.
China accounts for about one third of the $33bn global market for IMF and Peng was assisted by the Evidence Lab at UBS which mined about 80,000 records to collect product prices in China from e-commerce websites. Peng found that IMF ordered online and imported into China has gone from around zero to 15% of the market. “I think it’s because it's cheaper.”
Chinese authorities are not pleased by all of this online importing of IMF via personal parcels. One concern is food safety. “If anything happens, there’s going to be social problems, and it's very difficult to track the source. It could be poison,” Peng points out. The other issue is loss of revenue, because such transactions are untaxed.
“A lot of other big companies like Procter & Gamble have also been stumbling in China. Probably their new products are not good enough to attract new customers, especially young people who shop on the internet,” Peng believes.
After a period of consolidation, China’s consumer products sector has been fragmenting over the past two years. Several leaders have lost 50% of their market cap. The share price of Tingyi, one of the largest makers of food & beverage – including instant noodles – has fallen almost two-thirds from its peak in 2015.
“It’s simply because we now have the internet and more choice. Consumers now obtain information from many different sources. Our Evidence Lab confirms this trend.”
BEST INDUSTRIALS ANALYST
Kelvin Lau, Daiwa Capital Markets
China may have to fall back on infrastructure investment if the incoming US administration of Donald Trump damages trade, according to Kelvin Lau at Daiwa Capital Markets in Hong Kong.
“In the near term, trade-related stocks will be under pressure. People are avoiding marine-related stocks like shipping and ports,” Lau tells Asiamoney. “I think Trump will be more positive for China construction-related names, because at the end of the day, if imports and exports are insufficient, China will need to do something on fixed asset investment in railways, roads, bridges, to compensate. This will be good for construction.”
Lau heads auto, transportation & industrial research in Hong Kong for Daiwa, focusing on Hong Kong-listed companies. “We’re somewhere in between the bulge-bracket investment banks and the Chinese houses here. Because we are not bulge-bracket we have to work harder to get people’s attention. You need to have consistent delivery of service, or reports, or ideas.”
Lau worked in planning and revenue management at Cathay Pacific and Hong Kong Dragon Airlines from 1999 to 2007, when he joined Daiwa.
He credits his airline experience with his two best calls, on TravelSky Technology, a state-owned Chinese booking system provider, and SinoTrans, a Beijing-based air freight and logistics firm.
TravelSky was one of Lau’s top five share picks at the start of 2016 and its shares have since risen 46%. “SinoTrans ran up quite well after we recommended the stock, and then when we decided it was too expensive and downgraded, it declined.”
BEST DIVERSIFIED FINANCIALS ANALYST
York Pun, HSBC
With both Mainland exchanges now connected to Hong Kong through the Stock Connect, the need for rigorous analysis of China’s financial sector is increasingly to the fore.
York Pun brings the right skills to that formidable task. At HSBC he covers the Hong Kong, Shanghai, Shenzhen and Singapore exchanges as well as brokerages, some leasing companies and fintech stocks.
In July, Pun and junior colleague Alice Li wrote a ground-breaking report on the linkage between brokers and banks in China’s mushrooming asset management industry. Chinese banks have been outsourcing investment on their proprietary trading and wealth management products to Chinese brokers, whose assets under management had swollen to nearly Rmb14tr ($2tr).
Pun and Li predicted that China’s capital-rich brokers could look overseas for acquisitions, as well as consolidating at home and spinning off their highly profitable asset management arm. CICC was their top pick of Chinese brokers for asset management.
Asked for his best call, Pun replies it was to suggest investors buy/overweight HKEX in 2012 when the market was concerned about its acquisition of the London Metal Exchange. “Our positive thesis was based on the view that turnover velocity in Hong Kong – or the frequency of stock trading – was close to the historical trough at that time and we also believe the LME transaction was misunderstood by many.”
Prior to joining HSBC in 2007, Pun worked as an audit consultant and buy-side analyst. He holds a master’s in international financial analysis from Newcastle University. His unusual English forename was chosen to resemble his Chinese first name, Ki Yuk.
BEST ENERGY ANALYST
Thomas Hilboldt, HSBC
One of the ways China is shaking up the world is in its demand for energy, especially from cleaner sources than coal. In October, HSBC focused on competition between OPEC and Russia to supply China with oil for the 200m automobiles forecast on Chinese roads by 2020, and natural gas for power generation.
Why no mention of Japan competing with China for Siberian oil and gas? Thomas Hilboldt, who heads HSBC’s Asia-Pacific resources & energy team, gave a well-considered answer to Asiamoney.
