Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>Spreads were mixed this week with 48 out of 100 observed pair spreads narrower and 52 wider. The big winner on the week was Financials with spreads 119bp narrower on average. Banks and Big Insurance generally narrowed. </p>
</div>
<div>
<p>Overall, it was a lackluster performance, and one cannot say spreads won't move wider, but at 40% discount (and an arithmetic average upside of 87% for each liquid H to reach parity with its A), this spreads <em>are</em> wide.</p>
</div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 211.818px;">
<p><strong>Sector</strong></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><strong>Last Week</strong></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><strong>Previous Week</strong></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><strong>3wks Ago</strong></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><strong>4wks Ago</strong></p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Consumer</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.14%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.65%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>-  1.20%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 2.55%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Energy</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.36%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>+ 0.67%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 1.43%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  1.64%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Financials &amp; Real Estate</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>+ 1.19%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.12%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.10%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 0.29%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Health Care &amp; Info Tech</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.54%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  2.86%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 1.45%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  1.52%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Industrials</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.42%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.20%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.26%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  0.62%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Materials</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.33%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  0.84%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 3.08%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  0.57%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Utilities</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  1.25%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  0.14%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.99%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 0.25%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p><em><strong>Sector Average</strong></em></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><em><strong>-  0.26%</strong></em></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><em><strong>-  1.02%</strong></em></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><em><strong>+ 0.87%</strong></em></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><em><strong>-  0.18%</strong></em></p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p><strong>All Market Average</strong></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><strong>- 0.03%</strong></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><strong>-  1.22%</strong></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><strong>+ 0.76%</strong></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><strong>-  0.33%</strong></p>
</td>
</tr>
</tbody>
</table>
</div>
<div>
<div></div>
</div>
<div>
<p>10-day cross-market spread volatility continues to be high at 26% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is quite a bit lower. </p>
</div>
<div>
<div>
<hr>
<h3>The H/A Spread Market</h3>
</div>
</div>
<div>
<p>The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. </p>
</div>
<section>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/678/original/Screenshot+2021-03-07+at+8.28.29+PM.png?1615120136" class="editor-image img-responsive" data-smartkarma-image-id="192678"></figure>
</section>
<p></p>
</section>
<div>
<p>The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% for the past four weeks or so (despite that illiquidity-bump around LNY). </p>
</div>
<section>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/679/original/Screenshot+2021-03-07+at+8.30.27+PM.png?1615120295" class="editor-image img-responsive" data-smartkarma-image-id="192679"></figure>
</section>
</section>
<hr>
<div>
<h2>Last Week's Recommendations</h2>
</div>
<div>
<ul style="list-style-type: disc;">
<li>There were 80 recommendations last week. This was the first losing week on alpha in several. </li>
<li>The 34 short spread recommendations lost an average of 0.12%, underperforming the market as a whole (which saw the average spread widen 0.03%). That is negative alpha of 9bp after positive alpha of 48bp the previous week on 33 spreads.</li>
<li>The 46 long recommendations averaged losses of 4bp during the week, underperforming the market as a whole by 1bp (vs +46bp outperformance the previous week). The combined total package was up -0.07% for the week vs +0.27% for the prior week, with -10bp of cross-bias alpha (vs 92bp of alpha on the cross-bias the previous week).</li>
<li>There are nearly 80 recommendations this week (turnover remains low).  </li>
</ul>
</div>
<hr>
<div>
<div>
<h2>Consumer Sector</h2>
</div>
</div>
<div>
<p>The first sector discussed is Consumer, where most H-shares fell on the week </p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>Spreads were remarkably tame.</li>
<li>
<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> ended the week down 1.1% after rising in the first four days, and the shares even fell Friday despite <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0304/2021030401545.pdf" target="_blank" rel="noopener">announcing</a> Thursday after the close that production was up 125%yoy in February, and sales +106%. BYD is down 20+% in four weeks. </li>
<li>
<a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> was only up small in sympathy, outperforming auto names, and significantly outperforming glass names across other sectors. Thursday saw significant selling of glass names. </li>
<li>Southbound was a net seller of nearly HK$585mm after selling HK$2bn in the previous two weeks. Only <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> saw decent Southbound buying on a net basis (+HK$190mm). BYD was the big net sell at -HK$673mm. </li>
</ul>
</div>
<div>
<div>
<div class="content-highlight">
<p>Last week, I recommended staying long the <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> H vs A, and short <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a>, and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> H vs A. </p>
<p>Those four trades lost an average of 0.16% last week in spread terms after gaining 3.58% the previous week.</p>
</div>
</div>
</div>
<div>
<section class="figure">
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/669/original/Screenshot+2021-03-07+at+7.38.39+PM.png?1615117130" class="editor-image img-responsive" data-smartkarma-image-id="192669"></figure>
<p></p>
</section>
</section>
</div>
<div>
<section>For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section>
</div>


