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

Thematic (Sector/Industry)

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Asia Ex-Japan Financials.  Slowly Regaining the Faith.

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

Equity Bottom-Up

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio. 

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Ping An A-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</a> are trading at parity versus the H-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>. This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

Insurance, Fintech & EM-focused Analyst, KT Capital Group, KT Capital Group

Alec Tseung

Insurance, Fintech & EM-focused Analyst, KT Capital Group

China Life Insurance Company / Equity Bottom-Up

The article used 5 charts to showcase the progress of the "revitalization" strategy launched by <a href="https://www.smartkarma.com/entities/china-life-insurance-co-ltd-9f877d22-7cf7-4b00-b525-cec71139f369" target="_blank" data-smartkarma-citation="entities:5794:1" rel="noopener">China Life Insurance Co H (2628 HK)</a> in 2019.These charts indicated that China Life is on the right track of executing its transformation and has seen improving growth profile and margin since then. However, such improvement in its fundamentals has unlikely been priced in yet, as evidenced by the company's sluggish share price performance since the end of 2019.Regression analysis using regional peers indicated that the company is currently undervalued and has a potential upside of around 20% if its current P/B is to trade in line with the justifiable P/B.

The article used 5 charts to showcase the progress of the "revitalization" strategy launched by China Life Insurance Co H (2628 HK) in 2019.These charts indicated that China Life is on the right track of executing its transformation and has seen improving growth profile and margin since then. However, such improvement in its fundamentals has unlikely been priced in yet, as evidenced by the company's sluggish share price performance since the end of 2019.Regression analysis using regional peers indicated that the company is currently undervalued and has a potential upside of around 20% if its current P/B is to trade in line with the justifiable P/B. 

5 Charts to Gauge the Progress of China Life's "Revitalization" Strategy

China

China Life Insurance Company Ltd. offers a wide range of life, accident, and health insurance products and services.

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China Life Insurance Company (2628 HK)

Asia Ex-Japan Financials. Slowly Regaining the Faith.

Active Asia Ex-Japan managers move back in to the Financials sector after a period of heavy rotation, however allocations remain well below...

Steven Holden

Ping An Insurance – It’s Magic

PING AN INSURANCE: Ping An reported a QOQ 1Q21 earnings decline of 32.0% due and investment income decline and an expense increase. Despite the...

Thomas J. Monaco

AIA Group – Headlong Into China

AIA GROUP: Concerned about weakening organic growth, AIA has gone on a deal-making spree, leading to massive managerial distractions. Fundamental...

Thomas J. Monaco

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

With the Ping An Insurance A-shares trading at parity to the H-shares, the risk/reward favours an AH Premium expansion trade. Watch for change in H...

Brian Freitas

5 Charts to Gauge the Progress of China Life's "Revitalization" Strategy

China Life has seen improving growth and margin since the launch of its revitalization strategy. Its current valuation has not priced in such...

Alec Tseung

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