Following the Fukushima disaster of 2011, “the shutdown of Japan’s nuclear capacity caused a jump in hydrocarbon demand. But now that nuclear power is coming back on, Japan has limited incremental demand for LNG and crude oil.
“They are not the growing market in the region. China is consuming more and more. The Japanese economy is de-industrialising and its population shrinking.
“From the standpoint of both investment and import volume, the Japanese are not necessarily China’s competition for energy. Volume-wise, you could argue that India and ASEAN are competitors for both assets and resources over the longer term.”
Hilboldt has been managing regional teams and covering Chinese and ASEAN energy since the mid-nineties. “I have a lot of historical perspective.”
Asked for his best calls, Hilboldt cited an outlook piece for 2016, in which he “turned more constructive on a number of different companies, even as the oil price was heading into the trough.
“And selectively we recommended investors reweight into both China and Thailand. That was a good time to put exposure back on, because we were quite negative over the course of 2015, well in advance of the market.”
Spare time is spent “with my wife Pum, my daughter Kiki, my son Tate and my friends. And I especially I like to hike the hills of Hong Kong. We holiday frequently in Thailand, my wife's home”.
BEST HEALTHCARE ANALYST
Shaojing Tong, UBS
China’s pharmaceutical industry is undergoing drastic change. Competition is winnowing out the weak while the strong strive to develop their own patented drugs.
Most drugs in China are priced artificially high, and government pricing “has been a key driver for many of the stocks we cover. Following the pricing policies of the central and provincial governments is a quite a critical part of our work,” explains Shaojing Tong of UBS in Hong Kong.
UBS has been cautious on China pharma since the start of 2016. “That said, we will still be able to pick individual stocks by quantifying each company’s pricing pressure and to what extent it is already factored into their stock price. We can identify the best companies that will become innovation-driven in the future,” Tong adds.
The industry is very fragmented, with about 5,000 drug makers. “I foresee the majority either closing down or merging with the larger players as a consequence of this round of price cuts and other types of hawkish policies.” China’s 300 listed pharma companies are by definition the largest and most efficient, but they too may be forced to consolidate, he believes.
In the next five years, Tong predicts “huge growth of innovative drugs from the R&D pipeline of Chinese pharma,” but says talk of a Chinese Pfizer, Novartis or Glaxo emerging is premature.
“I would be happy to see Chinese pharma match the achievement of the Japanese. Thirty years ago, most Japanese pharma companies were also making generics. Then they invested in R&D, and several of the top Japanese pharma companies became globally competitive and joined the top 20. Some Chinese pharma companies have that potential and ambition.”
BEST INSURANCE ANALYST
After being voted best insurance analyst for another year, Garner resigned from HSBC, where he had headed Asia Pacific financial research.
Garner did not respond to written questions from Asiamoney in time for publication.
BEST MATERIALS ANALYST
Wei Sim, HSBC
Excitement over Donald Trump’s plans to spend $1tr on rebuilding America mask the fact that China has been spending more than $1tr on infrastructure in each of the past two years, and $1.4tr in just the first 10 months of 2016.
Quite a lot of that spend goes on cement, one of the industries that Wei Sim keeps an eye on as Asia ex-Japan infrastructure analyst for HSBC. It should surprise no one that cement prices in China have been going up.
Sim started off his career in Hong Kong at Macquarie Bank. “I became an infrastructure analyst by accident but stayed in the sector on purpose. I believe it is a sector with long-term structural needs, and is currently experiencing a renaissance that started in China but is going global.”
Hong Kong-listed Yuexiu Transport, an operator of toll roads and expressways in Guangdong Province, is among his best calls. “A great company which is undercovered by the street. Great management and cheap valuations.”
His biggest challenge is “picking turning points and gauging sentiment on the street … but that’s what we get paid for”.
Sim was born and raised in Australia, and came to Hong Kong 10 years ago. He speaks Mandarin and English, and learnt Cantonese after marrying a Hong Konger.
“I love to eat healthily, experiment with food and keep fit. My wife as a part-time hobby runs her own private kitchen and I help out on the side. I love supporting her in her life passions.”
BEST REAL ESTATE ANALYST
Carol Wu, DBS Vickers
Doomsayers will tell you China’s inflated housing market is set to explode, with consequences as devastating as the collapse of Japan’s great bubble a quarter of a century ago.
Nonsense, thinks Carol Wu. “I don’t see that China’s residential property market has a bubble.” Jeremiahs would do well to pay heed. Before joining the Hong Kong office of DBS Vickers in 2007 as a China property analyst, Wu worked for a property consultancy and the La Salle property fund. This year alone she has visited over 20 cities on the Mainland. For Chinese New Year, she eschewed the ski slopes of Japan, opting instead to explore one of China’s more obscure cities, Huangshan in Anhui Province.
“I don't just focus on financial numbers,” she tells Asiamoney, although if pressed she can marshal plenty.
She concedes prices are frothy in tier one cities (Beijing, Shanghai, Guangzhou, Shenzhen) and a few in tier two, but for the whole of China the affordability ratio – monthly mortgage payments divided by disposable income – is only 39%.
Mortgage leverage to GDP was over 200% in Japan back in 1990 but is about 35% to 40% in China today, including all the shadow non-bank financing. China’s oft-cited home ownership ratio of 80% is not all it seems, either. “That is the right number, but more than half of the housing stock is very low quality, with no kitchens or toilets. Upgrading will create a lot of demand.”
She pioneered field trips to the Mainland to get “a complete picture of the local property market” by talking with everyone concerned, from Harbin in the north, to Urumqi in the west, and Haikou in the south. The strategy has proved so successful that competitors now attempt the same. Imitation is the sincerest form of flattery.
BEST SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT ANALYST
Steven Pelayo, HSBC
“Better than feared” is how Steven Pelayo describes Asian tech sentiment among investors as the end of 2016 draws near.
Apple performed poorly in the first half, but China smartphones rebounded, “and when Apple turned back on their supply chain for the iPhone 7 build, we saw supplies tighten”.
Looking ahead, what concerns him is that “we are coming off a smartphone revolution where 1.5bn smartphones shipped every year” and it is unclear what will fill the void.
“Tech hardware has been sitting on a one-legged stool…As smartphone growth moderates, we are looking at a myriad of skinny legs,” Pelayo explains. “There is a lot of excitement about data centres, artificial intelligence, virtual reality, and automotive electronics…However, compared to the smartphone market, each of these markets from a semiconductor perspective is relatively small today.”
Tech perspective Pelayo has in abundance. He was born and raised in Silicon Valley. His father worked in Lockheed’s Solar Physics lab and his mother helped found a nuclear engineering consultancy. From 1996 to 2003 he was a semiconductor analyst at Morgan Stanley before joining HSBC and moving to Asia in 2006.
He says his team has had good calls on Taiwan Semiconductor Manufacturing, both as a Buy last year, and after the shares rose 35%, as a Hold. Another was on small cap King Yuan Electronics (“up roughly 50% this year before we downgraded it”). So far, there have been “no major blow-ups”.
For recreation, he prefers to be outside and to travel. “I play a lot of tennis and I hike or run the trails of Hong Kong.” This summer he led his son’s scout troop on a 110-mile backpacking trip.
BEST SOFTWARE & INTERNET SERVICES ANALYST
Elinor Leung, CLSA
Two years after Jack Ma’s Alibaba raised $25bn in the world’s biggest-ever IPO, CLSA forecast that China’s internet colossus still had more peaks to climb.
Gross merchandise value from e-commerce would likely double to $900bn in four years as “the Chinese appetite for online shopping
will only keep growing”. Revenue at AliCloud, the division which dominates China’s infant cloud computing, would increase 11 times by 2020. Ant Financial, the e-finance spin-off that includes Alipay, China’s largest online payment operator with about half of the market, as well as a thriving wealth management and loan business, was worth $75bn – equivalent to Goldman Sachs – and could be valued at $100bn in two years. The report, Jack’s Super Ecosystem, was written by Elinor Leung, head of telecom & internet research at CLSA, and four members of her team.
Leung sees huge e-finance potential in China’s consumers, private sector and SMEs ignored by traditional banks. She also enthuses about e-commerce reaching rural China.
“By the end of the year, China Mobile will cover 98% of the population with 4G, and 4G handsets in China are as cheap as Rmb200, or $29, so a village can easily buy a smartphone and get connected.”
Keeping telecoms and internet under one roof gives CLSA an edge over competitors, she believes.
“They don’t see the big picture of telecom infrastructure that has made it possible for internet to be so successful in China. China has the world’s largest 4G network, the world’s cheapest 4G smartphone and one of the lowest data tariffs. Thanks to China Mobile and Huawei, China is going to lead 5G rollout as well.”