Spreads were mixed this week with 48 out of 100 observed pair spreads narrower and 52 wider. The big winner on the week was Financials with spreads 119bp narrower on average. Banks and Big Insurance generally narrowed. 


Overall, it was a lackluster performance, and one cannot say spreads won't move wider, but at 40% discount (and an arithmetic average upside of 87% for each liquid H to reach parity with its A), this spreads are wide.






Sector


Last Week


Previous Week


3wks Ago


4wks Ago




Consumer


-  0.14%


-  1.65%


-  1.20%


+ 2.55%




Energy


-  0.36%


+ 0.67%


+ 1.43%


-  1.64%




Financials &amp; Real Estate


+ 1.19%


-  1.12%


+ 0.10%


+ 0.29%




Health Care &amp; Info Tech


-  0.54%


-  2.86%


+ 1.45%


-  1.52%




Industrials


-  0.42%


-  1.20%


+ 0.26%


-  0.62%




Materials


-  0.33%


-  0.84%


+ 3.08%


-  0.57%




Utilities


-  1.25%


-  0.14%


+ 0.99%


+ 0.25%




Sector Average


-  0.26%


-  1.02%


+ 0.87%


-  0.18%




All Market Average


- 0.03%


-  1.22%


+ 0.76%


-  0.33%









10-day cross-market spread volatility continues to be high at 26% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is quite a bit lower. 




The H/A Spread Market



The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. 








The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% for the past four weeks or so (despite that illiquidity-bump around LNY). 








Last Week's Recommendations



There were 80 recommendations last week. This was the first losing week on alpha in several. 
The 34 short spread recommendations lost an average of 0.12%, underperforming the market as a whole (which saw the average spread widen 0.03%). That is negative alpha of 9bp after positive alpha of 48bp the previous week on 33 spreads.
The 46 long recommendations averaged losses of 4bp during the week, underperforming the market as a whole by 1bp (vs +46bp outperformance the previous week). The combined total package was up -0.07% for the week vs +0.27% for the prior week, with -10bp of cross-bias alpha (vs 92bp of alpha on the cross-bias the previous week).
There are nearly 80 recommendations this week (turnover remains low).  





Consumer Sector



The first sector discussed is Consumer, where most H-shares fell on the week 



Spreads were remarkably tame.

BYD (1211 HK) ended the week down 1.1% after rising in the first four days, and the shares even fell Friday despite announcing Thursday after the close that production was up 125%yoy in February, and sales +106%. BYD is down 20+% in four weeks. 

Fuyao Glass Industry Group (3606 HK) was only up small in sympathy, outperforming auto names, and significantly outperforming glass names across other sectors. Thursday saw significant selling of glass names. 
Southbound was a net seller of nearly HK$585mm after selling HK$2bn in the previous two weeks. Only Fuyao Glass Industry Group (3606 HK) saw decent Southbound buying on a net basis (+HK$190mm). BYD was the big net sell at -HK$673mm. 





Last week, I recommended staying long the Great Wall Motor (2333 HK) H vs A, and short BYD (1211 HK), Hisense Home Appliances Group Co., Ltd. H (921 HK), and Fuyao Glass Industry Group (3606 HK) H vs A. 
Those four trades lost an average of 0.16% last week in spread terms after gaining 3.58% the previous week.












For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.


Quiddity Weekly H/A: Financials Outpace Everything Else: Marketwide 87% Upside to A-Share Parity

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p>Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.</p><p>While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.</p><p>Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see <a href="https://www.smartkarma.com/insights/credit-suisse-greensill-sows-reputation-risks-underweight-cs-bonds" target="_blank" data-smartkarma-citation="insights:48839" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> for further details.</p><p>Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see <a href="https://www.smartkarma.com/insights/bank-credit-strategy-melt-up-before-meltdown-where-to-position" target="_blank" data-smartkarma-citation="insights:48133" rel="noopener">Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</a> for more details.</p><p>Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.</p><p><strong>Market Outlook</strong>: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.</p>

Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds for further details.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position for more details.Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.Market Outlook: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.

