China stockpickers are becoming hot property as global banks compete for talent capable of piercing the veil of opacity and weak governance that is deterring some investors from taking advantage of new opportunities to trade Chinese shares. China stocks have been soaring in recent weeks, a rally driven by a surprise cut in interest rates on November 21 and the launch of the Stock Connect scheme earlier that week, which for the first time gave foreign investors direct access to Shanghai-listed stocks via Hong Kong.
While mainland investors jumped into the onshore market in anticipation of a flood of foreign money, the response from the outside world has been tepid, in part because European and US institutional clients are wary of the quality of information available on Chinese companies and the standards of governance. To get foreign investors more comfortable with China companies and generate trading fees, banks need to offer clients quality equity research.
"It is notoriously hard to get information out of Chinese companies, which is why good research differentiates," said Rishi Khosla, chief executive of Copal Amba, a Moody's-owned research firm with around 80 staff in mainland China covering Chinese companies. "In China, you don't have the breadth and depth of coverage you have in Europe and the US The market is significantly more nascent." Global asset managers are familiar with China's largest corporations, because many of these firms are dual-listed in Hong Kong and are therefore well covered by global banks and are comfortable dealing with foreign investors, said Elaine Tse, an associate portfolio manager at Wells Fargo China Equity Fund based in San Francisco.
But there are hundreds of smaller companies listed only on the mainland that have long flown under the radar. "Our job now is to get to know all the companies listed domestically," said Tse. International brokers need analysts fluent in both English and Mandarin with the experience and discipline necessary to meet international compliance standards, but many banks have under-invested in this area, so the talent pool in both Hong Kong and mainland China is extremely shallow, say headhunters. "Post-crisis, the banks cut their graduate trainee programmes and that's really coming home to bite," said Sarah Spencer, global markets director at headhunter Sheffield Haworth in Hong Kong.
Foreign brokerages are generally strongest at predicting the fortunes of Hong Kong and Chinese companies, according to data from StarMine, a Thomson Reuters company that ranks analysts by the accuracy of their stock calls. Deutsche Bank topped the ranking this year, followed by Barclays, but these banks are experiencing growing competition for talent from first and second-tier domestic brokerages such as CICC, which are also building out coverage and produce some of the top-ranked individual analysts.
Khosla said his firm tends to hire young mainland Chinese from other industries, particularly consulting and accounting, and then trains them up. Spencer said Stock Connect was driving demand for China analysts, particularly those experienced in covering banks, healthcare, internet, technology, media, telecoms, transport and infrastructure. A top-ranked senior equity research analyst working at a tier-one bank in Hong Kong could earn a base salary of between $350,000 and $500,000, according to headhunters.
Many banks began expanding following the announcement of the Connect scheme in April. Credit Suisse, Standard Chartered, BNP Paribas and UBS are among those firms that have expanded their China equity research coverage in recent months. "After the announcement in April, we ramped up our coverage," said Vincent Chan, head of China equity research at Credit Suisse in Hong Kong. The bank has hired junior analysts to support sector heads in recent months.
In October, UBS poached Nomura's high-profile China banks analyst Lucy Feng, who took two of her team with her, according to an internal UBS memo seen by Reuters. Nomura's head of Asia equity research ex-Japan Melvyn Boey said the bank was in the process of replacing the team and was selectively adding headcount on top. Other banks are planning additional research headcount once budgets free up in the New Year, said Spencer.
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