Founder of Antler Capital

Stanley Tsai, CFA

Macroeconomics

Monthly Newsletter | May 2021
Monetary data in May suggest that the environment has turned a notch tighter in China. Loan and deposit growth surprised on the downside and signals the beginning of yet another challenging period for the Chinese banks in the months ahead.
Both the asset and liability sides of the banks' balance sheets hit a wall in April. Loan growth missed consensus by a notable margin, driven by a softer mortgage market and slower corporate credit expansion. The net decline in new deposits was more worrying and the risk of disintermediation is on the rise, particularly for the smaller banks.
Deleveraging real estate exposures remains a top priority for the regulators. New mortgage rates have edged up, continuing a trend since 1Q21. Margins have widened slightly for new corporate loans as well. This supports our view that net interest margins have bottomed out and is mildly positive for the H-share G-SIBs.  
We expect the central bank to maintain a neutral policy for the remainder of 2021. The policy rates and loan prime rate will likely hold steady. That said, smaller banks that rely extensively on the interbank market may find it increasingly difficult to source cheap funding. Interbank bank defaults among the unlisted banks are not a remote possibility.
We will remain underweight the H-share banks against MSCI China <a href="https://www.smartkarma.com/entities/msci-china-index" target="_blank" data-smartkarma-citation="entities:22895:1" rel="noopener">(MXCN INDEX)</a> until 2Q21 earnings. Meanwhile, we will watch closely whether a sales rebound story will materialize for the life insurers, as bank deposit outflows may find their way into savings polices in the coming quarters.

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Monthly Newsletter | May 2021
Monetary data in May suggest that the environment has turned a notch tighter in China. Loan and deposit growth surprised on the downside and signals the beginning of yet another challenging period for the Chinese banks in the months ahead.
Both the asset and liability sides of the banks' balance sheets hit a wall in April. Loan growth missed consensus by a notable margin, driven by a softer mortgage market and slower corporate credit expansion. The net decline in new deposits was more worrying and the risk of disintermediation is on the rise, particularly for the smaller banks.
Deleveraging real estate exposures remains a top priority for the regulators. New mortgage rates have edged up, continuing a trend since 1Q21. Margins have widened slightly for new corporate loans as well. This supports our view that net interest margins have bottomed out and is mildly positive for the H-share G-SIBs.  
We expect the central bank to maintain a neutral policy for the remainder of 2021. The policy rates and loan prime rate will likely hold steady. That said, smaller banks that rely extensively on the interbank market may find it increasingly difficult to source cheap funding. Interbank bank defaults among the unlisted banks are not a remote possibility.
We will remain underweight the H-share banks against MSCI China (MXCN INDEX) until 2Q21 earnings. Meanwhile, we will watch closely whether a sales rebound story will materialize for the life insurers, as bank deposit outflows may find their way into savings polices in the coming quarters.


Related Insights




ICBC: The Prefs Are Junk and Should Trade Like It 

ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 



Glut and Famine: China's Monetary Conditions a Notch Tighter in May

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 147 stocks over the last week. The average A-H premium was 114.0% as of May 10th.</li>
<li>The average A-H premium changed by -7.0ppt week-on-week, led by energy, utilities, communication services and offset by consumer staples, consumer discretionary.</li>
<li>We highlight weekly changes in A-H premium for Petrochina, CGN Power, Hua Hong Semi, Huaneng Power, Cansino, Pharmaron.</li>
</ul>


We analyse the changes of A-H premium on 147 stocks over the last week. The average A-H premium was 114.0% as of May 10th.
The average A-H premium changed by -7.0ppt week-on-week, led by energy, utilities, communication services and offset by consumer staples, consumer discretionary.
We highlight weekly changes in A-H premium for Petrochina, CGN Power, Hua Hong Semi, Huaneng Power, Cansino, Pharmaron.


A-H Premium Weekly (May 10th): 19 Stocks at 52w Low

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

China Citic Bank Corp Ltd H / Event-Driven

<ul>
<li>A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday.</li>
<li>Net SOUTHBOUND buying was +HK11.3bn. Thursday saw a break of the SOUTHBOUND buying streak. </li>
<li>The big news in China markets this week was the idea that mainland investors through SOUTHBOUND would no longer be hit with a 20% w/h tax on dividends.</li>
</ul>


A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday.
Net SOUTHBOUND buying was +HK11.3bn. Thursday saw a break of the SOUTHBOUND buying streak. 
The big news in China markets this week was the idea that mainland investors through SOUTHBOUND would no longer be hit with a 20% w/h tax on dividends.


HK Connect SOUTHBOUND Flows (To 10 May 2024); Banks, Coal, and High-Div Energy/Materials Names

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

Postal Savings Bank of China C / Equity Bottom-Up

<ul>
<li>NIM is continuing to decline, from ~2.5% at its recent peak to ~1.8% in the most recent quarter. This may be from higher rescheduled loans. </li>
<li>Loan growth ascent is strangely steady, and not indicative at all, of any business cycle. This alone is a concern, for true visibility of figures. </li>
<li>Impairment costs do not suggest concern on underlying credit metrics, but with far higher loan balances in the past few years, this is an even greater worry.</li>
</ul>


NIM is continuing to decline, from ~2.5% at its recent peak to ~1.8% in the most recent quarter. This may be from higher rescheduled loans. 
Loan growth ascent is strangely steady, and not indicative at all, of any business cycle. This alone is a concern, for true visibility of figures. 
Impairment costs do not suggest concern on underlying credit metrics, but with far higher loan balances in the past few years, this is an even greater worry.


China Postal Savings Bank - Lower NIM, But Steady Lending & Credit Costs Suggests All Is Fine?

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Hang Seng China Enterprises Index / Event-Driven

<ul>
<li>The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.</li>
<li>The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.</li>
<li>Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.</li>
</ul>


The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.


HSCEI Dividend Futures: Sell the 2024/25 Steepener

China

Agricultural Bank of China Limited provides a full range of commercial banking services. The Banks services includes RMB and foreign currency deposit, loan, international and domestic settlement, bill discount, currency trading, bank guarantee, and treasury bill underwriting.

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Agricultural Bank Of China (1288 HK)

Glut and Famine: China's Monetary Conditions a Notch Tighter in May

Monetary data in May point to a tighter environment for both lending and funding. Mortgage rates have edged up, but the deposit drain is worrying....

Stanley Tsai, CFA

A-H Premium Weekly (May 10th): 19 Stocks at 52w Low

We analyzed A-H premium changes in the past week and highlight A-H premium changes for Petrochina, CGN Power, Hua Hong Semi, Huaneng Power,...

Ke Yan, CFA, FRM

HK Connect SOUTHBOUND Flows (To 10 May 2024); Banks, Coal, and High-Div Energy/Materials Names

SOUTHBOUND flows lost their buy streak with a second net sell day since Chinese New Year, but HK performed well with HSI almost to 19,000....

Travis Lundy

China Postal Savings Bank - Lower NIM, But Steady Lending & Credit Costs Suggests All Is Fine?

China Postal Savings Bank shows far higher loans with almost no increase of impairment costs. NIM reduction is radical, we wonder if this is partly...

Daniel Tabbush

HSCEI Dividend Futures: Sell the 2024/25 Steepener

The HSCEI 2054 div futures have moved higher following China banks announcing that interim dividends will be paid. There is some upside from...

Brian Freitas

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