Foreign Brokers, Fish out of Water in 2021

Foreign Brokers, Fish out of Water in China Market?:


The China Qualified Foreign Institutional Investors Program (QFII) was launched in 2013. This was followed by the launch of the Stock Connect program between China and the Hong Kong Stock Exchange in 2014, followed by the inclusion of China A-shares in the index MSCI in 2018. This has led to greater accessibility to the Chinese stock market for all investors and market participants.

Using the S&P Global Market Intelligence data package, we observed the trend of institutional ownership across all components of the CSI 100 over six years (January 2015 to January 2021) with an increase of 47.3%. Guosen Securities Co., Ltd. (SZSE: 002736) had the biggest increase, 652.48%. The ratio of foreign institutional bonds to total institutional bonds outstanding for the CSI 100 index over the six-year period is monitored, ranging from 3.7% to 5.4%.

In 2020, China also received the largest foreign direct investment of any economy, with record foreign portfolio investment (FPI) inflows of $110.754 billion in December of that year.  The country’s GDP growth in 2021 is expected to be the second-highest in the world and is currently estimated at 8.5%. In addition to growing investor interest, the number of estimates has also increased by 62 percent over the past five years, with China A-shares backed by foreign brokers (see Appendix 1). That said, we explore the implication of bias in Chinese brokers’ estimates compared to their international counterparties. We also analyze whether combining estimates from foreign and Chinese brokers can help improve the accuracy of these predictions.


For our analysis, we use the components of the CSI 100 and calculate EPS (GAAP) from 2015 to 2021. We calculate four types of earnings surprises: (1) US estimates (GAAP) of the top 20 Chinese brokers, (2) we calculate the earnings per share from the top 20 foreign brokers, (3) S&P consensus estimates, and (4) EPS (GAAP) estimates from all brokers.

We use the S&P Capital IQ consensus average (“CQI”). It is a combination of estimates from Chinese and foreign brokers, although the broker’s estimate is excluded from the consensus average for the following reasons:

• Differences in methodology or coverage: Analysts may base estimates on a variety of accounting policies, including or excluding various elements such as capital gains tax, sales, litigation costs, and other extraordinary gains and losses.

• Past / Obsolete Estimates: Periodic and non-periodic are considered obsolete after 180 calendar days for US companies and commodities and after 210 calendar days for international companies. Estimates expire even if they are no longer valid. For example, the analyst says he has discontinued coverage for a particular company.

“All brokers” is defined as all 240 brokers that provide estimated data for companies holding China A-shares as part of the CQI rating package.

With these four groups, we were able to cover up to 90% of the assets of the CSI 100 between 2015 and 2021. According to the PRC regulations, all companies must submit annual reports within four months after the end of the fiscal period. So let’s take a look at the analysis of the first four months of each year. The annual earnings surprise is calculated at the industry level and then averaged across the components of the CSI 100 to arrive at an index-level earnings surprise. This exercise is repeated for each of the four types of EPS estimates (GAAP).

A look at the results

Table 3 shows the average surprise gains (GAAP) for each group. The CQI consensus mean shows the smallest difference of 0.0022. When comparing Chinese and foreign brokers, the top 20 foreign brokers also had a lower spread of -0.06701. The surprise EPS (GAAP) for all brokers is something in between the difference between the top 20 Chinese brokers and the top 20 foreign brokers.

CIQ consensus estimates based on factor returns

The S&P Global Alpha Factor Library is a collection of over 600 factors and eight styles that portfolio managers, quantitative analysts, and researchers can use to understand new sources of alpha potential.

The Analyst Expectation Style Factor is a weighted combination of four factors: long-term forecast growth, analytical earnings analysis, standardized windfall earnings, and a number of EPS revisions in fiscal year 1. These factors are calculated using the data package of the analyst. market information estimates. . .

A long, only equal factor portfolio was then created that invests in the top 20 percentiles of the Chinese A-stock universe and this basket is rebalanced monthly. In Figure 3 below, the analyst’s portfolio of outlooks outperforms a comparably weighted universe of Chinese equities, with an absolute return of 176.11% over a six-year horizon.


In this article, we summarize our analysis of foreign institutional ownership, foreign brokerage coverage, and forecasts for China A-share in the university from 2015 to 2021. We highlight that the percentage of foreign institutional ownership of total institutional stock has increased 47.3%. . in China ACE 100 enterprises. As more and more investors invest or wish to invest in China, international brokerage coverage increased from 619 estimates to 1,002 over the period.

In addition, we divided the contributors to the US calculation into four groups: the top 20 Chinese brokers, the top 20 foreign brokers, the CQI consensus average, and all 240 brokers and tried to determine which group had the best EPS estimates ( GAAP) had. . had.) acquired. . We use surprising earnings (i.e. the difference between actual and estimated net annual income (GAAP)) for companies on the CSI 100 as a measure in our analysis.

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