In recent years, BOCI has continued to increase its investment in research and optimize its research mechanism and structure, steadily improve its in-depth cross-border research capacity, and strive to provide professional and high-quality research reports and services for global institutional investors and high-end customers.
A few days ago, the Chinese reporter of the securities firm interviewed Tong Jiangqiao, the director of BOC International Stock Research Department. He shared his views on the development of the securities firm research industry and commented on the current A-share and Hong Kong stock markets.
“as a research analyst, we need to reasonably balance the investment in research itself and services, and it is not advocated to overemphasize services and ignore research itself”. Tong Jiangqiao said in an exclusive interview with Chinese reporters of securities companies that research services are an important part of the core competitiveness of research institutes, but the homogenization competition between research institutes is not a new problem. With the development of investment products With the expansion of models, themes and subdivided industries, the space for differentiation has increased and will continue to expand.
For the market, Tong Jiangqiao believes that A-Shares are currently close to the “credit bottom” stage, and then should usher in the “market bottom”. Compared with the one-sided preference growth of investment style in previous years, this year may show more growth under reasonable valuation. At the same time, the current valuation of Hong Kong stocks is at a low level in recent years, and there is a significant discount compared with other major stock markets. There are systematic opportunities in 2022.
Research and service should be balanced
Chinese reporter from securities firm: in the past two years, the Chinese seller’s research market has changed rapidly, some new research institutes have sprung up, analysts as a whole are becoming younger and younger, and the homogeneous competition between research institutes is more serious. Some market people believe that “service” often becomes the core competence of research institutes, What do you think of the current competition in China’s research market?
Tong Jiangqiao: seller research has always been one of the most competitive areas in various businesses of investment banks. This is because the investment in research business is relatively light, capitalization and the high media exposure of the research institute have prompted many small and medium-sized securities companies and investment banks to actively develop research business. In addition, the personal brand and ranking popularity of excellent research analysts promote the competitive power of analysts themselves.
Research service is indeed an important part of the core competitiveness of the Institute. The importance and strengthening of research service by BOCI in the past two years is also one of the main reasons for the improvement of our research ranking. For example, the number of roadshows and surveys of listed companies and experts we provide every month is six times that of two or three years ago. At the same time, the number of roadshows by our analysts and institutional customers has also tripled.
To a certain extent, such changes make up for our previous shortcomings. As a research analyst, we need to reasonably balance the investment of research itself and services. It is not advocated to place too much emphasis on services and ignore research itself. This balance is also a dynamic adjustment process, which depends on the stage of analysts’ career growth, different types of customers, the characteristics and nature of the industry covered by the research, and even the differential advantages of peers, which will have an impact on dealing with this balance.
Whether in the mainland or Hong Kong, the competition for investment bank research is very fierce. The sharp rise in stock turnover and the number of new shares listed has led to a large flow of analysts this year and attracted many newcomers. The homogeneous competition between research institutes is not a new problem. With the expansion of investment products, models, themes and subdivided industries, the space for differentiation has increased and will continue to expand.
Brokerage China reporter : the seller’s research industry has generally adopted the “research service for commission” model for a long time. What’s your opinion on this? What are the advantages and disadvantages of this model? In your opinion, is there a better business model for brokerage research business?
Tong Jiangqiao: “research service for commission” is and will always be a common model for seller research.
Firstly, the seller’s research is different from academic research, policy research, strategy and business research. Its main research object is the securities traded in the market, its service object is the investment group, and it provides investment suggestions and various support basis. Therefore, the transaction commission is the direct evaluation means for the research value of the served customers.
Secondly, relatively positioned in the internal cost center of securities companies or adopting the mode of internal service pricing, “research service for commission” better highlights the external profitability of the research business itself, and is also conducive to maintaining the objective independence of research suggestions.
Of course, this model also has certain limitations. Under this model, the scale of commission is greatly affected by market fluctuations. At the same time, this model is mainly suitable for stock research, and has weak direct applicability to large categories of asset allocation, macro research, fixed income research, quantitative research and so on. If you want to play the functions of other customized services, such as policy advice, business development and strategic consulting, this model cannot be applied. The business model selection of securities companies should consider their own scale, strength level, positioning and external market conditions, and explore the possibility of other models around the core model of “research service for commission”.
Brokerage China reporter : in recent years, BOCI has continued to increase investment in research work and optimize research mechanism and structure. What are the reasons and strategic considerations behind it?
Tong Jiangqiao: BOCI’s increased investment in research reflects the good development trend of domestic and foreign capital markets in recent years and the company’s attention to strengthening research brands, promoting institutional sales transactions and the development of other investment banking businesses. Since 2020, China’s economy has gradually overcome the challenges brought by the epidemic, achieved stable growth and structural adjustment, welcomed more listed companies in the capital market, significantly increased the average trading volume compared with a few years ago, and the demand of institutional customers for securities research has also increased accordingly. At the same time, as an overseas investment bank under Bank Of China Limited(601988) , BOCI holdings also hopes that the research department can improve its competitive position and strength.
