Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Virtuous circle themes of Vision Fund IPOs, ongoing buybacks/MBOs and Alibaba expansion have been replaced by vicious circle narratives of China regulation, the reality of weak liquidity events and another pause in returns to shareholders. The net result is Softbank trades at a similar price and discount to what it did in September last year even as NASDAQ has climbed 25%. The sell off in Softbank shares since Q4 results in May was initially driven by disappointment on a buyback but the discount has stabilized and recent weakness reflects erosion in the underlying value/share.

Virtuous circle themes of Vision Fund IPOs, ongoing buybacks/MBOs and Alibaba expansion have been replaced by vicious circle narratives of China regulation, the reality of weak liquidity events and another pause in returns to shareholders. The net result is Softbank trades at a similar price and discount to what it did in September last year even as NASDAQ has climbed 25%. The sell off in Softbank shares since Q4 results in May was initially driven by disappointment on a buyback but the discount has stabilized and recent weakness reflects erosion in the underlying value/share.     

Softbank Group - The Great Unwinding Has Shifted from the Discount to Underlying Value

China and US Equity Analyst

Roger Xie

<ul>
<li>The long-awaited China A-share Index future finally received approval from regulators from both Hong Kong and China (<a href="https://www.hkex.com.hk/News/News-Release/2021/210820news?sc_lang=en" target="_blank" rel="noopener">news link</a>). The to-be-launched product is MSCI China A50 Connect Index, which is different from investors' expectation of MSCI China Index future. However, we still believe the move is a game changer for <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> derivative business as investors' increasing exposure in China A-share cash equity market and index future. This will also put a direct competition pressure on <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> as its popular FTSE A50 Index future accounting around 17% of its total revenue. We believe offshore investors would like to gradually shift their China A-share Index exposure to <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> from <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> </li>
<li>We estimate that ADV (Average Daily Volume) of MSCI China A50 Connect contract will be ramped up at 1.5-2.0x the volume of FTSE A50 at its launch, given the ADT (Average Daily Turnover) of stock connect northbound (China A-share cash equity market) has reached RMB 120bn. There is increasing demands from offshore investors for hedging and speculation. In a long-run, we believe ADV of MSCI China A50 could be more than 5x of ADV of FTSE A50 as offshore investors' exposure on China A-share cash equity grows. We expect the derivative business contribution to revenue at HKEx will likely grow to 25% from current 16%, which will reshape HKEx with more balanced revenue stream from both cash equity and derivative. </li>
<li>For 1H2021, <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> delivered a broadly in-line results. It reported 2Q2021 profits of HK$2.77bn, down 7% year-over-year. Cash equity ADT was quite strong and up 31% year-over-year, but down 34% from 1Q 2021. But the derivatives business did not have the same volume pick-up with HK derivatives ADV -5% year-over-year and LME ADV -2% year-over-year. We are the believer that HKEx will play a key role on offshore China listings. Ongoing regulatory uncertainty is likely to accelerate the Chinese ADS' to diversify their listing risk and to benefit HKEx as a preferred offshore listing venue.  We forecast <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> Securities ADT of HK$240bn in FY 21 (excluding Stock Connect Northbound volume)  and remain bullish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>  and have TP HKD 550. </li>
</ul>


The long-awaited China A-share Index future finally received approval from regulators from both Hong Kong and China (news link). The to-be-launched product is MSCI China A50 Connect Index, which is different from investors' expectation of MSCI China Index future. However, we still believe the move is a game changer for HKEX (388 HK) derivative business as investors' increasing exposure in China A-share cash equity market and index future. This will also put a direct competition pressure on SGX (SGX SP) as its popular FTSE A50 Index future accounting around 17% of its total revenue. We believe offshore investors would like to gradually shift their China A-share Index exposure to HKEX (388 HK) from SGX (SGX SP) 
We estimate that ADV (Average Daily Volume) of MSCI China A50 Connect contract will be ramped up at 1.5-2.0x the volume of FTSE A50 at its launch, given the ADT (Average Daily Turnover) of stock connect northbound (China A-share cash equity market) has reached RMB 120bn. There is increasing demands from offshore investors for hedging and speculation. In a long-run, we believe ADV of MSCI China A50 could be more than 5x of ADV of FTSE A50 as offshore investors' exposure on China A-share cash equity grows. We expect the derivative business contribution to revenue at HKEx will likely grow to 25% from current 16%, which will reshape HKEx with more balanced revenue stream from both cash equity and derivative. 
For 1H2021, HKEX (388 HK) delivered a broadly in-line results. It reported 2Q2021 profits of HK$2.77bn, down 7% year-over-year. Cash equity ADT was quite strong and up 31% year-over-year, but down 34% from 1Q 2021. But the derivatives business did not have the same volume pick-up with HK derivatives ADV -5% year-over-year and LME ADV -2% year-over-year. We are the believer that HKEx will play a key role on offshore China listings. Ongoing regulatory uncertainty is likely to accelerate the Chinese ADS' to diversify their listing risk and to benefit HKEx as a preferred offshore listing venue.  We forecast HKEX (388 HK) Securities ADT of HK$240bn in FY 21 (excluding Stock Connect Northbound volume)  and remain bullish on HKEX (388 HK)  and have TP HKD 550. 


HKEx (388.HK): A-Share Index Future Launch, A Game Changer for HKEx Derivative Business

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>'s 2Q21 results may not seem inspirational, but a closer look under the hood reveals a solid business that is continuing to improve.  Considering the regulatory overhang and the near-term losses from the new community group buying business offsetting the overall profit growth, poor investor sentiment may continue for the Chinese e-commerce stocks including JD.  However, I remain constructive on JD's fundamentals, and I believe JD is a good rebound candidate when the overhang is lifted.      What I saw under the hood: <ul>
<li>Solid top-line growth of 26%. </li>
<li>Historic quarterly active user additions.</li>
<li>Rising appeal from lower-tier market users.</li>
<li>Higher engagement from existing users. </li>
<li>Acceleration of order volume growth.</li>
<li>Healthy core JD retail operating profit  </li>
</ul>

JD.com Inc (ADR) (JD US)'s 2Q21 results may not seem inspirational, but a closer look under the hood reveals a solid business that is continuing to improve.  Considering the regulatory overhang and the near-term losses from the new community group buying business offsetting the overall profit growth, poor investor sentiment may continue for the Chinese e-commerce stocks including JD.  However, I remain constructive on JD's fundamentals, and I believe JD is a good rebound candidate when the overhang is lifted.      What I saw under the hood: 
Solid top-line growth of 26%. 
Historic quarterly active user additions.
Rising appeal from lower-tier market users.
Higher engagement from existing users. 
Acceleration of order volume growth.
Healthy core JD retail operating profit  


JD.com (JD US): Solid Growth Flying Under the Radar

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

In this analysis, we analyse <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> holdings across Global, GEM, US, Asia Ex-Japan and China equity funds.  We identify a massive holding base in Alibaba Group among active US domestic funds, with $24bn in out-of-benchmark Alibaba holdings as of October 2020, when Alibaba was at it's peak.Since then, although ownership and exposure has dropped across all fund groups, US Mutual Funds have capitulated, closing over $10bn in Alibaba positions since October of last year.   US managers have clearly had the hardest time justifying a holding in Alibaba Group during such a period of intense scrutiny - an out of benchmark, non-US position in an industry beset by regulatory pressure.  A degree of forced selling was inevitable. However, we note that these positions are finite, the selling will come to an end and the overhang will subside.  Our analysis shows a remaining $7.25bn in holdings among US managers, some of which will doubtless be sold, or indeed has already been sold.As the valuation case for Alibaba becomes more compelling, many of the Global, GEM, Asia or China managers in our analysis will be looking to increase exposure, nullifying or reducing underweights after such a period of stock underperformance (or relative outperformance vs their respective benchmarks).  Given these factors, investors should have more confidence in re-engaging with the investment case in Alibaba at this juncture, in our view.

