Some banks in Hong Kong indicated in private discussions that the market impact from months of ongoing political unrest is too sensitive to bring up in research notes, highlighting the challenges faced by bankers in the restive finance hub.
Certain leading Wall Street and European banks are excluding any mentions of Hong Kong’s antigovernment protests in the research materials they supply to clients, for fear such moves would upset Beijing and threaten an important source of revenue for them. Reports by Macquarie, UBS and BNP Paribas on their outlook for 2020 contained no mention of the nearly half-year protests that have rocked the city.
«No one wants to stick their necks out by saying something about the [Hong Kong] situation,» said one executive at an European bank, who was quoted in «Financial Times»(behind paywall). Another executive at a separate European bank said its analysts had been told not to write about the protests in research distributed to clients such as institutional investors, as it aims to boost the bank's business in mainland China.
Fear of Missing Out
China has become a lucrative source of deals over the past few years — and investment banks hate to miss out on them. Hence, banks have become more cognisant over how research is perceived after UBS was shut out of advising on a large bond deal by one of China’s biggest state-owned companies, following a star economist’s remarks about a swine fever outbreak. In response, the bank temporarily put the economist on leave.
«Analysts have good reason to limit any incendiary statements,” said an executive at one Wall Street bank, who declined to be named, but directly referenced the UBS furore.
Don't Step On Toes
Banks’ research is meant to offer insight to clients, and also to encourage trading, but because it is not a big revenue source compared with the juicy fees offered from underwriting equity and debt sales, banks would rather err on the side of caution.
«Every piece of research is already vetted to make sure you . . . don’t step on too many toes. The question is: what do banks have to gain by being very forceful on what’s happening in Hong Kong?» commented Philippe Espinasse, former head of Asia equity capital markets at Nomura.
Sensitivities around analyst research are not restricted to China. In 2017, the Indonesian government temporarily banned J.P. Morgan from dealing in the south-east Asian country’s bonds after it downgraded its investment outlook for the local equity market.
