Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) Alibaba: Antitrust Concerns2) Tencent Under Pressure From Antitrust Push3) POTUS Executive Order: New OFAC Clarification 4) China Logistics: Major Shareholders Seek to Exit 5) Kuaishou Technology IPO6) Yidu Tech IPO7) TOPIX Inclusion: ODK Solutions 8) New Horizon IPO9) Goldwin Bullish for Future Growth10) Yaoko: A Difficult 2021 Coming11) IQIYI Valuation12) Digital Currency: Still Remember Facebook Libra/​Diem?13) China Dental Care Industry14) ZTO Express &amp; BEST Inc15) Infrastructure Asset-Backed Securities: New Asset Class for Asia16) Japan Airport Terminal17) Will Biden Get Officially Inaugurated on 20 January?

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) Alibaba: Antitrust Concerns2) Tencent Under Pressure From Antitrust Push3) POTUS Executive Order: New OFAC Clarification 4) China Logistics: Major Shareholders Seek to Exit 5) Kuaishou Technology IPO6) Yidu Tech IPO7) TOPIX Inclusion: ODK Solutions 8) New Horizon IPO9) Goldwin Bullish for Future Growth10) Yaoko: A Difficult 2021 Coming11) IQIYI Valuation12) Digital Currency: Still Remember Facebook Libra/​Diem?13) China Dental Care Industry14) ZTO Express &amp; BEST Inc15) Infrastructure Asset-Backed Securities: New Asset Class for Asia16) Japan Airport Terminal17) Will Biden Get Officially Inaugurated on 20 January? 

Smartkarma North Asia Weekly: Alibaba Antitrust, OFAC Clarification, China Logistics, & Kuaishou IPO

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

On the 12th of November, newly lame duck US president Donald Trump signed an <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-securities-investments-finance-communist-chinese-military-companies/" target="_blank" rel="noopener">Executive Order</a>(Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) banning investment and capital provision by "US persons" to companies in lists established by the US Department of Defense pursuant to Public Law 105-261, Section 1237 (Fiscal Year 1999 National Defense Authorization Act).The various global index providers immediately commenced consultations with their myriad investors and with OFAC (the Office of Foreign Asset Control of the US Treasury Department) and decided in early December for the most part to delete certain securities from their indices. New guidance from OFAC in the form of FAQs (Frequently Asked Questions related to Executive Order (E.O.) 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies":  <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/857" target="_blank" rel="noopener">857</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/858" target="_blank" rel="noopener">858</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/859" target="_blank" rel="noopener">859</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/860" target="_blank" rel="noopener">860</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/861" target="_blank" rel="noopener">861</a>). This insight looks at the indirect holdings and subsidiaries.It is a BIG list (I have a list of 133 names, most of which appear to be 50+% controlled, which could be affected in portfolios).Investors would do well to understand how much of the float is for sale.

On the 12th of November, newly lame duck US president Donald Trump signed an Executive Order(Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) banning investment and capital provision by "US persons" to companies in lists established by the US Department of Defense pursuant to Public Law 105-261, Section 1237 (Fiscal Year 1999 National Defense Authorization Act).The various global index providers immediately commenced consultations with their myriad investors and with OFAC (the Office of Foreign Asset Control of the US Treasury Department) and decided in early December for the most part to delete certain securities from their indices. New guidance from OFAC in the form of FAQs (Frequently Asked Questions related to Executive Order (E.O.) 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies":  857, 858, 859, 860, 861). This insight looks at the indirect holdings and subsidiaries.It is a BIG list (I have a list of 133 names, most of which appear to be 50+% controlled, which could be affected in portfolios).Investors would do well to understand how much of the float is for sale.

OFAC Makes a Longer List of Trump Names of China Military Cos

HK/China Equity Long-Short

Osbert Tang, CFA

Quantitative Analysis

Our "Buy the Worst" strategy intended to beat the Hang Seng Index in 2020, as laid out in <a href="https://www.smartkarma.com/insights/buy-the-worst-a-simple-strategy-to-beat-the-hang-seng-index-in-2020-and-the-years-to-come" target="_blank" data-smartkarma-citation="insights:35427" rel="noopener">"Buy the Worst" - A Simple Strategy to Beat the Hang Seng Index in 2020 and the Years to Come?</a>, did not work out well. The portfolio of the five worst performing Index constituents in 2019 registered an average of 26.1% plunge in share price YTD, sharply underperformed the 5.8% decline in HSI. In our view, this is primarily due to the COVID-19 pandemic which hit the old economy stocks (which all five are) hardest. As for this year, as of 29 Dec, the five worst-performing HSI stocks YTD are <a href="https://www.smartkarma.com/entities/citic-ltd" target="_blank" data-smartkarma-citation="entities:20590:1" rel="noopener">Citic Ltd (267 HK)</a> (again!), <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>, <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a>, <a href="https://www.smartkarma.com/entities/aac-technologies-holdings-inc" target="_blank" data-smartkarma-citation="entities:6544:1" rel="noopener">AAC Technologies Holdings (2018 HK)</a> and <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a>. While they do not look likely to outperform the Index in next year from their business exposure, we highlight that a rotation into old economy stocks as COVID-19 vaccines help to open up global economic recovery is a potential wild card.