Bank Credit Weekly: One Size Does Not Fit All

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<p>Hong Kong SFC reported aggregate short position for Feb 19 recently. The aggregate short value for equities increased by $1,144m (+1.6%) WoW and increased by $734m (+1.0%) over the preceding four weeks.</p><p>Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($8,575m, +10.8% WoW), Tencent Holdings Limited/700 HK($4,313m, -7.5% WoW), Byd Company Limited/1211 HK($1,777m, +0.1% WoW), Zhongsheng Group Holdings Limited/881 HK($1,523m, +1.9% WoW), Meituan/3690 HK($1,516m, -10.4% WoW).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/760/original/Hong_Kong_Market_Short_Position_Value_%28line%29_and_1W_Changes_%28bar%29_%28%24m%292021-03-02+11_18_20.png?1614655764" class="editor-image img-responsive" data-smartkarma-image-id="191760"></figure></section>

Hong Kong SFC reported aggregate short position for Feb 19 recently. The aggregate short value for equities increased by $1,144m (+1.6%) WoW and increased by $734m (+1.0%) over the preceding four weeks.Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($8,575m, +10.8% WoW), Tencent Holdings Limited/700 HK($4,313m, -7.5% WoW), Byd Company Limited/1211 HK($1,777m, +0.1% WoW), Zhongsheng Group Holdings Limited/881 HK($1,523m, +1.9% WoW), Meituan/3690 HK($1,516m, -10.4% WoW).

