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Friday, May 12, 2017, 15:16
A broker’s world through his crystal ball
By ​Duan Ting in Hong Kong
Friday, May 12, 2017, 15:16 By ​Duan Ting in Hong Kong

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 paints a rosy picture for Hong Kong’s stock market for 2017. He believes an anticipated bond-market link between the Chinese mainland and Hong Kong augurs well for the city’s financial markets. (Photo by Roy Liu / China Daily)

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.

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

Yim Fung, chairman and chief executive officer of Guotai Junan International Holdings Ltd

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.

For 2016, the brokerage net income of Hong Kong Exchange Category B Brokers, into which most mainland securities houses are classified, recorded a 21 percent year-over-year decline, the least among the three categories, while Category A, representing most foreign investment banks and commercial banks, and Category C, representing most local brokerage firms, saw brokerage net income plummet 90 percent and 80 percent, respectively. 

For the same period, revenue from mainland companies’ other businesses, including investment advisory, asset management and corporate finance, went up 23 percent to 10.2 billion yuan (US$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.”

Fascination with stocks drives a lengthy career

Guotai Junan International provided Yim Fung with platform to build on his career — something that has kept him glued to the company for the past 18 years.

Now chairman and chief executive officer of the company, he joined Junan Securities in Shenzhen in 1993 when the group was just established and after he had graduated from the Graduate School of the Chinese Academy of Social Sciences with a doctoral degree in economics in 1990. 

Yim also has a bachelor’s degree in environment engineering from Tsinghua University, where he had studied for seven years. He said he had been deeply influenced by the practical and diligent attitude he had cultivated at the prestigious institution.  

He also studied at the Chinese Research Academy of Environmental Sciences majoring in the environment and economics. 

After graduation, he found his way in Shenzhen after a brief working stint at the Chinese mainland’s State Planning Commission. 

“The securities business is an emerging industry which made its mark in 1992,” Yim tells China Daily. When he first arrived in Shenzhen, he had developed immense interest in the securities trade after seeing people trading in stocks on the streets. 

In 1999, he was assigned by the newly merged Guotai Junan Securities to work in their Hong Kong branch, and today has amassed more than 25 years’ experience in the securities business. 

Yim is also honorary president of the Chinese Securities Association of Hong Kong. The association was founded in 2009 with only seven members, and has seen its membership grow to more than 100, covering brokerages and futures companies. 

Talking about work-life balance, he says it’s important to have a good rest and be ready for work the next day. 

In his spare time, he enjoys walking and exercising, and spends an hour every day taking a stroll by the harborside.

Contact the writer at tingduan@chinadailyhk.com

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