In view of the evolution of China’s economic development model and securities research and development pattern, we have made a series of optimizations on the research management mechanism and structure over the past year, including highlighting the analyst assessment mechanism for quantitative scoring of institutional customers, adjusting the research team structure to adapt to market changes, balancing the front, middle and back-line staffing While improving the quality standard of research report, it emphasizes the improvement of research service intensity, increasing the investment in the system and process reorganization, improving the efficiency of report release and reading feedback, etc.
Recently, BOCI made significant progress in the ranking of 76 seller institutions participating in the selection of “institutional investor China Research 2021”, and successfully entered the top ten “best analyst team”, indicating that BOCI’s research strength has been recognized by institutional customers and buyers at home and abroad.
Brokerage China reporter : what are the characteristics of BOC International Research Institute in terms of products and services?
Tong Jiangqiao: as a medium-sized research institution mainly focusing on overseas markets, the main positioning of BOC International Research Institute is the research on Hong Kong stocks and China concept stocks, as well as macro research and Chinese dollar bonds.
Instead of pursuing “large and comprehensive” coverage, we make use of existing advantages to highlight the micro and meso research ecosystem of “bottom-up” and “vertical integration of industrial chain”, with emphasis on the layout of industrial research.
Compared with the research peers of the same scale, we pay more attention to the direct evaluation of the buyer’s customers on the research products and services. In addition to participating in the research selection of the most authoritative “institutional investors” in the industry twice a year, our key institutional customers have a regular feedback system for the value contribution of the research team. In this way, our research products and services can be closer to the needs of customers, and also strengthen the competitive awareness of analysts and peers.
We also have in-depth cross-border research capabilities linked at home and abroad. At present, we also cover international and Chinese investment institutions with different backgrounds participating in Hong Kong stock and China concept stock investment. Through the understanding of investment institutions in different regions and types, we can increase the judgment of market investment subjects and style trends.
A shares close to the “bottom of credit”
Brokerage China reporter : Recently, the A-share market has continued to adjust. What do you think is the main reason for the market adjustment?
Tong Jiangqiao: there are several reasons for the recent market adjustment: first, China’s economy has shown a deceleration trend since the fourth quarter of last year. Although the policy support for steady growth has been issued, the implementation and force effect of the policy still needs to be reflected for some time; At the same time, the repeated outbreaks in some areas have put pressure on the recovery of consumption. Second, it is mainly affected by the Fed’s statement of accelerating tightening liquidity and the market’s expectation of raising interest rates. On the one hand, the increase of capital discount interest rate has an impact on the valuation of growth stocks, on the other hand, it also weakens the market’s expectation of China’s monetary policy easing space.
Securities firm China reporter : with the continuous decline of the market, some views believe that the current market is close to the “bottom of the market”. What do you think of this? How should investors respond to the current market situation?
Tong Jiangqiao: the downward trend of the market in January largely reflects the fluctuation at the expected inflection point of liquidity tightening. Once the expectation is stable, the market reaction may weaken. Historically, there is no strong correlation between the market trend in the first month of the year and the trend of the whole year. In addition, a considerable part of the downward trend of the market is the return of the average value of some high growth and overvalued “track stocks” after two years of sharp rise, while the performance of other sectors cannot be hedged to form a style switch, resulting in the downward trend of the overall index. According to personal judgment, the market has gone through the “policy bottom” and “liquidity bottom”. At present, it is close to the “credit bottom”. After that, it should usher in the “market bottom”. Compared with previous years, this year’s preference for investment style is one-sided, It may show “growth under reasonable valuation”, so the judgment of the profit growth expectation and valuation range position of individual stocks is more important than the track selection of the previous two years.
Securities firm China reporter : since 2022, the Hong Kong stock market has performed well, and some analysis institutions have also prompted opportunities for Hong Kong stocks. Do you think there are systematic opportunities for Hong Kong stocks? What sectors will the opportunity focus on?
Tong Jiangqiao: the Hong Kong stock market performed poorly in 2021. At present, the valuation is at a low level in recent years, and there is a significant discount compared with other major stock markets. We believe that there are systematic opportunities for Hong Kong stocks in 2022. We focus on several sectors: first, industries that underestimate the value and benefit from stable growth policies, such as infrastructure, telecommunications, banking, etc.; second, growth sectors with reasonable valuation, such as “specialized and special new” in manufacturing industry, green power, new energy vehicles and biomedical research and development outsourcing, etc.; third, sectors with price increase expectation and continuous consumption upgrading trend, such as beer Fourth, dairy products are some sectors impacted by regulatory policies and events in 2021. Although the regulatory implementation and default events will not end soon, the valuation has been fully reflected, and the fundamentals remain stable growth, such as some Internet leaders and property management sectors.