HK Short Report: Zijin Mining Shorts +61%

China Suntien Green Energy / Event-Driven

<div>
<p>Several weeks ago, I gave the warning H/A spreads had moved tighter - too far too fast. The next week, spreads widened, they bounced back with a vengeance, then slightly wider in the short week at the start of Chinese New Year, and bouncing back in the post-CNY week.</p>
<p>They have started to move wider again, and given the global form in risk and higher volatility right now, I would not be surprised if they continued a bit wider.</p>
</div><div>
<p>Last week, in the first full week after the end of all the Chinese New Year festivities, all but one sector saw average spreads widen, and market-wide, spreads had their worst week in quite a while.</p>
<table class="table table-striped"><tbody>
<tr>
<td style="width: 198.182px;"><p>Sector</p></td>
<td style="text-align: right; width: 103.636px;"><p>Last Week</p></td>
<td style="text-align: right; width: 135.455px;"><p>Previous Week</p></td>
<td style="text-align: right; width: 100px;"><p>3wks Ago</p></td>
<td style="text-align: right; width: 102.727px;"><p>4wks Ago</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Consumer</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  1.65%</p></td>
<td style="text-align: right; width: 135.455px;"><p>-  1.20%</p></td>
<td style="text-align: right; width: 100px;"><p>+ 2.55%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 2.32%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Energy</p></td>
<td style="text-align: right; width: 103.636px;"><p>+ 0.67%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 1.43%</p></td>
<td style="text-align: right; width: 100px;"><p>-  1.64%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 1.98%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Financials &amp; Real Estate</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  1.12%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 0.10%</p></td>
<td style="text-align: right; width: 100px;"><p>+ 0.29%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 0.62%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Health Care &amp; Info Tech</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  2.86%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 1.45%</p></td>
<td style="text-align: right; width: 100px;"><p>-  1.52%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 2.29%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Industrials</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  1.20%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 0.26%</p></td>
<td style="text-align: right; width: 100px;"><p>-  0.62%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 2.48%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Materials</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  0.84%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 3.08%</p></td>
<td style="text-align: right; width: 100px;"><p>-  0.57%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 2.66%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Utilities</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  0.14%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 0.99%</p></td>
<td style="text-align: right; width: 100px;"><p>+ 0.25%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 1.06%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p>Sector Average</p></td>
<td style="text-align: right; width: 103.636px;"><p>-  1.02%</p></td>
<td style="text-align: right; width: 135.455px;"><p>+ 0.87%</p></td>
<td style="text-align: right; width: 100px;"><p>-  0.18%</p></td>
<td style="text-align: right; width: 102.727px;"><p>+ 1.92%</p></td>
</tr>
<tr>
<td style="width: 198.182px;"><p><strong>All Market Average</strong></p></td>
<td style="text-align: right; width: 103.636px;"><p><strong>-  1.22%</strong></p></td>
<td style="text-align: right; width: 135.455px;"><p><strong>+ 0.76%</strong></p></td>
<td style="text-align: right; width: 100px;"><p><strong>-  0.33%</strong></p></td>
<td style="text-align: right; width: 102.727px;"><p><strong>+ 1.80%</strong></p></td>
</tr>
</tbody></table>
<p>Developers saw their Hs rise dramatically on the week on new rules about land sales which would appear to favor large developers over smaller developers, but few have an H/A spread presence.</p>
</div><div><div>
<hr>
<h3>The H/A Spread Market</h3>
</div></div><div>
<p>The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/379/original/Screenshot+2021-02-28+at+7.50.25+PM.png?1614513037" class="editor-image img-responsive" data-smartkarma-image-id="191379"></figure></section>
</div><p>The average discount appears not to want to tighten. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/402/original/Screenshot+2021-02-28+at+9.36.30+PM.png?1614519456" class="editor-image img-responsive" data-smartkarma-image-id="191402"></figure></section><p></p><h2>Last Week's Recommendations</h2><ul>
<li>There were 78 recommendations last week. </li>
<li>The 33 short recommendations gained an average of 1.70%, outperforming the market as a whole (which saw the average spread widen 1.22%). That is alpha of 48bp.</li>
<li>The 45 long recommendations averaged losses of 76bp during the week, outperforming the market as a whole by 46bp. The combined total package was up 0.27% for the week, with 92bp of alpha on the cross-bias. </li>
</ul><hr><section><div><h2>Consumer Sector</h2></div>
<div><p>The first sector discussed is Consumer, where liquid H/A spreads widened on average 1.65% over the past week, with the sector continuing to see significant bumpiness. </p></div>
<div><ul>
<li>
<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> saw its spread move 2.9% narrower last week after widening 3.1% in the previous two weeks. It is now 3.7% narrower over four weeks.  <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> narrowed too, but the others in the space widened. </li>
<li>All but one stock in the sector saw its H-share decline in double digit percentages. The average H in the sector moved down 15.9% in the week. Only <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> was spared that indignity, seeings its H fall 'only' 9.7%.</li>
<li>Southbound was a net seller of nearly HK$2bn of stock since the 10th of February, purchasing only <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> on a net basis.</li>
</ul></div>
<div><div><div class="content-highlight">
<p>Last week, I recommended staying long the <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a>, and short <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a>, and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> H vs A. </p>
<p>Those four trades gained an average of 3.58% in spread terms on the week.</p>
</div></div></div>
<section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/384/original/Screenshot+2021-02-28+at+8.09.50+PM.png?1614514204" class="editor-image img-responsive" data-smartkarma-image-id="191384"></figure><p></p></section></section></section><section><em>For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</em></section></section>


Several weeks ago, I gave the warning H/A spreads had moved tighter - too far too fast. The next week, spreads widened, they bounced back with a vengeance, then slightly wider in the short week at the start of Chinese New Year, and bouncing back in the post-CNY week.
They have started to move wider again, and given the global form in risk and higher volatility right now, I would not be surprised if they continued a bit wider.

Last week, in the first full week after the end of all the Chinese New Year festivities, all but one sector saw average spreads widen, and market-wide, spreads had their worst week in quite a while.


Sector
Last Week
Previous Week
3wks Ago
4wks Ago


Consumer
-  1.65%
-  1.20%
+ 2.55%
+ 2.32%


Energy
+ 0.67%
+ 1.43%
-  1.64%
+ 1.98%


Financials &amp; Real Estate
-  1.12%
+ 0.10%
+ 0.29%
+ 0.62%


Health Care &amp; Info Tech
-  2.86%
+ 1.45%
-  1.52%
+ 2.29%


Industrials
-  1.20%
+ 0.26%
-  0.62%
+ 2.48%


Materials
-  0.84%
+ 3.08%
-  0.57%
+ 2.66%


Utilities
-  0.14%
+ 0.99%
+ 0.25%
+ 1.06%


Sector Average
-  1.02%
+ 0.87%
-  0.18%
+ 1.92%


All Market Average
-  1.22%
+ 0.76%
-  0.33%
+ 1.80%


Developers saw their Hs rise dramatically on the week on new rules about land sales which would appear to favor large developers over smaller developers, but few have an H/A spread presence.


