House of the year, China: Citic Securities

Asia Risk Awards 2021

James Xu, Citic Securities
James Xu, Citic Securities

The Chinese mainland has seen a robust recovery since Covid-19 first took hold – and this resilience has been reflected in the popularity of the onshore listed equity and bond markets. Citic Securities was quick to seize the opportunity. By combining its in-depth understanding of the onshore market with strong structuring capability, the firm was able to continue offering global investors both effective hedging tools and promising yields at a time of great uncertainty.

Citic Securities has one of the largest derivatives trading footprints in the country, claiming a 22% market share of over-the-counter trades.

Such volumes have enabled the securities house to provide global clients with solutions for varying degrees of China-related exposure, says Li Deng, head of sales and structuring for equity derivatives in Beijing.

“During Covid last year, the market was very volatile, so people were looking for something that could consistently outperform the benchmark with lower volatility,” he says.

As a subsidiary of Citic Group – one of China’s largest conglomerates, operating across more than 20 industries – the securities company is connected to some of the most dynamic companies in China. As these firms seek capital for domestic or international expansion, the securities company is well placed to support their needs.

“Over 30 years, we have established an unrivalled Asia presence in 13 markets, complemented by the global reach of our offices in Europe and the US. The result is a unique ability to deliver insights, liquidity and capital to clients across the globe,” says James Xu, head of equity derivatives and prime brokerage at Citic CLSA, the Hong Kong unit of Citic Securities.

One of the most popular type of products that Citic Securities offers is global quantitative investment strategies (QIS). Unlike international competitors, which usually exclude Chinese assets in their underlying holdings, Citic Securities includes A-shares (those stocks listed on the Shanghai and Shenzhen exchanges) and China Treasuries in its QIS products.

The inclusion of Chinese investments makes for a more balanced, comprehensive worldwide investment strategy – one that generates better risk-adjusted returns, as measured by their Sharpe ratio.

“As of May [2021], the annualised return was 5.8% and the Sharpe ratio was 1.67,” says Deng. “This is because including more Chinese underlyings, whether these are A-shares or Treasuries, helps to lower [portfolio] correlation with the other global assets.”

Citic Securities’ strategy is well suited for investors wanting to enhance returns, as well as for those seeking to minimise risk.

“Some people are also buying options under this strategy. When the volatility of the underlying assets is low, options can be very cheap,” says Deng.

Li Deng, Citic Securities
Li Deng, Citic Securities

Since last year, Citic Securities’ investment strategies have been quite popular among insurance companies, pension funds and high-net-worth individuals.

The onshore and offshore setup enables the firm to benefit from both sides of trading, not only for underlying asset selection, but also for risk management.

Citic Securities can either do hedges with its onshore parent entity or hedge in the market with other market counterparts. This means the firm could enjoy better flexibility in its risk management.

This was specifically beneficial for autocallable products, which pay generous coupons once a particular upside barrier is passed. Such products saw a significant surge in volumes since last year.

Because of market volatility, investors tend to look for asset classes that can offer better returns, but, at the same time, are also relatively safe. Instead of buying equities directly, some investors believe that autocallable structures can stabilise risk-return profiles. With autocallable structures, even though investors can potentially lose their principal when markets move against them, any losses would be lower when compared with buying the underlying asset directly.

Citic Securities’ autocallable products have various underlyings, including A-shares, Chinese stocks trading in Hong Kong and major US stocks.

“Putting these autocallable products together is a challenge for a securities firm’s product development and trading capability,” says Xu.

However, the strong sales, structuring, trading and quant team that Citic Securities has put together has really helped the firm bring these products to market.

Xu admits that some of their competitors offer similar products, but Citic Securities stands out for being able to offer advanced hedging capability in-house, rather than having to back trades out to the market (as many of the firm’s competitors do).

Xu says the firm is looking at expanding their equities derivatives business to Japan, as that is where they see huge demand for autocallable and QIS products. The firm already has offices in Hong Kong, Singapore and the UK.

“The first step would be to participate in the Japanese market, and then we would like to bring some Chinese derivatives products to Japanese investors,” says Xu.

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: