My experience as an intern of the Wealth Management Department in Hwabao Securities

October 30, 2022 by Wenxuan HU

My experience as an intern of the Wealth Management Department in Hwabao Securities

In this article, Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023) shares her internship experience as an intern in the Wealth Management Department in Hwabao Securities in China.

The Company

Hwabao Securities is a securities company of China Baowu Steel Group, one of the world’s top 500 companies. With the strong support of shareholders, Hwabao Securities adheres to the business purpose of “creating value for customers, opportunities for employees, returns for shareholders and benefits for society” and continues to provide professional, high-quality and personalized comprehensive financial services for investors.

Logo of Hwabao Securities
Logo Hwabao Securities
Source: Hwabao Securities.

Wealth Management is an important business unit of Hwabao Securities. From 2019 to 2021, approximately 80% of Hwabao Securities’ revenue is derived from wealth management business and securities proprietary business.

Headquarters of Hwabao Securities
Headquarters Hwabao Securities
Source: Hwabao Securities.

My Internship

My missions

I worked as an intern in the Wealth Management Department of Hwabao Securities. I was mainly responsible for supporting the department staff in business analysis and compliance management.

I coordinated and analyzed the company’s 2021 interim brokerage business operation. In practice, I used the Vlookup function and pivot table, etc. to count the market share of the sales department, business revenue, commission breakdown, etc., and created data visualization charts to report to the company president and other managers in the interim meeting. In addition, I calculated the performance of the marketing staff. Based on their performance I adjusted their rank.

Moreover, I was responsible for investor eligibility management (a review system that requires institutions to Know Your Customer( KYC) and identify the customer’s risk tolerance) and branch compliance training and participated in developing compliance test questions for branch heads. In addition, I created a PowerPoint presentation for the training of new regulations of positive repo risk control and compliance management work report to assist the compliance officer in personnel training. I also assisted the compliance officer in completing the company’s risk compliance management work, preparing and integrating multi-departmental internal control compliance checklists, and formulating branch compliance cross-check work plans. I wrote an article about typical case of compliance to improve the construction work of the company’s compliance system. The article was appreciated by the department manager and the staff of the Shanghai Stock Exchange (SSE).

Required skills and knowledge

The Wealth Management Department is an important department of a financial institution, directly managing all branches and sales staff, and an important line of defense to ensure business compliance. Working in the Wealth Management Department requires less computer skills and mathematical abilities but requires financial knowledge and legal background. Interns are required to keep an eye on changes in market regulations to assess the risk of financial transactions between the company and its clients. Interns also need to have strong communication skills and be willing to give advice to colleagues in different departments. In addition, departmental staff should also have a high level of ethics and self-discipline and adhere to the legal bottom line.

What I have learnt

My internship at Hwabao Securities gave me a good understanding of the composition of the entire financial institution and the operation of the financial market. This experience allowed me to master many financial terms and trading processes and raised my awareness of compliance and the different types of risks related to investments. The knowledge I learned in class was also applied during the internship, such as money and credit, macroeconomics, credit management, bank management, risk management, compliance management, and law.

While writing the article about the revision of SSE’s investor eligibility management regulations, I also found areas where compliance management could be improved. My article was called “Dispute over account opening for the visually impaired – enhancing investor satisfaction with personalized services”. In the article, the investor’s application for online account opening at the company was rejected due to the investor’s visual impairment and the company’s lack of corresponding hardware facilities. In order to effectively protect the rights and interests of vulnerable groups, the company developed a personalized off-site account opening business process applicable to the visually impaired investor. The company took several measures to take care of the physical conditions of special groups while achieving compliance. For example, the company let the investor open the account offline with professional staff, rather than online. To ensure compliance, the company informed the investor of the investment risks in detail and made a recording.

The article was adopted and commended by SSE as China’s management methods for special group investors are not yet perfect. For special groups, under the condition of meeting the requirements of regulatory laws and regulations, providing better and more humane services in a targeted manner can better protect the interests of investors. Actively fulfilling social responsibility can reflect the social responsibility of enterprises.

Three key financial concepts

Here are three useful financial concepts I learned in Wealth Management Department.

Anti-money-laundering

Money laundering is the process by which monetary gains are cleansed from their illegal origins. The money laundering process has three stages and often incorporates an important international dimension: placement, layering, and integration. Financial institutions are often used, wittingly or unwittingly, by criminals in this cleansing process.

For securities firms, there are usually a variety of measures in place to fight money laundering:

Establish various anti-money laundering systems.
Establish internal working mechanism, staff with professional personnel and improve operation process.
Improve business systems to meet the needs of AML work and ensure accurate and efficient information collection.
Identify customers and reasonably classify and adjust customer risk levels. Strengthen identification and supervision for high-risk customers or accounts.
Manage customer information, including identity information and transaction records.
Establish abnormal transaction detection indicators and models to identify large or suspicious transactions.
Conduct anti-money laundering assessments to provide system-wide risk prevention capabilities.
Organize anti-money laundering training and strengthen training for personnel in key positions to effectively communicate the latest regulatory requirements.

