JP Morgan Asset Management has been beefing up its equity research desks in Asia in recent months, as part of an effort to better integrate regional emerging-market stock coverage within its global equity research team.
China has been a key focus, as Beijing continues opening its doors to foreign investment. With the Hong Kong-Shanghai Stock Connect in place, the next steps include the launch of the Shenzhen Connect and the inclusion of mainland A-shares in MSCI’s influential global EM indices.
Luke Richdale, senior client portfolio manager for EM and Asia-Pacific equities, said of the Chinese market: “The main issue for the team I work with is ‘how do we increase coverage of probably the biggest goldmine we’ve had in emerging markets in a decade?’”
It’s an entrepreneurial goldmine, he added, in the sense that offshore, Hong Kong-listed China stocks tend to be heavy in state-owned enterprises and ‘old economy’ companies.
As the mainland market steadily opens up, JP Morgan AM – like many of its rivals – has been getting trading accounts set up and educating its clients on the Stock Connect link, noted Richdale.
“But even more important is to have set up your research well in advance of this,” he said. “We’ve been covering China stocks for a long time, but you’ve got to build up fundamental research in China before the opening, and you’ve got to have been doing it for the last few years.”
JP Morgan AM has been doing the same on the corporate debt side, he added, as credit is a major component of the mainland fixed income market.
Deeper sector focus
The firm now has an eight-strong dedicated Greater China equities research team, having added three analysts in the past six months, and it may bring in another couple in the next year.
Most recently, Maciej Wasilewicz relocated from London in June 2016 as the firm’s first dedicated insurance analyst in Hong Kong.
“This reflects the need for more specific expertise in broad sectors such as financials,” said Richdale. “We had financials and bank analysts, but it was time to take a step further." The Asian insurance sector has grown at 2x GDP over the past two years, he added.
JP Morgan AM has also transferred a real estate and utilities analyst, Elizabeth Pang, from Singapore to its Greater China research team in Hong Kong.
Several other senior equity analysts have also been hired in or relocated to Asia this year. They include Massimo Marolo, a consumer analyst who moved from covering US equities to the EM and Asia-Pacific team in Singapore in February 2016; and Robert Yen, who joined as a technology analyst in Taipei in January 2016.
"A complete step change"
The opening of the Chinese equity market will be “a complete step change” in terms of the sheer number of stocks, said Richdale. The firm aims to cover 250 names by the end of this year and 300 within the next two to three years. That’s a big portion of the 800 shares in the overall EM index, he added.
“We are increasingly integrating our Asian equity research globally,” said Richdale. “We just had our developed and emerging market IT analysts do a tour of Asia. When you have your US analyst who meets [Apple CEO] Tim Cook and software guys who know Accenture very well meeting our Asian tech guys and going through the full Apple supply chain, that’s very powerful.”
JP Morgan AM can also draw on the expertise of its mainland joint venture with CIFM, added Richdale. He declined to comment on whether it might establish another local presence in China, such as a wholly foreign-owned enterprise.
As of September 2015, the US firm sourced $127.6 billion of its $1.7 trillion in AUM from Asia Pacific, according to AsianInvestor data.