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

Cross Asset Strategy

<ul>
<li>Allocations in China &amp; HK Banks are at depressed levels. The percentage of funds with exposure has fallen from a high of 78% in 2011 to just 58.2% today.</li>
<li>More funds have exposure to Mexico, Brazil and Indonesian Banks.  Versus benchmark, China Banks are the 2nd largest Bank country underweight.</li>
<li>For the major stocks in the sector, we see a picture of low positioning and declining sentiment.  </li>
</ul>


Allocations in China &amp; HK Banks are at depressed levels. The percentage of funds with exposure has fallen from a high of 78% in 2011 to just 58.2% today.
More funds have exposure to Mexico, Brazil and Indonesian Banks.  Versus benchmark, China Banks are the 2nd largest Bank country underweight.
For the major stocks in the sector, we see a picture of low positioning and declining sentiment.  


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.

Thematic (Sector/Industry)

<p style="text-align: justify;">There is a major difference in risk profile of China and US banks. We have discussed at length in our recent report, the significantly higher level of reserves at US banks during 1H20. For China's banks newly accumulated loan loss reserves (LLR) in the 1H20 is almost zero. US banks have seen a doubling of LLR and the ratio of LLR/loans has increased dramatically. This is wholly different to China banks. And this is not the only concern: China's banks have been lending more aggressively than most all others in Asia, while their hybrid capital is increasing as a proportion of total capital. </p>

There is a major difference in risk profile of China and US banks. We have discussed at length in our recent report, the significantly higher level of reserves at US banks during 1H20. For China's banks newly accumulated loan loss reserves (LLR) in the 1H20 is almost zero. US banks have seen a doubling of LLR and the ratio of LLR/loans has increased dramatically. This is wholly different to China banks. And this is not the only concern: China's banks have been lending more aggressively than most all others in Asia, while their hybrid capital is increasing as a proportion of total capital. 

China Banks – Subtle Risk Deterioration

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In additional to highlighting important technical levels across major markets, we reiterate our recommendation to add exposure to global financials, and highlight a number of attractive Financial stocks, with an emphasis on UK and European names. </p>

Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In additional to highlighting important technical levels across major markets, we reiterate our recommendation to add exposure to global financials, and highlight a number of attractive Financial stocks, with an emphasis on UK and European names. 

Global Equity Strategy: EU and UK Financial Stocks Are Attractive

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

Index Rebalance

GigaDevice Semiconductor  / Index Rebalance

<ul>
<li>With the review period complete, there are 5 non-constituents in direct inclusion zone and 5 current constituents in direct deletion zone. However, as usual, there will be discretion used.</li>
<li>5 changes result in a one-way turnover of 6.4%, leading to a round-trip trade of CNY 13bn (US$1.9bn). Index arb balances will increase the impact on the stocks.</li>
<li>Impact on the forecast adds varies between 0.2-0.3x ADV while the impact on the forecast deletes is a lot higher at 0.5-1.9x ADV. Index arb balance will further increase flow/impact.</li>
</ul>


With the review period complete, there are 5 non-constituents in direct inclusion zone and 5 current constituents in direct deletion zone. However, as usual, there will be discretion used.
5 changes result in a one-way turnover of 6.4%, leading to a round-trip trade of CNY 13bn (US$1.9bn). Index arb balances will increase the impact on the stocks.
Impact on the forecast adds varies between 0.2-0.3x ADV while the impact on the forecast deletes is a lot higher at 0.5-1.9x ADV. Index arb balance will further increase flow/impact.


SSE50 Index Rebalance Preview: Forecast Changes & Borderline Names for June

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cmoc-group-ltd" target="_blank" data-smartkarma-citation="entities:28168:1" rel="noopener">CMOC (603993 CH)</a> and <a href="https://www.smartkarma.com/entities/sungrow-power-supply-co-ltd" target="_blank" data-smartkarma-citation="entities:4255:1" rel="noopener">Sungrow Power Supply (300274 CH)</a> will replace <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> and <a href="https://www.smartkarma.com/entities/bank-of-jiangsu-co-ltd" target="_blank" data-smartkarma-citation="entities:27216:1" rel="noopener">Bank of Jiangsu (600919 CH)</a> in the ETFs at the close on 19 December.</li>
<li>Passive trackers will need to trade between 0.1-0.5 days of ADV in the constituent changes.</li>
<li>The adds have outperformed the deletes by a big margin over the last 6 months. After a period of underperformance in November, the adds have started moving higher again.</li>
</ul>



CMOC (603993 CH) and Sungrow Power Supply (300274 CH) will replace S.F. Holding (002352 CH) and Bank of Jiangsu (600919 CH) in the ETFs at the close on 19 December.
Passive trackers will need to trade between 0.1-0.5 days of ADV in the constituent changes.
The adds have outperformed the deletes by a big margin over the last 6 months. After a period of underperformance in November, the adds have started moving higher again.


China A50 ETF Rebalance: Two Sets of Changes

China

Bank of Jiangsu Co., Ltd. operates as a commercial bank. The Company offers deposits, loans, gross settlement, investment, wealth management, bill discounting, online banking, and other banking services. Bank of Jiangsu also conducts internet finance businesses.

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Bank of Jiangsu (600919 CH)

China & HK Banks: Optimism Fading

EM Funds show declining appetite for China & HK Banks exposure as positioning slumps to all-time lows. Mexico, India and Indonesia remain favoured...

Steven Holden

China Banks – Subtle Risk Deterioration

There is a major difference in risk profile of China and US banks. Here we are specifically referring to the degree of accumulated loan loss...

Daniel Tabbush

Global Equity Strategy: EU and UK Financial Stocks Are Attractive

Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward. ...

Vermilion Research

SSE50 Index Rebalance Preview: Forecast Changes & Borderline Names for June

There could be 5 changes. Estimated one-way turnover is 6.4% and round-trip trade is CNY 13bn (US$1.9bn). Index arb balance will increase flow and...

Brian Freitas

China A50 ETF Rebalance: Two Sets of Changes

CMOC and Sungrow Power will replace SF Holdings and Bank of Jiangsu in the A50 ETFs in December. Both sets of changes were expected and passive...

Brian Freitas

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