Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul>
<li>The investor rotation into value focusing in on EM and DM banks; our key picks are <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a>, <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> in EM banks, and <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>, and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> in Southern Europe banks</li>
<li>Exchanges and Big Data, the convergence; <a href="https://www.smartkarma.com/entities/intercontinental-exchange-inc" target="_blank" data-smartkarma-citation="entities:10221:1" rel="noopener">Intercontinental Exchange (ICE US)</a> is strong on recurring revenues, and both ICE and <a href="https://www.smartkarma.com/entities/s-p-global-inc" target="_blank" data-smartkarma-citation="entities:9735:1" rel="noopener">S&amp;P Global Inc. (SPGI US)</a> should deliver shareholder value creation from transformative M&amp;A</li>
<li>Potential for premium growth and returns in digital payments; we like <a href="https://www.smartkarma.com/entities/nexi-spa" target="_blank" data-smartkarma-citation="entities:28921:1" rel="noopener">Nexi SpA (NEXI IM)</a>, where we see clear benefits from its M&amp;A, and we see <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a> as a core holding</li>
<li>Digital wealth managers focus on the mass affluent; <a href="https://www.smartkarma.com/entities/finecobank-banca-fineco-spa" target="_blank" data-smartkarma-citation="entities:21188:1" rel="noopener">Finecobank Banca Fineco (FBK IM)</a> stands out in Europe, <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a> is the leader in Brazil but looks over-valued and exposed to increased competition, in our view</li>
<li>Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals</li>
</ul>


The investor rotation into value focusing in on EM and DM banks; our key picks are Credicorp Ltd (BAP US), Turkiye Garanti Bankasi As (GARAN TI), Commercial International Bank (COMI EY) in EM banks, and UniCredit SpA (UCG IM), CaixaBank SA (CABK SM), and BPER Banca S.p.A (BPE IM) in Southern Europe banks
Exchanges and Big Data, the convergence; Intercontinental Exchange (ICE US) is strong on recurring revenues, and both ICE and S&amp;P Global Inc. (SPGI US) should deliver shareholder value creation from transformative M&amp;A
Potential for premium growth and returns in digital payments; we like Nexi SpA (NEXI IM), where we see clear benefits from its M&amp;A, and we see Paypal Holdings (PYPL US) as a core holding
Digital wealth managers focus on the mass affluent; Finecobank Banca Fineco (FBK IM) stands out in Europe, XP Inc (XP US) is the leader in Brazil but looks over-valued and exposed to increased competition, in our view
Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals


FinTech & Financial Investment Themes 2021

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on December 3, 2020 released finalized standards for the country’s domestic systemically important banks (D-SIBs), and indicated that tighter regulations will be announced shortly; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on December 3, 2020 released finalized standards for the country’s domestic systemically important banks (D-SIBs), and indicated that tighter regulations will be announced shortly; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Export Restrictions On SMIC: The US Commerce Department has reportedly imposed export restrictions on mainland China’s SMIC (largest semiconductor firm), with American US firms being required to apply for a license in order to export certain products to SMIC. These restrictions were reportedly implemented due to "an unacceptable risk of diversion to a military end use" and confirmed the recent market speculation of US action against SMIC;*Unreliable Entity List: Mainland China’s Ministry of Commerce finally issued regulations for its “unreliable entity” list aimed at foreign companies that it deems endanger national sovereignty, security, or development interests. Companies which end up on the list could be banned from importing/exporting from/to mainland China, and may be barred from investing in the country; and*Taiwan Flashpoint Coming: Rhetoric between is also being ramped up militarily between both sides over Taiwan, as the US government is contemplating providing Taiwan with an advanced defensive system and provocations of more "high-level official visits to Taiwan" by U.S. officials.

*Export Restrictions On SMIC: The US Commerce Department has reportedly imposed export restrictions on mainland China’s SMIC (largest semiconductor firm), with American US firms being required to apply for a license in order to export certain products to SMIC. These restrictions were reportedly implemented due to "an unacceptable risk of diversion to a military end use" and confirmed the recent market speculation of US action against SMIC;*Unreliable Entity List: Mainland China’s Ministry of Commerce finally issued regulations for its “unreliable entity” list aimed at foreign companies that it deems endanger national sovereignty, security, or development interests. Companies which end up on the list could be banned from importing/exporting from/to mainland China, and may be barred from investing in the country; and*Taiwan Flashpoint Coming: Rhetoric between is also being ramped up militarily between both sides over Taiwan, as the US government is contemplating providing Taiwan with an advanced defensive system and provocations of more "high-level official visits to Taiwan" by U.S. officials.