The Eligibility Management of Investors

The Eligibility Management of Investors is an obligation that sell-side institutions should fulfill for investors. (A sell-side institution is a party that sells its own products or services. Unlike the physical industry, sell-side institution in the financial industry sell virtual products, such as industry research reports, liquidity services, financing services, etc.) The investor eligibility management system was established by the China Securities Regulatory Commission (CSRC) and the China Financial Futures Exchange (CFFEX), taking into account the characteristics of the stock index futures market. The system requires financial institutions to understand their customers, objectively and comprehensively measure their risk appetite and risk-taking ability, and adhere to the principle of “providing the right products to the right investors”. The eligibility obligation was first introduced in the U.S. to regulate misconduct by securities firms. In recent years, the content of the appropriateness obligation has been gradually enriched and improved, and has played an increasingly important role in the trials of Chinese courts at all levels.

The eligibility management of investors has become a direct legal basis for investors to seek remedies in financial disputes. The purpose of investor suitability management is to ensure that customers can make investment decisions and bear the resulting benefits and risks on the basis of a full understanding of the risks of the relevant financial products. In essence, the investor eligibility management system is the investor protection system.

Repurchase Agreement and Reverse Repurchase Agreement

In my internship, I was responsible for compliance training for staff. I produced PowerPoints on the new regulations for Repurchase Agreement risk control.
Repurchase Agreement (Repo) is a transaction in which a party pledges a certain size of bond to raise funds and promises to repurchase the pledged bond at a later date. It is also one of the open market instruments frequently used by The People’s Bank Of China (PBC), which can achieve the effect of repatriating funds from the market by using positive repo operations. Compared with PBC bills, Repurchase Agreement will reduce operating costs, while locking in funds more effectively and reducing liquidity.

Reverse Repurchase Agreement is a transaction in which the PBC purchases marketable securities from a primary dealer and agrees to sell the marketable securities to the primary dealer on a specific date in the future. Reverse Repurchase Agreement is an operation in which the PBC puts liquidity into the market, and the expiration of Reverse Repurchase Agreement is an operation in which the PBC takes back liquidity from the market, called Repurchase Agreement. Simply put, a Reverse Repurchase Agreement is a transaction in which the investor actively lends funds and obtains a bond pledge is called a Reverse Repurchase Agreement transaction, at which time the investor is the financier who accepts the bond pledge and lends the funds.

Useful resources

Hwabao Securities

Shanghai Stock Exchange

The People’s Bank Of China (PBC)

China Securities Regulatory Commission (CSRC)

China Financial Futures Exchange (CFFEX)

About the author

The article was written in October 2022 by Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023).

My internship experience as an industry research assistant in Industrial Securities

October 30, 2022 by Wenxuan HU

My internship experience as an industry research assistant in Industrial Securities

In this article, Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023) shares her internship experience as an industry research assistant in Industrial Securities which is a securities company in China.

The Company

Industrial Securities is a integrated, innovative, conglomerate and international Chinese securities company approved by the China Securities Regulatory Commission. In May 2022, Industrial Securities was listed in the Forbes 2022 Global 2000 list of companies. As of the end of June 2022, the Group had total assets of 238.2 billion RMB and over 10,000 employees at home and abroad. The company has developed into a securities and financial holding group covering securities, funds, futures, asset management, equity investment, alternative investment, industrial finance, offshore business, regional equity market and other professional fields. The company’s core businesses rank among the top in the industry.

Logo of Industrial Securities
Logo Industrial Securities
Source: Industrial Securities.

Industrial Securities adheres to the “industry-oriented” driving force, creates a unique financial ecological alliance, forming a complete ecological chain that runs through the life cycle of enterprises and industries.

Headquarters of Industrial Securities
Headquarters Industrial Securities
Source: Industrial Securities.

My Internship

My missions

During my internship, I work in the Home Appliance Group, which belongs to Industrial Securities. Home Appliance Group is composed of research analyst firm focusing in the home appliance industry.

I was mainly responsible for writing company reports and medium-term strategy reports about firms in the home appliance industry. I was also exposed to how to value companies with Excel and various databases.

I used Wind, Euromonitor and other databases, combined with expert interviews, to analyze the development dynamics of companies like Bear which produces small appliances like blenders, kettles, air fryer, etc. I wrote reports that compared the company with its peers from the perspective of products, channels and marketing, and I found out the competitive advantages of the company. I created over 20 charts in the report to demonstrate its high cost-performance ratio, multiple segmentation categories, and mature online channels. I also tracked the interim reports of leading companies in mature foreign markets, such as Electrolux, in terms of revenue and profit by region, to compare and analyze with major domestic home appliance brands.

I also studied the characteristics of the long-tail small home appliance market where it is located. Long-tail small home appliances refer to home appliances with small demand and sales scale (contrary to large home appliances like dish washers and laundry machines).

In addition, I independently collected information to analyze the market size, financial indicators, and the company’s product channels of XGIMI, a leading company in the Chinese projector industry. I assisted the analyst to create a 55-page roadshow PowerPoint.

