AUSTRIA
CABFor the third year running, CAIB Investment Bank occupies the top slot in Austria, narrowly beating domestic rival Erste Bank.
But for Austrian brokers it has hardly been a year to remember. Lukas Stipkovic, head of research for Austria at CAIB, pays no heed to the conspiracy theory that EU political sanctions have been the cause of the underperformance of the Austrian market.
“We have looked at this and there is no empirical evidence whatsoever that the political situation has had an effect on individual stocks. From a macro, top-down point of view, there has been no sign of a political impact,” he says.
Indeed, the Austrian market has come into its own in recent months. “If you look at the performance of the market since the Neuer Markt, Nasdaq and the rest peaked, you can see that the Austrian market, which is obviously old economy driven, has outperformed the others,” says Stipkovic. “The market has actually benefited from a rotation back into value rather than momentum or growth stocks.”
Rather than the political situation, the problem for brokers in Austria is the lack of an established equity culture among domestic investors. Stipkovic suggests that this will in part be remedied by the imminent IPO of Telekom Austria. But at the moment the Austrian market suffers from being too small both in number of stocks and in the size of the companies listed.
“If you look at individual companies they are quite small compared to their European peers.
That is sometimes equated to inferior profitability, which is not always true. We have seen some signs in the first quarter and first half results of a strong rebound in earnings and that will be the key diver going forward.”
BELGIUM
Petercam”A long standing reputation for the quality of our research in Belgian companies,” is the answer Marc Janssens, managing partner and head of institutional sales at Petercam, gives for his company’s excellent showing in the survey this year. Although Petercam itself has done well, the Belgian market has been a torrid environment in which to operate. A lack of new economy growth stocks and the outflow of domestic fund money into pan-European companies have meant that the Belgian market performed worse than any other in Europe.
Indeed this could get worse. “At the moment pension funds are obliged by Belgian law to invest 90% of their assets in domestic equities,” says Janssens. A change in the law, which Janssens sees as imminent, will further deplete the amount of domestic money invested in the Belgian market.
FRANCE
ExaneClient focus, is the reason Julien Schoenlaub, head of sales at Exane, gives for the firm’s steady rise up Global Investor’s rankings in the past couple of years. In 1998 Exane entered the top five brokers in France for the first time, in 1999 it made the top three and this year it has taken the number one spot.
“Exane is the leading independent broker in France, dedicated to secondary markets with no corporate finance involvement. The whole value chain, from analyst to sales to sales trader, is focused on servicing asset managers only,” explains Schoenlaub. He adds that Exane will not be sitting on its laurels but is instead looking to further its leading position in the French broking industry. “We are expanding our coverage of European sectors through our team of 50 analysts. We also have an equally important listed European derivative research and sales team which also services only asset managers.”
Exane is looking forward to the launch of Euronext, the stock market that will combine the French, Belgian and Dutch bourses. “We strongly welcome the fact that clients will be able to deal on a transparent and efficient centralised market,” says Schoenlaub. “We also approve of whatever steps are taken in order to unite settlement in Europe and lower cost.”
The creation of a central and liquid market place will also lessen the threat to traditional brokers from electronic trading systems. “The client does not want to spend their time dealing on 25 competitive electronic systems,” argues Schoenlaub. “The ideal for the client is to have one centralized market with the most liquidity and a very tight spread, and this should be the competitive advantage of Euronext.”
GERMANY
Deutsche BankHaving been neck-and-neck with Dresdner Kleinwort Benson in last year’s poll, Deutsche Bank has this year dominated the rankings for German brokers.
Having had its fair share of merger-related problems in the recent past, there is no doubt a little schadenfreude being felt at Deutsche Bank given the uncertainty surrounding the future of a number of its domestic rivals. It also seems that US firms have fallen behind the pace in Germany, with Merrill Lynch failing to make the top three for the first time in three years.
Unlike most of its smaller domestic rivals, Deutsche Bank clearly has significant pan-European resources to call on, which according to investors, make it stand out in the domestic market.
An honourable mention should also go to HypoVereinsbank, which makes the top five for the first time.
GREECE:
Sigma SecuritiesThe boom in the Greek equity market has naturally led to an increasing number of international houses expanding their local operations. But it is a local player that has this year been voted the best broker for equity research and execution, and Sigma Securities is not likely to relinquish the position without a fight. “Sigma possesses both the experience and the know-how to remain ahead of the other market players,” argues the research team.
The boom itself has come on the back of Greece meeting the entry requirements for membership of Europe’s single currency. As the last major convergence play in Europe, Greece was bound to attract a lot of foreign capital as it set about restructuring the economy. This resulted in a substantial increase in the depth of capital markets as international investors bought into the market.
But according to the team at Sigma, the difference between Greece and the previous convergence play, Portugal, cannot be under estimated. “Unlike Portugal whose growth is restricted by the presence of developed countries around it, Greece is geographically located at the crossroads of East and West.