Trump Administration Continues to Ratchet Up The Pressure

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Almost a year ago, on 31 October 2019, the PBOC announced that after years of preparation (by the PBOC's Digital Currency Research Institute (央行数字货币研究所), established in 2017 and tasked with digital currency development and testing with counterparts, three years after the study effort was launched by then-Governor of the PBOC Xiaochuan Zhou in 2014), an official "digital renmimbi" would shortly be released. This "digital currency" is adapted to the world of cashless mobile payments, relevant for China as something like four out of every five payment transactions in China are now made through smartphone payment systems such as <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>'s AliPay and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>'s WeChat Pay according to a May 2020 <a href="https://www.scmp.com/economy/china-economy/article/3083952/what-chinas-cryptocurrency-sovereign-digital-currency-and-why" target="_blank" rel="noopener">article</a> in the SCMP.Known as the Digital Currency Electronic Payment (DC/EP or "DCEP"), this sovereign digital currency issued by the central bank is designed to replace cash circulation - called M0 in monetary system language - and pass through a PBOC-approved electronic wallet application, which would be linked to a bank card/account, and would allow payment or receipt of digital renmimbi through merchants the way AliPay and WeChat Pay are used, or ATMs the way a bank card is used. It turns the mobile phone into a payment terminal or ATM. Interestingly, the system is also designed to be used offline - by phones being bumped together.Ultimately, this digital currency (数字货币) is designed to track transactions between parties, providing the PBOC with a better understanding of the flow of money, credit, and person-to-person transfer of funds, allowing for more real-time understanding at the PBOC of money supply and money velocity. Eventually, it could also be used to track all money flow for regulatory and tax purposes. In addition, the concept can be expanded to use cases for international trade and the PBOC is not shy about proclaiming that use case.But what is it? How does it work? What is the purpose? Will it really mean the world moves to the RMB as a reserve currency?Much more discussion continues below the fold.

Almost a year ago, on 31 October 2019, the PBOC announced that after years of preparation (by the PBOC's Digital Currency Research Institute (央行数字货币研究所), established in 2017 and tasked with digital currency development and testing with counterparts, three years after the study effort was launched by then-Governor of the PBOC Xiaochuan Zhou in 2014), an official "digital renmimbi" would shortly be released. This "digital currency" is adapted to the world of cashless mobile payments, relevant for China as something like four out of every five payment transactions in China are now made through smartphone payment systems such as Alibaba Group (BABA US)'s AliPay and Tencent Holdings (700 HK)'s WeChat Pay according to a May 2020 article in the SCMP.Known as the Digital Currency Electronic Payment (DC/EP or "DCEP"), this sovereign digital currency issued by the central bank is designed to replace cash circulation - called M0 in monetary system language - and pass through a PBOC-approved electronic wallet application, which would be linked to a bank card/account, and would allow payment or receipt of digital renmimbi through merchants the way AliPay and WeChat Pay are used, or ATMs the way a bank card is used. It turns the mobile phone into a payment terminal or ATM. Interestingly, the system is also designed to be used offline - by phones being bumped together.Ultimately, this digital currency (数字货币) is designed to track transactions between parties, providing the PBOC with a better understanding of the flow of money, credit, and person-to-person transfer of funds, allowing for more real-time understanding at the PBOC of money supply and money velocity. Eventually, it could also be used to track all money flow for regulatory and tax purposes. In addition, the concept can be expanded to use cases for international trade and the PBOC is not shy about proclaiming that use case.But what is it? How does it work? What is the purpose? Will it really mean the world moves to the RMB as a reserve currency?Much more discussion continues below the fold.

The NEW Chinese CBDC (DCEP - 数字货币) - Not Quite All The Money in China

China

Ant Group Co., Ltd. develops online payment platforms. The Company produces credit system and financial services platforms which provide consumers and small businesses with safe and convenient inclusive financial services globally. Ant Group provides its services worldwide.

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Ant Group (6688 HK)

FinTech & Financial Investment Themes 2021

Our key 2021 investment themes and ideas in EM and S Europe banks, exchanges and data providers, digital payments companies and digital wealth...

Victor Galliano

China Banks – About Time

CHINA BANKS: PBOC and CBIRC Released Finalized D-SIB Standards and Indicated Tighter Regulations. Aggressive Capital Raises Are Expected.

Thomas J. Monaco

Another Day, Another Default

MAINLAND CHINA DEFAULT: Yongcheng Coal Defaulted On Its Debt, Leading To Concerns About The Credibility Of AAA Rated Corporates In Mainland China...

Thomas J. Monaco

Trump Administration Continues to Ratchet Up The Pressure

*Export Restrictions On SMIC: The US Commerce Department has reportedly imposed export restrictions on mainland China’s SMIC (largest semiconductor...

Thomas J. Monaco

The NEW Chinese CBDC (DCEP - 数字货币) - Not Quite All The Money in China

Almost a year ago, on 31 October 2019, the PBOC announced that after years of preparation, an official "digital renmimbi" would bre releas

Travis Lundy

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