Goolam Ballim and Marc Ter Mors: There has been substantial interest in political and industrial relations research. Picture: FREDDY MAVUNDA
Goolam Ballim and Marc Ter Mors: There has been substantial interest in political and industrial relations research. Picture: FREDDY MAVUNDA

The broader economic and political imperatives and issues about credit ratings and the global environment are big influences

SBG Securities takes the top place in this year’s overall rankings for the second year in a row.

The locally based firm, part of the Standard Bank Group, has maintained its lead over international majors including UBS and Deutsche Securities.

RMB Morgan Stanley, the joint venture between Rand Merchant Bank and US firm Morgan Stanley, maintains its second-placed spot. On the leader-board, UBS and Deutsche Securities swapped places from last year with the German firm moving to third. Local firm Avior Capital Markets maintains its fifth position, while Absa Capital falls out of the top 10. Citigroup, Renaissance Capital and HSBC all managed to advance by a place in the rankings.

Fund managers look to brokers to help grapple with an uncertain world

Among individual analysts, Renaissance Capital’s David Ferguson takes the top spot in the media category which has become important as Naspers has grown into the biggest company on the JSE. Other important sectors including banks and retailers have stayed consistent with last year, with UBS’s Stephan Potgieter top-ranked in banks and Deutsche Securities’ Sean Holmes maintaining his top spot in general retailers.

In total, of the 41 research categories, 25 had new top-ranked analysts. The Financial Mail rankings are the premier measure of the performance of institutional stock brokers in providing research and other services to their clients. It remains as fiercely competitive as ever with new demands from clients for a different type of research.

Absa/Barclays head of African nonequity research Jeff Gable says: "This is a difficult environment for those who want to put their heads down and understand the numbers for a particular company or even a sector.

Jeff Gable: A series of factors come into play in order to understand the numbers for a particular company or even a sector. Picture: FREDDY MAVUNDA
Jeff Gable: A series of factors come into play in order to understand the numbers for a particular company or even a sector. Picture: FREDDY MAVUNDA

"There are big influences that they have to consider — the broader economic and political imperatives and issues about credit ratings and the global environment — they’re all tied in. There are very big impulses coming top down rather than bottom up."

Marc Ter Mors, head of research at top-ranked firm SBG Securities says: "There has been substantial interest in our political and our industrial relations research."

Standard Bank’s Simon Freemantle maintained his top position this year in the political trends/industrial relations research category. However, the industry has noted a general decline in volumes since the firing of finance minister Pravin Gordhan and subsequent downgrades of SA’s credit rating. It is particularly frustrating as many had been anticipating a strong equities environment this year.

"From an equities point of view, it has been unfortunate. We had been seeing growth recovering gradually and the interest of international investors coming back to emerging markets and to SA specifically," says Ter Mors.

"There was substantial opportunity for a rerating of SA equities. But because of the political uncertainties we’ve seen internationals taking a step back."

The biggest challenge for the industry has not been client demands and capital market trends; it has been major regulatory changes to the way research is paid for.

The broader economic and political imperatives and issues about credit ratings and the global environment are big influences

On January 1 next year a new set of European rules known as the Markets in Financial Instruments Directive, or MiFID II, are due to take effect. A recent Financial Times survey found half of European asset managers weren’t yet sure how they were going to comply. SA’s asset managers are similarly grappling with the issue. While the rules have not been officially adopted in SA, those asset managers who aspire to attract assets from international investors are going to have to ensure they comply anyway.

The major change is that fees charged by brokers must specifically be allocated for research and for execution.

"The most progressive asset managers have gone a fully unbundled route where they explicitly keep money aside to pay for
execution and a separate part aside to pay their advisory costs," says Citigroup head of equities in SA Alec Schoeman.

To cater for clients’ new approach to payments, brokers are having to develop systems to track exactly what services they provide to clients, so that they can justify the fees they end up charging. Several brokers including Citi and SBG have taken international experts on MiFID on roadshows to clients to raise awareness of the issue.

The whole industry is expecting the impact of MiFID II to result in lower budgets for research as asset managers look for ways to squeeze their costs down.

The asset management industry is itself facing upheaval as more assets move into exchange-traded funds and other low-cost passive vehicles. Those trends are forcing asset managers who actively pick stocks and determine investment strategies to find ways to keep their costs down. Commissions paid to brokers is one obvious way.

The cost pressures then permeate the whole investment value chain through to research analysts at big international brokers. Ter Mors expects the impact will be to narrow the pool of brokers that institutions use.

"We think it will be positive for the substantial regional brokers and for global brokers. So, if a client goes from 15 to seven brokers they will make sure there are a number of brokers who can deliver across the world, and a few regional specialists." For that reason, he reckons there’ll be pressure on second-tier global brokers.

Others expect small, specialised brokers to carve out a niche. Prescient Securities, for instance, focuses on derivatives dealing and research in small and mid-cap stocks.

Daniel Polakow: Clients need to stand out and differentiate themselves from the rest. Picture: HETTY ZANTMAN
Daniel Polakow: Clients need to stand out and differentiate themselves from the rest. Picture: HETTY ZANTMAN

"Our clients are looking to differentiate themselves in various ways," says Prescient executive director Daniel Polokow. "We are finding that a lot of people now have the knowhow and confidence to engage with us on derivatives strategies."

This is driven, he says, by the need for SA-based active asset managers to differentiate themselves in a market that is now substantially driven by global inflows and outflows. That has forced a narrowing of the performance differential between SA assets, so the market goes up or down more uniformly than before, making it difficult for local fund managers to stand out.

It all makes for a far more competitive industry than ever before. With the Financial Mail’s rankings, you get the most comprehensive view on just who is succeeding.

Please note that these tables include certain corrections that were made to the version published in the FM of 26 May 2017. The corrections affected the rankings of analysts in the following categories: Investment Strategy, Media, Commodities and General Mining. In addition, adjustments were made to the scores of analysts in the following categories: Healthcare Providers & Pharmaceuticals; International Markets & Economies; Investment Companies; Luxury Goods; Gold Mining; Hotels, Travel & Leisure; Oil, Gas & Chemicals; Tobacco. The corrections had no affect on firm rankings or the overall rankings of firms for research.

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