In the process of writing the report, I not only honed my analytical and presentation skills and learned to be graphic in the report, but also learned about the market situation of China’s home appliance industry. For example, I found that the two waves of the Covid pandemic in 2020 and 2022 showed different dynamics in terms of impact on the growth of demand for home appliances in China. The first wave of the pandemic increased the home cooking scenario; young consumers purchased basic, just-needed small appliances. The first wave of the pandemic led to an outbreak of live e-commerce, with online sales becoming the main channel for home appliance consumption, which drove rapid growth in demand for small appliances (like blenders and nutri-pots). The second wave of the pandemic has hampered logistics in some areas, and after 2020, the category of basic small home appliances was gradually saturated, and the demand was not fully released. The pandemic pushed consumers to form healthy living concepts and home cooking habits, demand shifted from basic appliances to advanced appliances. This pushed the industry product structure. So, I really felt the impact of the pandemic (a Black Swan) on the market in practice. For investors and companies, any major event means both challenges and opportunities.

Required skills and knowledge

When starting out, interns usually need to learn to write meeting minutes quickly and use Excel to do some simple calculations and data summaries. This is more of a test of the student’s information gathering skills and basic computer skills.

As we become familiar with the work, we need to apply our financial knowledge, understand industry dynamics, develop market insight and learn to express our opinions clearly. This includes being able to read company financial reports, fully analyze company operations, and make predictions about the future.

What I have learnt

During my internship I worked with valuation models. Valuation modeling has always been an important section in company research or industry research reports. For investors, financial projections provide a visual representation of the underlying company’s operations and future state of development. Also, students looking for jobs in investment banks, equity research analyst firms and even consulting firms, need solid modeling skills.
The steps of valuation modeling financial projections are as follows:

Forecast operating income and split revenue (different products and business, domestic vs foreign, etc.). Then forecast costs and expenses to complete the income statement forecast.
Forecast the balance sheet and complete the forecast for all accounts except for the reserved matching items (money funds and financing gap).
Prepare the cash flow statement, and calculate the monetary funds and financing gap on this basis.
Fill in the vacant monetary funds and financing gap in the balance sheet, and match the balance sheet.

In fact, the complete financial modeling requires a lot of financial accounting knowledge and requires to be careful and conscientious, otherwise, the data can easily be wrong. On specific financial items, analysts need to mobilize financial knowledge to fill in the numbers. For example, depreciation and amortization are calculated with the fixed assets and intangible assets in the balance sheet forecast. Then we can go back to the income statement to fill in the two vacant cells. In the internship, I found that financial modeling is closely related to the financial management and financial statement courses we studied in university, so we still need to firmly grasp the basics of finance before seeking employment.

Key financial concepts

The discounted cash flow (DCF) model is a standard valuation method, which aims to calculate the value of a company based on the projected future cash flows of the company discounted to the present at the discount rate (weighted-average cost of capital or WACC).

Basic Formulas

Entreprise value formula

Where EV means the enterprise value, FCF free cash flows, WACC the weighted-average cost of capital, and TV the terminal value.

Free Cash Flow

Free cash flow

We can predict future turnover, expenses, tax rates, etc. by extrapolating the past or imagining the future of the company). Although this part of the formula is relatively complex, usually in practice the analysts will use the Excel formula or Visual Basic for Applications (VBA) to collate the various subjects, greatly simplifying the steps of financial modeling.

WACC

wacc formula

Where D represents the market value of the company’s debt, E the market value of equity capital, and t the income tax rate.
The Cost of equity can be calculated by CAPM model:

cost equity formula

Where:

Risk free rate is the rate of return that can be obtained by investing money in an investment object without any risk.
β, also known as the beta coefficient, is a risk index that measures the price volatility of an individual stock or stock fund relative to the overall stock market.
Market risk premium, also known as equity risk premium or market risk return, refers to the difference between the return on a market portfolio and the risk-free rate of return. It measures the rate at which investors are paid for taking risk.
The Risk free rate can be the yield of the country’s national debt and β can be queried through the Wind database, such as the last three years of β.
Market risk premium is sometimes a forecast value in practice.
Cost of debt is the after-tax cost of debt. It is necessary to multiply the pre-tax cost by (1-t).

Terminal Value Calculation

To calculate the terminal value, we can use the Gordon Growth method to estimate the value based on its growth rate into perpetuity.

The Gordon Model, also known as the constant-growth model, is a special case of the dividend discount model, which reveals the relationship between the stock price, the expected base period dividend, the discount rate and the fixed growth rate of the dividend. The model has three assumptions:

1. The dividend payment is permanent in time;
2. The dividend growth rate is a constant;
3. The discount rate in the model is greater than the dividend growth rate.

The terminal value is extrapolated from the Gordon model:

cost equity formula

Where g is perpetual growth rate which means that the company has perpetual growth rate and return on invested capital. The perpetual growth model assumes stable and sustainable growth in the long term. In practice, g is usually a conservative figure.

Useful resources

Industrial Securities

Wind Database

China Securities Regulatory Commission

About the author

The article was written in October 2022 by Wenxuan HU (ESSEC Business School, Global BBA, 2021-2023).