Leung has two degrees in mechanical engineering plus an MBA. “I have always been interested in telecoms and the internet. It is the future of the world,” she says.
BEST TECHNOLOGY HARDWARE & EQUIPMENT ANALYST
Nicolas Baratte, CLSA
CLSA’s head of technology research admits to spending “a third to 40%” of his time just following Apple and Samsung smartphones and their supply chains.
The industry’s recent slowdown – “we will surely go to zero percent in a completely saturated market two years from now” – has not made life quiter for Nicolas Baratte.
“There are still companies that have a big increase in their sales price or market share, or have new products. TSMC (Taiwan Semiconductor Manufacturing Company) has gone up maybe 35% this year, Aztech in Hong Kong probably 60%-70%, Largan in Taiwan by 70% or 80%.” Baratte considers virtual reality “the most exciting” new tech on the horizon, with more potential applications in industrial training than entertainment. Another is extending Google’s “location-based services, with a lot of customisation”.
A third is automation, “robotics and things like self-driving cars,” which have become a big driver of semiconductor mergers, such as Qualcomm’s $36bn acquisition of NXP.
Over the last couple of years, his best calls have been downgrading Taiwan’s MediaTek before the stock price halved, and sticking with Largan when everyone else was rushing for the exit. His biggest regret was that after being “completely right on Lenovo for several years, I have been completely wrong for one year”.
Asked how his approach differs, Baratte said it was “avoiding the density of things, of data point information, opinion and rumours … I spend most of my time thinking about why something would or would not happen in tech”.
Baratte’s background is unusual. After university in France he joined state-owned aerospace company Aérospatiale, now part of Airbus, which sent him to Taiwan in 1992. After Wharton Business School and stints in equity research at JP Morgan and Prudential Asset Management, he joined CLSA in 2011. He likes to practise aikido, the Japanese martial art.
BEST TELECOMMUNICATIONS SERVICES ANALYST
Neale Anderson, HSBC
The biggest issue in Asian telecom is “striking the right balance between encouraging investment and allowing telcos to earn a return,” Neale Anderson, head of Asian telecom research at HSBC, tells Asiamoney.
“Policymakers in China have prioritised network investment and cheap prices for wireless and fixed-line over near-term telco [telecom company] profits. This has helped facilitate strong growth at the internet companies in China.”
Anderson sees at least “two Asias” in network roll-out. For the likes of Japan and South Korea, investment to support data is almost complete, while in the Philippines, India or Indonesia, more is needed just on low frequency. Substantial sums required to build wider spectrum data networks will drive industry consolidation in Indonesia and India.
Unusual for HSBC, Anderson covers Japan’s four main telcos, as well as Telstra in Australia. Japanese telcos “led the world in the late ‘90s” and a spell of teaching English in Japan after graduating from Oxford landed him a job with Ovum, a telecoms research firm. He joined HSBC in Japan in 2007.
China Mobile, NTT and NTT DoCoMo have been his best calls. “I had the only Reduce rating on China Mobile during most of 2015 and remain cautious. Buys on NTT and DoCoMo for the past three years have also turned out well.” One of his worst calls was downgrading Softbank to Sell because of the Sprint acquisition. “I got the Sprint part right, but missed a small thing called Alibaba…”
His biggest challenge is “managing the information deluge”. He likes to escape to the hills, the Lake District and Japan Alps being two favourites. He is also learning kung fu.
BEST TRANSPORTATION ANALYST
Eric Lin, UBS
Heading Asia transport at UBS in Hong Kong is ideal for inveterate plane spotter Eric Lin.
“Many passengers enjoy spending time in a business class lounge, but to me that basically means you are surrounded by walls. I would rather sit back and look at the airfield,” he tells Asiamoney.
A passion for airlines probably helped in making what he regards as his best calls, on Cathay Pacific last year.
“More travellers are flying direct from mainland China to Europe and the US, bypassing Hong Kong and the hub. This was my structural [negative] rating thesis, but more interesting is that I also made a number of short-term stock calls as to whether Cathay’s earnings would miss or beat expectations,” Lin says. “On top of just one directional call, I was quite proud of being able to help clients make money on event-driven or capital-driven performance.”
Not foreseeing the shock bankruptcy of South Korean shipping line Hanjin, as well as the commodity boom and a quick upturn in shipping count as regrets.
Demand and supply underpin his approach. Orders for new shipping are equal to over 10% of the global fleet, so he is sceptical of a strong recovery. “Assuming we are in a world of low growth it will take several years to digest the new capacity.”
