Morgan Stanley to expand China team as stock market reforms take hold
Investment bank to beef up research on A-share listings ahead of new Shenzhen stock connect scheme as reforms set to boost foreign access
US investment bank Morgan Stanley plans to add dozens of new jobs to its China-focused equity research and corporate analysis teams over the coming year as Beijing moves to give foreign investors more direct access to mainland stock markets.
The plan to link the stock exchanges of Hong Kong and Shenzhen, flagged earlier this month by Premier Li Keqiang, will give foreign investors a pool of about 2,000 equities to choose from - roughly triple the number currently available through the Shanghai-Hong Kong Stock Connect scheme.
"It changes the scale of what you can do in China in terms of putting capital to work," Gokul Laroia, co-chief executive of Morgan Stanley Asia Pacific told the
"With these companies little is known about their management teams, or about their business models," Laroia said. "We are investing in research, investing in corporate access to be in a position to offer great content to our clients and come up with ideas."
Morgan Stanley's mainland-focused equity analysts in Hong Kong write research on about 100 A-share companies, about 60 of which also have H-share listings in the city.
Laroia, who also heads the bank's pan-Asia equity business, plans to boost research coverage of A shares to about 200 firms over the coming 12 months, expanding staff in traditional research and its more granular "corporate access" service - investor roadshows, conferences and management site visits to target companies.
Adding Shenzhen to the existing link between Shanghai and Hong Kong is the next step in Beijing's plan to allow freer access to its roughly US$4.5 trillion stock markets.
It is a move that Laroia believes could eventually transform the mainly retail driven domestic A-share markets into more institutionally focused market places, like those of the US and Europe.
"The nature of the A-share market is different from any other because its composition - 80 to 90 per cent, depending on the day - is retail and that is very different from any other market because the institutionalisation of equity investing in China hasn't really happened," he said.
The composition of Shenzhen's market capitalisation - mainly technology, healthcare, education and consumer retail companies - will be the catalyst for change as the financial, energy and telecommunications exposure available in Shanghai can also be had through Hong Kong-listed H shares.
"The types of companies you can get exposure to [in Shenzhen] are very different and should be very interesting to the global investor base. That will be a big step up in terms of volume and popularity of Connect once it opens up," Laroia said.
"You'll have a global institutional community investing in these names. You can see why this is so significant. It will have implications at multiple levels."
One key implication is that the addition of so much new market capitalisation could see a surge in the proportion of global investment capital allocated to Asian equities - and another jump in the creation of Asia-focused hedge funds, an area which Morgan Stanley dominates through its prime brokerage business.
"The growth of the hedge fund business in Asia over the last couple of years has been significant in terms of the number of new launches," Laroia said. "Over the last couple of years we have added well over 100 new prime brokerage clients."
The majority of those funds manage less than US$100 million, but Laroia sees the average size of new management mandate jumping closer to US$200 million in the years ahead as market opportunities, particularly on the mainland, expand.
"In prime brokerage I would say we have a top two share and, as it relates to new mandates, my assessment is that we are far and away number one and that is a priority for us. There is no question and it is a core part of the equity business in the region."
