Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
<table class="table table-striped">
<tbody>
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<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
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<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
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In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

Chief Economist

Diana Choyleva

Enodo Economics

Enodo Economics is an independent macroeconomic forecasting company that untangles complexity, challenges the consensus, and makes sense of the future. Our focus is on China – one of the most misunderstood economies in the world, but one of the most important to figure out.  Enodo’s chief economist, Diana Choyleva, has been analysing China for almost 20 years, while Enodo’s team boasts a combined 140 years’ experience covering China’s economy, politics and markets. 

Macroeconomics

<h2>China News That Matters</h2><ul>
<li>Traffic jams, new airports and Cuban cigars</li>
<li>Chinese automakers to build 8 million electric cars a year</li>
<li>US trade rep awaits talks to decide tariff fate</li>
<li>Climate change may flood the (Silk) Belt and Road</li>
<li>Nine months, 90-plus arrests: Hong Kong’s national security law</li>
</ul><div class="content-remarks">In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div>

China News That Matters
Traffic jams, new airports and Cuban cigars
Chinese automakers to build 8 million electric cars a year
US trade rep awaits talks to decide tariff fate
Climate change may flood the (Silk) Belt and Road
Nine months, 90-plus arrests: Hong Kong’s national security law
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Consumption/ Electric Cars/ US-China/ Climate/ Hong Kong

<h2>China News That Matters</h2><ul>
<li>Even better than PMQs!</li>
<li>US and China agree: you’re the main threat</li>
<li>I’m forever blowing…</li>
<li>Minting tycoons, and keeping them in check</li>
<li>The world’s longest undersea rail tunnel</li>
</ul><div class="content-remarks">In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div>

China News That Matters
Even better than PMQs!
US and China agree: you’re the main threat
I’m forever blowing…
Minting tycoons, and keeping them in check
The world’s longest undersea rail tunnel
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

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

*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.

Equity Research in HK and Mainland China

Li Tang

For China regulator, the challenge is to keep the economic ship steady while avoiding creating asset market bubble such as real estate sector. Pan Gongsheng, deputy governor at the PBOC, said last week the central bank would focus on improving the macro-prudential monitoring, evaluating, and alerting systems in key areas including real estate financing.
We believe PBOC liquidity policy object towards real estate is adjusting from a reasonably hands-off approach in H1 to allow the property to support growth to mixed goals: curbing financial risks (developer debt/fast-rising land prices) and still allowing a property to support growth (given macro risks).
There are signs of a more stringent real estate financial regime in Q4 as regulators are seeking more transparency from property developers, calling for more details about current debts, to rein in borrowing costs and quell broader financial impacts.

For China regulator, the challenge is to keep the economic ship steady while avoiding creating asset market bubble such as real estate sector. Pan Gongsheng, deputy governor at the PBOC, said last week the central bank would focus on improving the macro-prudential monitoring, evaluating, and alerting systems in key areas including real estate financing.
We believe PBOC liquidity policy object towards real estate is adjusting from a reasonably hands-off approach in H1 to allow the property to support growth to mixed goals: curbing financial risks (developer debt/fast-rising land prices) and still allowing a property to support growth (given macro risks).
There are signs of a more stringent real estate financial regime in Q4 as regulators are seeking more transparency from property developers, calling for more details about current debts, to rein in borrowing costs and quell broader financial impacts.

China Developer Bond Issuance Still Grow Despite Tightening

China

China Evergrande Group was a major Chinese property developer, known for large-scale residential projects and diversified operations in property management, new energy vehicles, cultural tourism, and health industries. The company was founded in 1996 and was headquartered in Shenzhen, China.

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China Evergrande (3333 HK)

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

Consumption/ Electric Cars/ US-China/ Climate/ Hong Kong

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

NPC/ US-China/ Bubbles/ Jack Ma/ Taiwan

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

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

China Developer Bond Issuance Still Grow Despite Tightening

The new real estate financial rules have not yet had an impact on developers,China Developer bond issuance still grow despite tightening rule.

Li Tang

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