Our "Buy the Worst" strategy intended to beat the Hang Seng Index in 2020, as laid out in "Buy the Worst" - A Simple Strategy to Beat the Hang Seng Index in 2020 and the Years to Come?, did not work out well. The portfolio of the five worst performing Index constituents in 2019 registered an average of 26.1% plunge in share price YTD, sharply underperformed the 5.8% decline in HSI. In our view, this is primarily due to the COVID-19 pandemic which hit the old economy stocks (which all five are) hardest. As for this year, as of 29 Dec, the five worst-performing HSI stocks YTD are Citic Ltd (267 HK) (again!), China Overseas Land &amp; Investment Ltd (688 HK), CNOOC Ltd (883 HK), AAC Technologies Holdings (2018 HK) and China Unicom Hong Kong (762 HK). While they do not look likely to outperform the Index in next year from their business exposure, we highlight that a rotation into old economy stocks as COVID-19 vaccines help to open up global economic recovery is a potential wild card.  

A Review Of "Buy the Worst" Strategy in 2020 and Can It Beat the Hang Seng Index in 2021?

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> to have only 1 deletion, though there is a low probability of another set of changes. Post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">Petrochina Co Ltd H (857 HK)</a> and the stock should be deleted at the March review.There was a medium probability of <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> being included in the index. That has now become a low probability event post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s inclusion in the index. If <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> is included in the index, then <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> could be deleted.The potential changes to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the Hang Seng China Enterprises Index (HSCEI INDEX) to have only 1 deletion, though there is a low probability of another set of changes. Post JD Health (6618 HK)'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is Petrochina Co Ltd H (857 HK) and the stock should be deleted at the March review.There was a medium probability of Country Garden Services Holdings (6098 HK) being included in the index. That has now become a low probability event post JD Health (6618 HK)'s inclusion in the index. If Country Garden Services Holdings (6098 HK) is included in the index, then Hengan Intl Group (1044 HK) could be deleted.The potential changes to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

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

Copley Fund Research analyse the holdings of long only Mutual Funds. In this analysis, we focus on Global Emerging Market Funds.  Our GEM fund universe covers 250 actively managed strategies with a combined AUM of $365bn.  In our Macro Overview, we cover the following:• Asian allocations hit record highs, EM investors remain underweight.  LATAM key overweight. • T.I.C.K nations dominate EM portfolios, inflows in to China and Taiwan.  Outflows from Brazil, UAE, Turkey. • COVID response - managers up weights in Tech, Health Care and Comm Services.  Financials, Energy suffer.

Copley Fund Research analyse the holdings of long only Mutual Funds. In this analysis, we focus on Global Emerging Market Funds.  Our GEM fund universe covers 250 actively managed strategies with a combined AUM of $365bn.  In our Macro Overview, we cover the following:• Asian allocations hit record highs, EM investors remain underweight.  LATAM key overweight. • T.I.C.K nations dominate EM portfolios, inflows in to China and Taiwan.  Outflows from Brazil, UAE, Turkey. • COVID response - managers up weights in Tech, Health Care and Comm Services.  Financials, Energy suffer.

Emerging Market Positioning: Macro Overview

China

CNOOC Limited, through its subsidiaries, explores, develops, produces, and sells crude oil and natural gas. The Company focuses in the areas such as Bohai, Western South China Sea, Eastern South China Sea and East China Sea in offshore China. Internationally, the Group has oil and gas assets in Asia, Africa, North America, South America, and Oceania.

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CNOOC Ltd (883 HK)

Smartkarma North Asia Weekly: Alibaba Antitrust, OFAC Clarification, China Logistics, & Kuaishou IPO

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK...

Douglas Kim

OFAC Makes a Longer List of Trump Names of China Military Cos

There are a LOT of names which could be affected by the Trump Executive Order on China Military Companies. It behooves investors to have a list....

Travis Lundy

A Review Of "Buy the Worst" Strategy in 2020 and Can It Beat the Hang Seng Index in 2021?

While our "Buy the Worst" strategy underperformed the HSI sharply YTD, we see extending the strategy into 2021 may catch up as the rotation back to...

Osbert Tang, CFA

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Following JD Health's Fast Entry into the HSCEI, PetroChina is a high probability deletion in March. There is a low probability of Country Garden...

Brian Freitas

Emerging Market Positioning: Macro Overview

Copley Fund Research analyse the holdings of long only Mutual Funds. In this analysis, we focus on Global Emerging Market Funds. Our GEM fund...

Steven Holden

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)