The H/A Spread Market

The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. 

The average discount appears not to want to tighten. Last Week's Recommendations
There were 78 recommendations last week. 
The 33 short recommendations gained an average of 1.70%, outperforming the market as a whole (which saw the average spread widen 1.22%). That is alpha of 48bp.
The 45 long recommendations averaged losses of 76bp during the week, outperforming the market as a whole by 46bp. The combined total package was up 0.27% for the week, with 92bp of alpha on the cross-bias. 
Consumer Sector
The first sector discussed is Consumer, where liquid H/A spreads widened on average 1.65% over the past week, with the sector continuing to see significant bumpiness. 


BYD (1211 HK) saw its spread move 2.9% narrower last week after widening 3.1% in the previous two weeks. It is now 3.7% narrower over four weeks.  Great Wall Motor (2333 HK) narrowed too, but the others in the space widened. 
All but one stock in the sector saw its H-share decline in double digit percentages. The average H in the sector moved down 15.9% in the week. Only Guangzhou Automobile Group (2238 HK) was spared that indignity, seeings its H fall 'only' 9.7%.
Southbound was a net seller of nearly HK$2bn of stock since the 10th of February, purchasing only Fuyao Glass Industry Group (3606 HK) on a net basis.


Last week, I recommended staying long the Great Wall Motor (2333 HK), and short BYD (1211 HK), Hisense Home Appliances Group Co., Ltd. H (921 HK), and Fuyao Glass Industry Group (3606 HK) H vs A. 
Those four trades gained an average of 3.58% in spread terms on the week.

For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.

Quiddity Weekly H/A: Strong Dispersion, Strong Alpha; Brokers Beat Banks

<p>Asia headquartered banks fared well despite the global tantrum without taper in the Treasury markets. Asia headquartered bond prices fell by less than their benchmark Treasury market notes, resulting in a bout of credit outperformance. Almost all bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Moderate duration, lower risk, bonds continued to outperform, although there were pockets of outperformance in China-headquartered Additional Tier 1 bonds.</p><p>Bonds in the belly of the curve, that is those maturing or callable in five-years, outperformed longer dated notes. Moderate duration bonds led as investors lost faith in an inflation free economic recovery which would cap market rate rises. This is the opposite of last weeks’ performance, wherein even longer-duration note outperformed. That seemed odd given policymakers repeated statements that they would let the US economy run hot at the risk of stoking inflation. The rapid sell-off in US Treasuries during the week is evidence of market jitters regarding eventual inflation expectations.</p><p>The pressure on U.S. Treasuries is largely in-line with what we have been cautioning on since the Senate run-off results in Georgia last month. Friday’s correction at the long end may be tested again.</p><p>Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.</p><p>Given the rate of change over the last two weeks, things are moving fast. We identify potential opportunities within. <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank of India (SBIN IN)</a> represents one credit curve where better opportunities exist in shorter duration bonds, however, <a href="https://www.smartkarma.com/entities/bank-mandiri-persero-tbk-pt" target="_blank" data-smartkarma-citation="entities:441:1" rel="noopener">Bank Mandiri (BMRI IJ)</a> may offer even better values, as we note within.</p><p><strong>Market Outlook</strong>: This week’s Treasury market tantrum was not induced by Fed tapering, but it is a reminder of what it may look like when the Fed does dial back its asset purchases. Combined with the strength of the risk-on moves, this makes us uneasy. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ.  There is limited price discover as the market is simply sentiment driven. Credit value should remain driven by larger market forces. However, we may be fast approaching a point where the market outpaces the rate of expected economic recovery, and / or the market outpaces the rate that can be achieved without incurring substantial financial stability concerns. Our preference is for lower duration bonds, preferably in the belly of the curve. Please see our recent <a href="https://www.smartkarma.com/insights/bank-macro-manifest-risk-rally-gathers-steam-as-bad-news-more-stimulus" target="_blank" rel="noopener">Bank Macro Manifest</a> and <a href="https://www.smartkarma.com/insights/bank-credit-strategy-melt-up-before-meltdown-where-to-position" target="_blank" rel="noopener">Bank Credit Strategy</a> notes for more details.</p>