This uniquely positions it to play the leading role in the development of the region. Hence, as the investments and the initiatives of Greek firms in the region mature, investor interest especially that of mature market portfolios, should rise to reflect the anticipated growth.”
Sigma’s traditional stronghold in Greece will not easily be stormed. It has set up the first online brokerage in the country and is even offering WAP trading via mobile phones. “No Internet only electronic trading entity has entered the market so far,” points out the team at Sigma. “If one does then we would consider any such development as an opportunity to improve our services and to afford our clients access to cutting-edge stock-market technology.”
IBERIAN PENINSULA:
BSCHSince Banco Santander Central Hispano was formed early last year by the merger of Santander and Banco Central Hispano, it has come to dominate the equity broking industry in Spain and Portugal. It snatched the top ranking in 1999 from Merrill Lynch, and has reaffirmed its dominance this year, easily outgunning runner-up Schroder Salomon Smith Barney in Spain, and winning a narrower victory over UBS Warburg in Portugal. Now it seems BSCH is setting it sights further abroad. It has already responded to the need for wider geographical coverage by announcing a strategic alliance with Societe Generale that will involve the setting up of joint ventures in a variety of areas including internet banking and brokerage.
In Spain, the fate of the Nuevo Mercado (NM), the new market for growth stocks, is a prime concern for brokers. The NM’s launch in April came just days before the slump in new economy stocks hit European markets. With only 10 stocks now listed on the market, brokers are worried that growing Spanish companies will look abroad for a listing.
Joao Morais, the head of research for BSCH in Portugal, says that Portuguese stocks have always been taken in the context of the whole Iberian Peninsula, and there are a number of possible candidates for the NM. “However, companies would have to choose whether they want to be listed on the new market and therefore leave the regular market,” he points out. “At the moment a lot of companies don’t want to do so and this is leading to a lot of resistance to the project as a whole.”
IRELAND:
Davy Stockbrokers “The equity market in Ireland hasn’t been a wonderful place to be over the past 12 to 18 months,” admits David Smith, head of the institutional equity desk at Davy Stockbrokers in Dublin. “Domestic investors are in the process of reducing weightings in Irish equities as part of their eurozone rebalancing schemes, and overseas investors are somewhat concerned about the potential for overheating the economy. The inflation numbers that have been released are adding to the concern among international investors .”
Despite this, Smith is seeing an increase in foreign investor interest in Ireland due to the introduction of the Xetra trading platform and because the market in isolation is relatively cheap. “Clearly if Irish institutions are taking their weightings down in domestic stocks then someone is going to buy them,” he suggests.
With the Irish results season moving into full gear Smith expects the overall numbers will be good. Davy is forecasting growth for the market in total of 15.6% for 2000 and at 14.2% for 2001.
But the domination of pharmaceuticals company Elan has flattered the performance of the index. Elan is widely held internationally and therefore affected to a lesser degree by technical issues than other Irish stocks.
On the broking side Smith is unconcerned by the presence of global houses in the Irish market. “The main players do cover the Irish equity market, but more on a stock specific basis. They cover the top five or six companies. After that they don’t have the type of depth of research that we have to offer a full ‘nuts-and-bolts’ service.” To complement this Davy is attempting to offer their clients more sector based research by giving detailed analysis of Irish corporates against a background of European counterparties.
ITALY:
UBS WarburgNick Pink of UBS Warburg, which completes a hat-trick of victories as the best broker in Italy, sums up succinctly a common theme in European broking: “Very clearly the push that we’re seeing, particularly in Italy, is towards more sector based research. If you look at our top 20 clients worldwide, many of whom will have participated in this survey, only about 10% organise their research businesses on a country basis anymore. The focus of the other 90% is either pan-European or global.”
This, of course, should mean that the bigger, global houses have a clear advantage. But Marco Cippelletti, an analyst with UBS Warburg in Milan, says that the firm’s competitive advantage is that it so effectively combines the force of a global company with detailed local knowledge of the Italian market.
The Italian market was not the most popular at the end of 1999. Cipelletti places much of the blame for this at the door of the Italian government which decided to price the IPO of state-owned electricity company Enel at an opportunistically high level. “This did not help either the image of the Italian government as a seller or of Italy as a secondary market, ” says Cipelletti.
The Netherlands:
ABN AmroComprehensive coverage lies behind ABN Amro’s leading position in the Netherlands, suggests Charles Estourgie, head of Dutch equity research: “ABN Amro doesn’t have a hit-and-run strategy like many of the other houses that operate in the Netherlands,” he says. “We cover over 100 of the stocks on the Dutch market and our clients know that they can rely on us to continue covering them.”