In this analysis, we analyse Alibaba Group (BABA US) holdings across Global, GEM, US, Asia Ex-Japan and China equity funds.  We identify a massive holding base in Alibaba Group among active US domestic funds, with $24bn in out-of-benchmark Alibaba holdings as of October 2020, when Alibaba was at it's peak.Since then, although ownership and exposure has dropped across all fund groups, US Mutual Funds have capitulated, closing over $10bn in Alibaba positions since October of last year.   US managers have clearly had the hardest time justifying a holding in Alibaba Group during such a period of intense scrutiny - an out of benchmark, non-US position in an industry beset by regulatory pressure.  A degree of forced selling was inevitable. However, we note that these positions are finite, the selling will come to an end and the overhang will subside.  Our analysis shows a remaining $7.25bn in holdings among US managers, some of which will doubtless be sold, or indeed has already been sold.As the valuation case for Alibaba becomes more compelling, many of the Global, GEM, Asia or China managers in our analysis will be looking to increase exposure, nullifying or reducing underweights after such a period of stock underperformance (or relative outperformance vs their respective benchmarks).  Given these factors, investors should have more confidence in re-engaging with the investment case in Alibaba at this juncture, in our view.

Alibaba Group Holdings Analysis:  US Funds Capitulate

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/suning-com-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9178:1" rel="noopener">Suning.com (002024 CH)</a>, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a>, <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a>, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1439927D CH)</a>, <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a>, <a href="https://www.smartkarma.com/entities/saudi-aramco" target="_blank" data-smartkarma-citation="entities:27317:1" rel="noopener">Saudi Aramco (ARAMCO AB)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Tencent (700 HK), iQIYI Inc (IQ US), Alibaba Group (9988 HK), Suning.com (002024 CH), Trip.com (TCOM US), DiDi Global (DIDI US), NIO Inc (NIO US), ByteDance (1439927D CH), Reliance Industries (RIL IN), Saudi Aramco (ARAMCO AB), Alibaba Health Information Technology (241 HK), JD Health (6618 HK), Ping An Healthcare and Technology Company Limited (1833 HK) 

Global Emerging Markets Weekly: 20 August 2021

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

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Alibaba (9988 HK)

Softbank Group - The Great Unwinding Has Shifted from the Discount to Underlying Value

Virtuous circle themes have been replaced by vicious circle narratives and share price weakness is now driven by declines in asset value with BABA...

Kirk Boodry

JD.com (JD US): Solid Growth Flying Under the Radar

JD's results may not seem inspirational, but a closer look under the hood reveals a business growing faster than market expectations. I believe JD...

Mitchell Kim

Alibaba Group Holdings Analysis: US Funds Capitulate

We identify a massive holding base in BABA among US Mutual funds, with $24bn in off-benchmark holdings as of Oct 2020. Since then, US Funds have...

Steven Holden

Global Emerging Markets Weekly: 20 August 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

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Softbank Group - The Great Unwinding Has Shifted from the Discount to Underlying Value

Virtuous circle themes have been replaced by vicious circle narratives and share price weakness is now driven by declines in asset value with BABA...

Kirk Boodry

HKEx (388.HK): A-Share Index Future Launch, A Game Changer for HKEx Derivative Business

We expect China A-share index future will reshape HKEx with more balanced revenue stream from both cash equity and derivative. We remain bullish on...

Roger Xie

JD.com (JD US): Solid Growth Flying Under the Radar

JD's results may not seem inspirational, but a closer look under the hood reveals a business growing faster than market expectations. I believe JD...

Mitchell Kim

Alibaba Group Holdings Analysis: US Funds Capitulate

We identify a massive holding base in BABA among US Mutual funds, with $24bn in off-benchmark holdings as of Oct 2020. Since then, US Funds have...

Steven Holden

Global Emerging Markets Weekly: 20 August 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA