With rising demand for its research thanks to mutual fund recognition and Stock Connect, not to mention rapid expansion in India, things are moving fast for Morningstar in Asia, says Nick Cheung, chief executive of the Asia division.
“A lot of our focus recently is around the new exciting opportunities in this region,” says Nick Cheung, chief executive of Morningstar Asia. “The biggest are mutual fund recognition and Stock Connect.”
Because manager and equity research is a key part of its offering, it is natural that Morningstar is encouraged by the two initiatives – the first which will allow passporting of mutual funds between mainland China and Hong Kong; the second which allows trading of equities between the two markets.
Last year, Morningstar set up Asian equity research teams in Hong Kong and China with a total of 10 people across the two locations. The idea was to cover Hong Kong-listed stocks and Chinese A-shares, which are listed on the mainland exchanges.
“We believe Stock Connect and the other initiatives will lead to lots of demand for equity research, especially on Hong Kong and Chinese stocks,” he says. “One of the major focuses for us is to increase our capabilities in this space.”
The firm is also working to prepare investors and clients for the new cross-border funds environment created by mutual fund recognition, which will begin after July 1. Cheung says he is encouraged by the initiative because it shows the economic relationship between Hong Kong and the mainland is becoming less competitive and more collaborative. He says the scheme is the first step on a path to creating a harmonised system similar to Ucits in Europe.
OPTIMISMMorningstar is also ramping up its presence in India, another key Asian market. Last year, Morningstar employed about 250 people in the country. Now, the number is close to 450. “We believe both India and China have a large potential,” says Cheung. “Our business in these two markets is small compared to Morningstar revenues globally but we believe over time, when there are more market participants, these markets will play a more important role.” “That’s another reason we are optimistic about China,” he adds. “In the past, when the market was closed, Chinese investors didn’t need information regarding investments outside their home market. Now, with mutual fund recognition and Stock Connect, they need information on Hong Kong stocks and Hong Kong funds.” US RESEARCH
Asian equity research is only part of the offering Morningstar brings to clients in the continent, however. Another part of its business is to distribute Morningstar’s US equity research. The firm began bringing its US equity research reports to Asian clients a year ago. “Now, we have most of the regional private banks using our US equity research,” he says. “In Singapore, pretty much all the private banks are using our reports to complement their own coverage.” He adds that “a key differentiator of our research versus research from large brokerages is that we are coming from an independent angle”. The firm is also building up its investment advisory capabilities in Asia. Last year, Morningstar Investment Management Asia was granted type four and type nine licences from the Securities and Futures Commission, the Hong Kong regulator. The firm now has a licensed advisory team in the country. AWARDS
These initiatives continue alongside the firm’s efforts to promote its services to the asset management and investor communities in the region. The firm’s annual awards (see following pages) give accolades to the funds and fund managers that have performed best according to Morningstar’s metrics. The firm presents awards in seven locations: Hong Kong, Singapore, China, Taiwan, Malaysia, Korea and Thailand. Morningstar reviews the award categories each year to check they are still appropriate. This process led to the addition, last year, of an award for the best mandatory provident fund (MPF) scheme in Hong Kong. The firm has retained the award category this year. “We’re not trying to give out as many awards as possible to please the asset managers,” he says. “What we want is to recognise exceptional managers – to recognise their achievement and the good work they have delivered.” Another venture that increases Morningstar’s visibility in the region is its Asia conference, which it ran for the second time this year. Cheung says the firm expected 150 delegates and got 180. This gain came despite efforts to be more selective than last year on the profile of the attendees. “The delegates are institutional investors, wealth managers from private banks, portfolio managers and product selectors, who are more aligned with our theme and target,” says Cheung. On the morning of the conference, the financial secretary of Hong Kong, John Tsang, gave a keynote speech focusing on Stock Connect and on mutual fund recognition, which had been announced by the mainland Chinese and Hong Kong authorities only days beforehand. Cheung says that when his team decided the theme for the speech, they did not know when mutual fund recognition would be announced. However, it worked out to be perfect timing. “For the afternoon keynote, we had the former chairman of the asset management association of China give us a view on the new policies in China,” he adds. “He gave us a view on how to look at the policies and how it will affect the Chinese economy going forward.” GLOBAL REACH
Among the other changes happening at Morningstar is a review to its popular software tool, Morningstar Direct, which will become a cloud-based system, accessible on mobile devices from smartphones to tablets. The new system ought to make Morningstar Direct more mobile and accessible, which in a sense is what Morningstar is all about. On this theme, Cheung says the firm is very keen to distribute its research widely. “A lot of the intellectual property we create does not benefit one country. Our analyst teams in Hong Kong and China create coverage that is being considered by clients in Europe and the US. That’s one of the nice things about our organisation. There’s not much intellectual property we create that has geographical restrictions. Our goal is to make our research as globally accessible as and when possible.” ©2015 funds global asia
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