It was a difficult year for Chinese investors. Here’s where they looked for answers.
Despite experiencing the fastest economic recovery from the pandemic in 2020, China has had a rockier 2021 than investors had expected.
“Investor sentiment in China has become more pessimistic over the course of 2021,” said Eric Lin, head of research at UBS.
According to Lin, an influx of regulations has impacted sectors such as real estate, the internet and after-school tuition. Meanwhile, profit growth slowed significantly in the third quarter as the country’s Covid-zero policy – which relies on strict measures to stop virus transmissions – continued to affect consumption.
“Towards the end of the year, investors also had to deal with the external shock of Chinese ADRs potentially due to be delisted in the United States, and many wanted to understand the potential selling pressures and impact on liquidity. and valuation,” Lin added.
Result: The MSCI China index underperformed the S&P 500 by nearly 50% in 2021.
While unprecedented stimulus measures enacted in the wake of the pandemic have enabled a rapid global recovery, the measures have pushed global inflation to levels not seen in decades, observed Peng Wensheng, head of the research department of China International Capital Corp. He said Chinese investors are focused on the impact of countries ending such accommodative policies, as well as global supply chains, which have yet to recover since the pandemic began.
“Structural opportunities in the Chinese market were relatively abundant if we look at the sector’s performance in 2021, although the overall performance of Chinese equities from late 2020 to 2021 was less exciting,” Wensheng said.
China led the global recovery in 2020 and was the first major economy to gradually reduce policy support in 2021, Wensheng added. “The strong economic momentum that China enjoyed early last year provided it with an opportunity to push through many structural reforms, which also blunted market advances in the short term,” he said. . The performance of Chinese A- and H-shares has also underperformed global markets in 2021.
But there are bright spots, according to Wensheng, who noted that certain sectors and investment themes are outperforming significantly, such as the electric vehicle supply chain and renewable energy and technology hardware companies.
Wensheng said that despite the lingering impact of the pandemic, China’s financial markets have maintained steady steps towards opening up, and “sell-side research competition in China has only intensified under the entry At the same time, the pandemic has accelerated the digital transformation of the industry and accelerated the integration of digital tools into our daily work.
Yet the pandemic continues to limit international — and to some extent domestic — travel, so the ability to provide on-the-ground and local insights has become even more paramount, according to UBS’s Lin. “Those sell-side research analysts who are able to provide an informational advantage will likely attract a wider audience,” he said.
This year, investors have two favorite Chinese research providers, once again recognizing CICC while elevating UBS to the top spot in the market. Institutional investorof the twelfth annual all-China research team. The two companies share the top spot based on votes from more than 2,800 investment professionals representing 950 institutions holding major Chinese securities.
Huatai Securities, which tied for first place last year, fell to third place in the ranking, which combines votes from domestic and international investors. BofA Securities repeated its fourth-place finish and Morgan Stanley, unranked last year, made it into the top five.
In this year’s survey, investors were asked to rate sell-side companies in 30 industries. These responses were weighted by each voter’s Chinese equity assets under management to produce the overall ranking. An analyst-based ranking was also calculated based on the votes of individual top researchers. In this ranking, CICC regained the top spot, followed by UBS in second and last year’s winner Huatai Securites in third.
Additional rankings recognize the different perspectives of domestic and international investors. The mainland ranking mirrors the overall results, with CICC and UBS tied for first place, followed by Huatai Securities in third. BofA Securites ranked fourth in this ranking, while BOCI Research completed the top five.
International investors, meanwhile, once again recognized UBS as the best company. CICC was the highest-ranked domestic company, gaining a spot to share second place with BofA Securities. Morgan Stanley and Citi finished fourth and fifth respectively.
Wensheng attributed CICC’s success to a strategy of providing top-notch research to continental and international investors. “As a research platform, CICC cherishes both its Chinese roots and its international reach. We publish our research in English and Chinese to serve our domestic and international clients,” he said. “We have a higher proportion of foreign customers than our domestic competitors. And compared to our global competitors, we are located much closer to the Chinese market and offer more in-depth research on Chinese macroeconomics, industries and companies.
However, meeting the needs of international and domestic customers has become more difficult as their demands begin to branch off, according to Lin. “A year ago, international and national actors were focused on the pandemic,” he said. “However, since then we have observed some discrepancies. International customers continued to look at China from the top down, focusing on the post-pandemic macro recovery and the impact of regulatory measures. In contrast, domestic clients take a bottom-up approach on certain industries such as renewable energy and technology where there are unique investment opportunities.
The differentiation of the research offering at UBS remains key, according to Lin, and is reinforced by the fact that the firm is the first fully-licensed foreign JV securities firm in China. UBS also continues to expand its coverage of Chinese equities and its thematic research capability with the launch of UBS China 360 Research, covering topics such as the future wireless earphone, green hydrogen, ESG and Chinese REITs. .
Looking ahead, the CICC sees the country’s “green transition” as both a challenge and an important opportunity. Last year, the company released “The Economics of Carbon Neutrality,” a research compendium that offers a comprehensive overview and in-depth analysis of the macroeconomic and industrial impacts of China’s dual carbon targets. which was popular in the country. An English version is currently in progress.
“Although the Chinese economy still faces some uncertainties, it remains on a steady growth path,” Wensheng said. “China remains one of the most dynamic and exciting markets in the world, offering some of the best opportunities for growth.”
For sell-side search providers, success depends on addressing these market realities “while constantly innovating and adjusting,” he concluded.