A broker's world through his crystal ball

Securities house executive Yim Fung's undeterred confidence in the industry pays off with mainland brokerages in HK now finding themselves on a firm track. He talks to Duan Ting.

Yim Fung had sanguinely defied the odds when he placed his faith in Hong Kong's securities business 18 years ago - on the heels of a devastating global financial crunch.

Local brokerages had not been spared from the turmoil that gripped almost every aspect of Asian financial life, with Hong Kong witnessing one of the most spectacular business breakdowns - the demise of the city's largest broker Peregrine Investment Holdings Ltd in early 1998.

Yim's bet paid off. The chairman and chief executive officer of Hong Kong-based Guotai Junan International Holdings Ltd - the overseas arm of the Chinese mainland's third-largest brokerage by assets Guotai Junan Securities - soon found he had hit pay dirt.

When he began his stint with the group's Hong Kong unit in 1999 - just two years after the handover - the local retail brokerage trade was still very much in the clutch of the city's securities houses, and investment banking was largely done by foreign banks. Mainland-owned brokerages in Hong Kong were very much a rare commodity, Yim recalls.

Peregrine's collapse offered a grim reminder of, perhaps, what was to follow.

But, by 2006, the China Securities Regulatory Commission (CSRC) - the mainland's securities watchdog - had started encouraging financial enterprises to innovate and prodding them into "going global". Mainland-owned brokers thus embarked on their march onto the global financial stage.

Guoyuan Securities became the first mainland brokerage to get the CSRC's nod to set up shop in Hong Kong in mid-2006. It triggered the rush, with the number of mainland brokers surpassing that of their local and foreign peers in Hong Kong in recent years, according to Yim.

By late last year, the operations of mainland securities houses in the SAR had recorded just a 21-percent year-on-year decline, while foreign and local brokerages saw their businesses plummet 90 percent and 80 percent, respectively.

At the same time, revenue from mainland companies' other businesses, including investment advisory, asset management and corporate finance, went up 23 percent to 10.2 billion yuan ($1.5 billion), effectively making up for the loss in the brokerage business.

As Yim sees it, more mainland enterprises will be venturing abroad, using Hong Kong as their springboard for expansion. "Large mainland brokerages have been stepping up their internationalization drive in the capital market through listings or mergers and acquisitions, especially in the past two to three years," he tells China Daily.

Rush to go out

The mainland's capital market, he notes, has been growing rapidly since the country's reform and opening-up, and mainland companies' lust to go overseas has pushed financial service providers, like securities houses, to go global. "Guotai Junan Securities' listing in Hong Kong is one of the group's internationalization strategies," says Yim.

Guotai Junan Securities went public in the SAR in April, raising HK$16.5 billion through its initial public offering - the biggest in the city so far this year.

Getting listed on the mainland in 2015 and in Hong Kong this year has opened up funding channels for Guotai Junan Securities in both markets. However, Yim reckons that, compared with other brokers, the amount of funds raised by the parent company remains moderate despite its size and net-asset value.

Established in August 1999, Guotai Junan Securities was the product of the merger of the former Guotai Securities Co Ltd and Junan Securities Co Ltd.

Guotai Junan International opened its Hong Kong office in 1993 and obtained its securities license two years later. It's the first mainland securities house to win CSRC approval to float on the main board of the Hong Kong Stock Exchange in 2010.

Yim recalls two crises in the group's history that could have resulted in a collapse - one in 1995 when Junan Securities could hardly settle its inter-bank lending business and the other in 1997 when its Hong Kong arm failed to fix its investment in small-cap stocks which crashed during the global financial crisis.

"We've really learned a lot from all these and have thus come up with a prudent strategy to develop. Our company relies on itself for development as we build up our core team and platform on our own rather than through mergers and acquisitions."

Guotai Junan International's strategy is to focus on its core business, develop fintech (financial technology) to boost online trading, upgrade research and risk management skills continuously, as well as to expand the brokerage, investment bank, asset management, fixed income and wealth management business and margin finance, says Yim.

Technology push

Last year, close to 80 percent of the company's securities orders were placed through online channels, making Guotai Junan International largely an online broker.

Fintech is more than a heated issue at the moment. Since 2000 when the company began adopting brand new business strategies in Hong Kong, Yim has set the goal of continuously leveraging on technology which, he believes, is a low-cost skill that can be utilized and embraced by financial institutions.

As an enterprise, he says, it's better to allow for sustainable development through mutual benefits and a win-win approach, and companies should concentrate on how to better serve their clients and help them swell their wealth.

Yim thinks risk management is of great importance to finance houses: "The ultimate goal of financial institutions is to make money, but risk management is the core process. "The sagas involving Peregrine Investments and Lehman Brothers could return to haunt us without proper risk management," he warns.

Guotai Junan Internationals' net profit was down 4.4 percent year-on-year in the past financial year as a sluggish economic environment dampened the brokerage business, while revenue rose 10.7 percent to HK$2.5 billion.

The company's income from brokerage and asset management dropped 45.4 percent and 46.3 percent year-on-year to HK$393 million and HK$28.5 million, respectively. Offsetting the decline, income from corporate finance operations jumped 62.3 percent to HK$456.7 million, while that from the loans and financing business surged 20.3 percent to HK$1.3 billion.

Yim paints a rosy picture of Hong Kong's stock market for 2017 despite last year's volatility and expects the brokerage business to pick up. "The bonds and financial products business will probably surge beyond expectations."

He explains that many mainland companies are issuing dollar bonds as mainland authorities step up capital control and lots of companies are eyeing mergers and acquisitions abroad to bring in advanced technology and explore overseas markets, along with the need to use foreign currencies for business. The issuance of dollar bonds will keep rising this year, fueling the bonds business.

Premier Li Keqiang had said earlier a bond market linking Hong Kong and the mainland will be launched this year. Yim is optimistic that such a link will offer more bond products for investors, noting that the risk is relatively smaller compared to stocks.

"Having said that, we'll keep focusing on the core business and invest overseas but, in terms of overseas expansion, we prefer setting up affiliates or participating in the operations of target companies in other countries rather than fully acquiring them."

Contact the writer at tingduan@chinadailyhk.com

(HK Edition 05/12/2017 page9)