Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

On a tactical level, both onshore and offshore listed Chinese equities are starting to appear somewhat oversold and would rally sharply if the US offered any meaningful concessions resulting in some sort of agreement in either one or both of the disputes around trade and technology. Taking a more strategic perspective however, the inexorable shift towards a more Autarkic Governance Regime implies severe costs for both the Chinese economy and equity market(s).

On a tactical level, both onshore and offshore listed Chinese equities are starting to appear somewhat oversold and would rally sharply if the US offered any meaningful concessions resulting in some sort of agreement in either one or both of the disputes around trade and technology. Taking a more strategic perspective however, the inexorable shift towards a more Autarkic Governance Regime implies severe costs for both the Chinese economy and equity market(s).

China: The Shift to a More Autarkic Governance Regime Will Hurt the Economy and Investors

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>There could be 2 constituent changes for the <a href="https://www.smartkarma.com/entities/ishares-china-large-cap-etf" target="_blank" data-smartkarma-citation="entities:766:1" rel="noopener">iShares China Large-Cap (FXI) (FXI US)</a> ETF in June.</li>
<li>One of the inclusions will also have inflows from the FGlobal Index at the same time, leading to increased flow and impact.</li>
<li>
<a href="https://www.smartkarma.com/entities/yangtze-optical-fibre-and-cable-joint-stock-ltd-co-class-h" target="_blank" data-smartkarma-citation="entities:83:1" rel="noopener">Yangtze Optical Fibre and Cable (6869 HK)</a>'s discount has widened versus its A-shares, while <a href="https://www.smartkarma.com/entities/crrc-corporation-limited-class-h" target="_blank" data-smartkarma-citation="entities:124:1" rel="noopener">CRRC (1766 HK)</a>'s discount has narrowed versus its A-shares. </li>
</ul>


There could be 2 constituent changes for the iShares China Large-Cap (FXI) (FXI US) ETF in June.
One of the inclusions will also have inflows from the FGlobal Index at the same time, leading to increased flow and impact.

Yangtze Optical Fibre and Cable (6869 HK)'s discount has widened versus its A-shares, while CRRC (1766 HK)'s discount has narrowed versus its A-shares. 


FXI Rebalance Preview: Two Changes Likely in June

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Quantitative Analysis

<ul>
<li>We analyze the monthly Hong Kong Connect flows with our data engine for the month ended May 29th.</li>
<li>We estimate that the net southbound flows in May were $0.6bn Outflows.</li>
<li>We tabulate the top stocks by inflows, outflows, stake changes, and holdings, and highlight flows for SMIC, Alibaba, Tencent, China Mobile, Petrochina.</li>
</ul>


We analyze the monthly Hong Kong Connect flows with our data engine for the month ended May 29th.
We estimate that the net southbound flows in May were $0.6bn Outflows.
We tabulate the top stocks by inflows, outflows, stake changes, and holdings, and highlight flows for SMIC, Alibaba, Tencent, China Mobile, Petrochina.


Hong Kong Connect Flows (May): End of Continuous Monthly Inflows

<ul>
<li>We analysed the earning revision of component stocks of MS-China in the past month.</li>
<li>We tabulated stocks with the top impact on index's EPS, stocks' EPS revision, and revenue revision.</li>
<li>We highlighted EPS revision on Xinjiang Daqo, TENCENT, MEITUAN, TONGWEI, XIAOMI, PDD, NTES.</li>
</ul>


We analysed the earning revision of component stocks of MS-China in the past month.
We tabulated stocks with the top impact on index's EPS, stocks' EPS revision, and revenue revision.
We highlighted EPS revision on Xinjiang Daqo, TENCENT, MEITUAN, TONGWEI, XIAOMI, PDD, NTES.


MS-China Index Earning Revision (May): Xinjiang Daqo, TENCENT, MEITUAN, TONGWEI, XIAOMI, PDD, NTES

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)

<a href="https://www.smartkarma.com/entities/45" target="_blank" data-smartkarma-citation="entities:45:1">China Construction Bank H (939 HK)</a> (CCB) added real estate loans at more than double the amount of total corporate loans during 2018. This is something we see with many of China’s banks in the period. What is also apparent is a sharp drop in real estate NPL ratios during the year - not simply due to a larger denominator. There is nothing anecdotally or otherwise that we have seen, that should suggest a dramatically more healthy China real estate sector, e.g. property development, commercial real estate during 2018 compared with 2017. The risk is that banks are extending substantially more credit here to support weak, frail debtors.  With a weakening economy, this is not likely to last without negative consequences.

China Construction Bank H (939 HK) (CCB) added real estate loans at more than double the amount of total corporate loans during 2018. This is something we see with many of China’s banks in the period. What is also apparent is a sharp drop in real estate NPL ratios during the year - not simply due to a larger denominator. There is nothing anecdotally or otherwise that we have seen, that should suggest a dramatically more healthy China real estate sector, e.g. property development, commercial real estate during 2018 compared with 2017. The risk is that banks are extending substantially more credit here to support weak, frail debtors.  With a weakening economy, this is not likely to last without negative consequences.

China – Soaring Real Estate Loans Makes One Wonder

China

China Construction Bank is a leading commercial bank offering comprehensive financial services including personal and corporate banking, wealth management, and treasury operations. Its products and services encompass infrastructure loans, residential mortgages, bank cards, fund management, and financial leasing. The bank is headquartered in Beijing, China, and was founded in 1954.

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China Construction Bank (939 HK)

China: The Shift to a More Autarkic Governance Regime Will Hurt the Economy and Investors

On a tactical level, both onshore and offshore listed Chinese equities are starting to appear somewhat oversold and would rally sharply if the US...

John-Paul Smith

FXI Rebalance Preview: Two Changes Likely in June

There could be 2 changes for the FXI in June. One of the adds will also be added to a global index at the same time. The H/A discount has widened...

Brian Freitas

Hong Kong Connect Flows (May): End of Continuous Monthly Inflows

We estimate outflows to be $0.6bn from mainland investors to HK stocks in May. We highlight flows for SMIC, Alibaba, Tencent, China Mobile,...

Ke Yan, CFA, FRM

MS-China Index Earning Revision (May): Xinjiang Daqo, TENCENT, MEITUAN, TONGWEI, XIAOMI, PDD, NTES

We analyzed MS-China's consensus for May 2026 and highlighted changes of EPS in Xinjiang Daqo, TENCENT, MEITUAN, TONGWEI, XIAOMI, PDD, NTES.

Ke Yan, CFA, FRM

China – Soaring Real Estate Loans Makes One Wonder

China Construction Bank H (939 HK) (CCB) added real estate loans at more than double the amount of total corporate loans during 2018. This is...

Daniel Tabbush

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