CLSA eschews robots in favour of good old-fashioned storytelling as it turns 30

Brokerage founded by former business journalists still believes firmly in the power of the narrative

PUBLISHED : Sunday, 18 September, 2016, 7:10pm
UPDATED : Sunday, 18 September, 2016, 10:56pm

CLSA, the Hong Kong brokerage founded by former business journalists, believes in the power of the narrative, a standout at a time when many equities research firms and brokers are embracing technology, data and algorithms to find value investments for clients.

Good research reports, with depth and insights crafted as coherent and compelling narratives, were fundamental to attracting investors, said Edmund Bradley, CLSA’s global research head.

“People don’t want to talk to machines, but they want to read in-depth analysis and interesting stories,” Bradley said in an interview in Hong Kong. “I don’t believe a machine can replace a good analyst. Some robots may be able to do some simple results announcements, but that’s not a research report.”

The approach is fundamental to the firm, which marked its 30th birthday on Sunday.

Founded in 1986 by former South China Morning Post business journalists, CLSA is the publisher of the annual Feng Shui Index, a tongue-in-cheek forecast of Hong Kong’s stock market using the ancient Chinese practice of geomancy and astrology.

This year’s index, in its 22nd iteration, foretells a bumper year for technology companies and telecommunications stocks.

As of last week, four of Asia’s 10 largest companies by market capitalisation were technology and telecommunications companies. Shares of Alibaba Group Holding, China’s largest e-commerce company, have surged 54 per cent since their 2014 initial public offering to US$104.64 as of Friday to become Asia’s most valuable company.

People don’t want to talk to machines, but they want to read in-depth analysis and interesting stories
Edmund Bradley, CLSA’s global research head

Tencent Holdings, China Mobile and South Korea’s Samsung Electronics are the other technology and telecommunications companies among Asia’s top 10 by market value.

Formerly known as Credit Lyonnais Securities Asia and owned by French retail banking group Credit Agricole, CLSA is now wholly owned by China’s largest brokerage Citic Securities.

The broker’s annual investors’ forum, which usually features a celebrity speaker, kicks off this week in Hong Kong.

Drew Barrymore, the star of Charlie’s Angels and The Wedding Singer, is scheduled to speak on Wednesday. Previous years’ celebrity speakers included George Clooney and David Beckham.

CLSA now operates offices in Amsterdam, Boston, Chicago, New York, London and San Francisco.

“We have 120 core analysts who will find interesting stories in many companies and make sure they are writing in an interesting way to get readers to read the reports,” Bradley said.

When former journalists Gary Coull and Jim Walker founded CLSA in 1986, mainland China did not even have a modern stock market.

Three decades later today, the Shanghai and Shenzhen markets have a combined US$6.3 trillion in market capitalisation, already larger than Japan and Hong Kong as the world’s second-largest equity market.

The country is increasingly easing regulations to allow more foreign investors to own yuan-denominated shares in Shanghai and Shenzhen. That bodes well for CLSA, sitting on the doorstep of China.

“The percentage of international fund managers investing in Chinese stocks will be huge in 10 years,” said Donald Skinner, CLSA’s global chief operating officer. “The mainland’s stock market will also become more professionally driven in the next 10 years. This provides a huge opportunity for CLSA as we are unique in that we are headquartered in Hong Kong with a team who can speak both Chinese and English.”

The broker had its share of controversies. Hong Kong’s Securities and Futures Commission reprimanded CLSA in 2004 for lax internal controls after an employee misappropriated more than HK$22 million over more than 10 years.

The challenge, Skinner said, was the more than 90 per cent drop in brokerage fees from 1.75 per cent in the 1980s. The rent and headcounts also became more expensive.

“The market volume has gone up substantially. Overseas investors are increasingly investing in Hong Kong and Asia, which would help our future growth,” he said.