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

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.  

Singapore Exchange – Strains Seen For TW Futures

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

AIA Group – New Initiative Does Not Offset Risks

*RBA Speech – A Positive For Aussie BNPL: The Reserve Bank of Australia (RBA) indicated that the status-quo for the buy-now, pay-later (BNPL) sector is likely to continue into the foreseeable future – which is a significant positive for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Specifically, BNPL operators can still prevent merchants from passing on transaction fees;*Strong Momentum As We Head Into Holiday Season: Just as we head into the holiday season, Tencent’s Afterpay provided some strong key metrics in its latest media release as discussed in “Tencent Holdings – Father Christmas” note dated December 3, 2020.  What a magnificent six months this has been for Afterpay, and the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 400% over the past six months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*RBA Speech – A Positive For Aussie BNPL: The Reserve Bank of Australia (RBA) indicated that the status-quo for the buy-now, pay-later (BNPL) sector is likely to continue into the foreseeable future – which is a significant positive for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Specifically, BNPL operators can still prevent merchants from passing on transaction fees;*Strong Momentum As We Head Into Holiday Season: Just as we head into the holiday season, Tencent’s Afterpay provided some strong key metrics in its latest media release as discussed in “Tencent Holdings – Father Christmas” note dated December 3, 2020.  What a magnificent six months this has been for Afterpay, and the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 400% over the past six months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*Decent Operating Results: Lufax Holdings (LU.US) [Lufax] reported 3Q20 results of CNY 2.2 bn, declining CNY 929 mn (30.1%) on a linked quarter basis. However, when we exclude the CNY 1.3 bn restructuring charge and gains of CNY 144 mn, Lufax’ operating results amounted to CNY 3.3 bn – increasing CNY 228 mn (7.3%) over the same period;  and*Regulatory Risk Is Prevalant: An evolution of the regulatory environment remains a significant challenge to Lufax, and more likely than not will require further business adjustments and ad pressure to the bottom-line, including: lower interest rate caps;  higher capital requirements; improved risk-taking controls; along with other consumer protection measures. That being said, much of the regulatory uncertainty is more from policy window guidance rather than from new regulations themselves.

*Decent Operating Results: Lufax Holdings (LU.US) [Lufax] reported 3Q20 results of CNY 2.2 bn, declining CNY 929 mn (30.1%) on a linked quarter basis. However, when we exclude the CNY 1.3 bn restructuring charge and gains of CNY 144 mn, Lufax’ operating results amounted to CNY 3.3 bn – increasing CNY 228 mn (7.3%) over the same period;  and*Regulatory Risk Is Prevalant: An evolution of the regulatory environment remains a significant challenge to Lufax, and more likely than not will require further business adjustments and ad pressure to the bottom-line, including: lower interest rate caps;  higher capital requirements; improved risk-taking controls; along with other consumer protection measures. That being said, much of the regulatory uncertainty is more from policy window guidance rather than from new regulations themselves. 

Lufax Holdings – Good Number Right Out Of The Gate

Thematic (Sector/Industry)

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on December 3, 2020 released finalized standards for the country’s domestic systemically important banks (D-SIBs), and indicated that tighter regulations will be announced shortly; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on December 3, 2020 released finalized standards for the country’s domestic systemically important banks (D-SIBs), and indicated that tighter regulations will be announced shortly; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (82822 HK)

Singapore Exchange – Strains Seen For TW Futures

SINGAPORE EXCHANGE: November Stats Look Good Generally Across The Board; However, Taiwan Futures Slippage Could Impact A50.

Thomas J. Monaco

AIA Group – New Initiative Does Not Offset Risks

AIA GROUP: New Partnership With Zhong An Should Help New Customer Acquisition Regionally, But Risks Remain High In Hong Kong, Mainland China, and...

Thomas J. Monaco

Tencent Holdings – After The Speech

TENCENT HOLDINGS: Reserve Bank of Australia indicated that the status-quo for BNPL is likely to continue – which is a significant positive for...

Thomas J. Monaco

Lufax Holdings – Good Number Right Out Of The Gate

LUFAX HOLDINGS: Lufax operating results were solid. However, the regulatory environment remains a significant challenge.

Thomas J. Monaco

China Banks – About Time

CHINA BANKS: PBOC and CBIRC Released Finalized D-SIB Standards and Indicated Tighter Regulations. Aggressive Capital Raises Are Expected.

Thomas J. Monaco