He is more bearish on airlines, given that capacity growth outstrips travel demand. “Airlines throughout Asia Pacific have been over-ordering planes.”
Monitoring e-commerce disruption and opportunities, and macro factors such as currency and oil price that enter the mix, keep the veteran on his toes.
BEST UTILITIES ANALYST
Evan Li, HSBC
Evan Li covers everything from power plants and solar energy to waste treatment. Inside his research kitchen cabinet are several hot button issues for China.
One is power generation. China is the world’s top consumer of coal, mostly for power plants, and hence China is by far the world’s biggest emitter of greenhouse gases. In November 2015, president Xi Jinping promised to cap China’s carbon emissions by 2030 through a series of targets, including doubling nuclear, solar and wind power generation by 2020. Then came Donald Trump, with his threat to pull the world’s largest economy out of the global accord.
China won't renege on its carbon commitments even if the US does, Li believes. However, it would hurt solar exports, as “about 20% to 30% of the volume across the solar supply chain in China goes to the US”.
To meet its targets, Beijing wants to cancel new builds of coal-burning plants. “We are operating way too many power plants and China doesn't need any more coal-fired plants that pollute the atmosphere,” he says.
In recent years, moving polluting factories away from Beijing and the eastern seaboard to western China has improved air quality in the capital and along the Pearl River Delta. A slowing economy has also reduced emissions, Li adds.
Another “really hot” area at the moment for Li is waste management. “Some waste, particularly hazardous waste from factories or hospitals, is not being properly treated,” he explains. Treatment technologies are available. “The key is under-penetration. We are starting from a very low base, so the growth potential is huge.”
BEST REGIONAL SALESPERSON
Tommy Tang, CLSA
Our house awards show how CLSA has been sharpening its sales teeth, and Tommy Tang at that cutting edge, winning this award for the second year in a row.
Tang comes from Suzhou, renowned for its picturesque canals, bridges and classical gardens, and studied at Beijing’s Renmin University. He worked as an auditor with Deloitte in Hong Kong from 2006-2009 before spending one year as a consumer analyst at HSBC. He joined Citic Securities in 2011 as a salesman. When Citic acquired CLSA, he joined the Hong Kong-based brokerage that now houses all the offshore business for the Mainland giant.
This year has been a rollercoaster for Chinese equities. “Right now, market sentiment has improved a lot compared January or February, which was the bottom,” Tang said. He was looking forward to the opening of the Shenzhen-Hong Kong Stock Connect in December and the expected boost in business.
His biggest challenge is responding to any unexpected share price falls following a CLSA recommendation. “Most of the time our calls are good, but most analysts give a one-year price target, and during one year a lot of things can happen.”
For recreation, he enjoys hiking, and a monthly weekend game of Texas hold’em poker with clients, many of them hedge fund managers.
Clients do not mind when Tang wins. “We are friends with each other, and it is not such a big amount of money.”
BEST REGIONAL SALES TRADER
Michael Douglas Lee, Société Générale
Asked for the biggest development in regional sales trading, Michael Douglas Lee replied: “the evolution of unbundling in the industry.” With European regulators pressing to unbundle research payments from execution, it is a subject on many brokers’ minds in Hong Kong, not least French house Société Générale.
“A lot of the buy side no longer have to pay for research with trading commissions, but can pay for sales trading service with a specific focus on execution and market intelligence coming straight off the sales trading desk,” Lee explains to Asiamoney. “This definitely works to the advantage of a trader with the right skills set, and to a brokerage like SocGen that is not so research and corporate access heavy.” In other words, it perfectly suits SocGen’s star sales trader in Hong Kong. Some more of Lee’s well-considered and quotable responses:
On the China market: “Renminbi depreciation and dollar strength have definitely benefited the local market … The Shanghai-Hong Kong Stock Connect has brought significant inflows into Hong Kong … With the Shenzhen pipeline due to open soon, you can expect even more money will come into Hong Kong. Mainland funds see it as a hedge against renminbi depreciation.”
On the most challenging part of the job: “There is no one-off biggest trade or biggest deal I would highlight. For sales trading, the challenge is just being consistent, day in, day out, and customisation of your service to each client.”
On personal interests: “I am a traveller. I am pretty passionate about it. Right before joining SocGen, I spent a year backpacking the world, including six months in South America. Travelling keeps me settled and down to earth. It makes me feel grateful for what I have.” Top destination? “Definitely Patagonia.”