When allied to its global reach, this local expertise allows ABN Amro to compete in the industry where sector based research is increasingly the driving trend. “We cover the top 300 European stocks out of London,” explains Estourgie. “Then there are 40 local offices that are more active in the mid- to small-cap areas. These local offices are also constantly talking to each other to discuss pan-European trends.”
It is in the area of small cap stocks that the Dutch market has been most active this year according to Estourgie. ” Small caps, for the first time in many years, are starting to perform again. We have seen a lot of corporate action, a lot of take-overs and mergers, and this appears to have sparked a new interest in small cap companies.” But with speculation as to how some of the growth companies from the Brussels, Paris and Amsterdam bourses will be classified on the new Euronext exchange, it remains to be seen if the resurgence of small caps will continue.
Nordic region:
Carnegie&EnskildaDespite the growing emphasis on sectoral research and investing, it would seem that local knowledge still counts for a lot in Scandinavia. Carnegie and Enskilda share the plaudits, with Carnegie ranking top in Denmark and Sweden, and Enskilda rated as the best broker in Finland and Norway. After a strong showing in 1999, when it was ranked top in several countries, Alfred Berg has slipped off the pace this year. The only non-local broker to make a showing in the region was Chevreux of France, part of Credit Agricole Indosuez, and even though it received honourable mentions in Finland, Sweden and Norway, it was never challenging for a top ranking.
Tommy Erixon, director of research and strategy at Carnegie, isn’t surprised that the local players remain on top. “Investors may get their inside track, their strategy, in global terms from other brokers, but when they need in-depth company knowledge they will turn to people like us,” he says.
Bjorn Jansson, global head of research at Enskilda securities, agrees: “This is our bread and butter business. We live and die for Nordic stocks. There are lots of interesting mid and small-cap local technology businesses in Scandinavia, not just the giants. We know about these stocks and that is clearly to our advantage.”
One of the major issues yet to be resolved within the Nordic region is membership of the eurozone. According to Erixson, it has played a part in determining investors’ behaviour: “Last year the perception was that Nokia and Ericsson were fairly equally valued,” he says. “But people went for Nokia rather than Ericsson because it was domiciled in a country [Finland] that was part of the EU and was also a member of Emu. Investing in Ericsson was perceived as being slightly more risky.”
But Erixon goes on to add that this is only a minor consideration for most investors. This is partly due to the shift to a sectoral emphasis for most investors causing them to concentrate on the bottom-up issues.
“All other things being equal, it would be very positive if Sweden and Denmark did join the euro – I have to say that. Especially when it comes to automatically orientated sectors like the banking sector it would mean that investors would know that it was more of a level playing field in Europe. But, in general, most investors simply don’t care whether a company is domiciled in a country that is embracing Emu.”
A greater competitive worry for the brokers may well be the development of online broking, given the enthusiasm for technology displayed in the region. Indeed, Finland and Sweden have some of the highest levels of Internet banking and broking penetration in the world and Norway and Denmark are not far behind. Brokers concede that they are losing some of their private clients and high net worth individuals to the electronic systems but for institutional investors, who constitute the majority of their client base, the value of human contact is too high. The challenge facing Scandinavian brokers is to ensure that is maintained.
Switzerland
UBS WarburgUBS Warburg maintains its dominance of the Swiss broking community yet again this year, although Banque Julius Baer again shows that in its domestic market at least, it can live with the big boys, pushing Credit Suisse First Boston down to third place for the second year on the trot .
Last year Swiss brokers were cautiously optimistic that 2000 would bring an up-swing in the domstic economy and a growth in investor interest in Swiss stocks. So far their predictions have been proved correct, as the likelihood of an interest rate rise has receded. Growth in 2000 has been driven by a wide range of sectors but has been especially led by IT, telecom, financial, and pharmaceutical companies. Steps are also being taken to promote Swiss exports within the eurozone.
But when it comes to the consolidation of European stock exchanges, Andreas Bogler, head of Swiss research at UBS remains sceptical.
Until the clearing and settlement houses are prepared to merge fully, he sees the creation of pan-European front-end platforms having little impact on Switzerland’s brokers.
UK HSBCAccording to HSBC’S joint head of European sales, Nick Gregory, the firm has worked hard to buck the trend in broking in the UK over the past year. “We have maintained our commitment to the UK market whereas other houses appear to have lessened their commitment,” he says.
Last year HSBC was ranked third in equity execution and forth for equity research.
Gregory points out that the firm has significantly improved its product in the past year, largely through filling gaps in its research department. He says HSBC can now boast a full compliment of analysts.
For all the hype surrounding electronic trading systems, they have yet to take the UK market by storm. The UK only represents 7% of the European online broking market despite accounting for a third of European shareholders. Gregory suggests that there is plenty of life left in principal broking: “Electronic systems are good for transacting matched business but the complication comes when there is requirement from clients to extend capital in order to help their business.”
