Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>Given Korea's blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.</li>
<li>It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.</li>
<li>Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.</li>
</ul>


Given Korea's blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.


Trading Opportunities Targeting Potential ADR Discount Increases from Korea's Short-Selling Ban

<ul>
<li>The KDIC sold a 2.33% stake in Woori Financial through an after-hours block sale. From a passive flow perspective, this is quite similar to KSOE's HHI block deals yesterday.</li>
<li>Woori is likely to show a similar share price movement as HHI. Expectations for the passive inflow effect must have dissipated, and a short-term share price correction is now inevitable.</li>
<li>However, the passive inflow sizes are still too substantial. With this in mind, we need to consider a strategy that approaches this price correction as a re-entry opportunity.</li>
</ul>


The KDIC sold a 2.33% stake in Woori Financial through an after-hours block sale. From a passive flow perspective, this is quite similar to KSOE's HHI block deals yesterday.
Woori is likely to show a similar share price movement as HHI. Expectations for the passive inflow effect must have dissipated, and a short-term share price correction is now inevitable.
However, the passive inflow sizes are still too substantial. With this in mind, we need to consider a strategy that approaches this price correction as a re-entry opportunity.


Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div><p>Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.</p></div><div><p>As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.</p></div><div><p>Since spinning out from Kakao in 2017, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. </p></div><div><p>Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.</p></div><div>
<p>We have covered most aspects of the deal in our earlier notes, <a href="https://www.smartkarma.com/insights/kakao-pay-ipo-guided-by-ant-financial-to-be-a-mini-ant" target="_blank" rel="noopener">Kakao Pay IPO - Guided by Ant Financial to be a mini Ant </a>and  <a href="https://www.smartkarma.com/insights/kakao-pay-ipo-peer-comparison-local-and-international" target="_blank" rel="noopener">Kakao Pay IPO - Peer comparison - local and international</a>.</p>
<p>In this note we will talk about valuations and the latest announcement by the regulators.</p>
</div>

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.Since spinning out from Kakao in 2017, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.
We have covered most aspects of the deal in our earlier notes, Kakao Pay IPO - Guided by Ant Financial to be a mini Ant and  Kakao Pay IPO - Peer comparison - local and international.
In this note we will talk about valuations and the latest announcement by the regulators.


Kakao Pay IPO - Valuation and Likely Impact of Latest Announcement

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p><strong>Executive Summary:</strong> The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.</p><p>Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?</p><p>As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.</p><p>At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: <a href="https://www.smartkarma.com/compose/insight/50971/Bank%20Credit%20Strategy:%20Melt-Up%20Before%20Meltdown,%20Where%20to%20Position.%20Read%20more:%20https:/skr.ma/W1NcQ" target="_blank" rel="noopener"><em>Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</em></a><em>. </em></p><p>In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tightening</p><p>With peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. </p><p>May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. </p><p>We explore these market themes within.</p><p><strong>Market Outlook</strong>: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  </p>

Executive Summary: The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position. In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tighteningWith peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Bull Steepening, but Is It Sustainable?

<p><strong>Executive Sum</strong><strong>mary:</strong>  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.</p><p>The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.</p><p>From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.</p>

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

South Korea

Woori Financial Group Inc. provides commercial banking services. The Company offers deposit services, loan services, bill services, settlement services, credit card, international, online banking, and other related services. Woori Financial Group also operates banking and retail banking businesses.

Price Gauge
52-week Range	0.00 - 0.00
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Woori Financial Group (WF US)

Trading Opportunities Targeting Potential ADR Discount Increases from Korea's Short-Selling Ban

This post explores trading opportunities targeting potential ADR discount increases resulting from Korea's blanket ban on short selling.

Sanghyun Park

Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying

This post examines the Woori Financial Group block deals by the KDIC this morning, which should be another shares let-go event for passive buying,...

Sanghyun Park

Kakao Pay IPO - Valuation and Likely Impact of Latest Announcement

Kakao Pay, one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55%...

Sumeet Singh

Bank Credit Weekly: Bull Steepening, but Is It Sustainable?

Treasury yields bull steepened while the melt-up led credit total returns. Yield conviction may build as April economic data is published; however,...

Hank Calenti, CFA

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

The sweet spot for total return investors moved dramatically in April. However, as the month ended, the reflation trade returned. May could see a...

Hank Calenti, CFA

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