Asia headquartered banks fared well despite the global tantrum without taper in the Treasury markets. Asia headquartered bond prices fell by less than their benchmark Treasury market notes, resulting in a bout of credit outperformance. Almost all bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Moderate duration, lower risk, bonds continued to outperform, although there were pockets of outperformance in China-headquartered Additional Tier 1 bonds.Bonds in the belly of the curve, that is those maturing or callable in five-years, outperformed longer dated notes. Moderate duration bonds led as investors lost faith in an inflation free economic recovery which would cap market rate rises. This is the opposite of last weeks’ performance, wherein even longer-duration note outperformed. That seemed odd given policymakers repeated statements that they would let the US economy run hot at the risk of stoking inflation. The rapid sell-off in US Treasuries during the week is evidence of market jitters regarding eventual inflation expectations.The pressure on U.S. Treasuries is largely in-line with what we have been cautioning on since the Senate run-off results in Georgia last month. Friday’s correction at the long end may be tested again.Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.Given the rate of change over the last two weeks, things are moving fast. We identify potential opportunities within. State Bank of India (SBIN IN) represents one credit curve where better opportunities exist in shorter duration bonds, however, Bank Mandiri (BMRI IJ) may offer even better values, as we note within.Market Outlook: This week’s Treasury market tantrum was not induced by Fed tapering, but it is a reminder of what it may look like when the Fed does dial back its asset purchases. Combined with the strength of the risk-on moves, this makes us uneasy. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ.  There is limited price discover as the market is simply sentiment driven. Credit value should remain driven by larger market forces. However, we may be fast approaching a point where the market outpaces the rate of expected economic recovery, and / or the market outpaces the rate that can be achieved without incurring substantial financial stability concerns. Our preference is for lower duration bonds, preferably in the belly of the curve. Please see our recent Bank Macro Manifest and Bank Credit Strategy notes for more details.

Bank Credit Weekly: Asia Credit Outperforms Despite Treasury Tantrum

China

China Merchants Bank Co., Ltd. operates as a commercial bank. The Company provides deposits, loans, wealth management, asset custody, finance leasing, investment banking, and other banking services. China Merchants Bank conducts businesses domestically and internationally.

Price Gauge
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China Merchants Bank H (3968 HK)

Bank Credit Weekly: One Size Does Not Fit All

Performance attributes varied amongst bank credit classes. Short duration in IG financials combined with high credit spreads in HY and more...

Hank Calenti, CFA

HK Short Report: Zijin Mining Shorts +61%

The aggregate short value for equities increased by $1,144m (+1.6%) WoW and increased by $734m (+1.0%) over the preceding four weeks.

Ke Yan, CFA, FRM

Quiddity Weekly H/A: Strong Dispersion, Strong Alpha; Brokers Beat Banks

Great alpha last week as shorts beat by 48bp, longs beat by 46bp. Southbound saw one really big sell day, but on the week, buying continued apace...

Travis Lundy

Bank Credit Weekly: Asia Credit Outperforms Despite Treasury Tantrum

Global bank bond prices fell by less than their benchmark notes, resulting in a bout of credit outperformance. Given the rate of change, there are...

Hank Calenti, CFA

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52-week Range

Market Cap (USDm)

P/E

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Quiddity Weekly H/A: Financials Outpace Everything Else: Marketwide 87% Upside to A-Share Parity

H/A spreads were largely unchanged on the week but more widened than narrowed. Financials was the only sector narrower on the whole. With average...

Travis Lundy

Bank Credit Weekly: One Size Does Not Fit All

Performance attributes varied amongst bank credit classes. Short duration in IG financials combined with high credit spreads in HY and more...

Hank Calenti, CFA

HK Short Report: Zijin Mining Shorts +61%

The aggregate short value for equities increased by $1,144m (+1.6%) WoW and increased by $734m (+1.0%) over the preceding four weeks.

Ke Yan, CFA, FRM

Quiddity Weekly H/A: Strong Dispersion, Strong Alpha; Brokers Beat Banks

Great alpha last week as shorts beat by 48bp, longs beat by 46bp. Southbound saw one really big sell day, but on the week, buying continued apace...

Travis Lundy

Bank Credit Weekly: Asia Credit Outperforms Despite Treasury Tantrum

Global bank bond prices fell by less than their benchmark notes, resulting in a bout of credit outperformance. Given the rate of change, there are...

Hank Calenti, CFA