Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

This insight provides the output, and an overview of, our proprietary GEM screening model, which takes a three-pronged approached to finding the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. This model, which has been developed and tweaked over the past 24 months (and implemented in its current state for 12 months), has a solid real-world performance track record, which I set out in the detail below. Notable new entrants to the top decile this month include <a href="https://www.smartkarma.com/entities/gazprom-pjsc" target="_blank" data-smartkarma-citation="entities:23749:1" rel="noopener">Gazprom PJSC (GAZP RX)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>, and <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a>.<table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 48pt;">rank</td>
<td style="width: 169pt;">Name</td>
<td style="width: 119pt;">Sector</td>
<td style="width: 95pt;">Location</td>
<td style="text-align: center; width: 48pt;">prev.</td>
</tr>
<tr>
<td style="text-align: center;">1</td>
<td>CNOOC LTD</td>
<td>Energy</td>
<td>China</td>
<td style="text-align: center;">25</td>
</tr>
<tr>
<td style="text-align: center;">2</td>
<td>GAZPROM</td>
<td>Energy</td>
<td>Russian Federation</td>
<td style="text-align: center;">89</td>
</tr>
<tr>
<td style="text-align: center;">3</td>
<td>CHINA RESOURCES LAND LTD</td>
<td>Real Estate</td>
<td>China</td>
<td style="text-align: center;">45</td>
</tr>
<tr>
<td style="text-align: center;">4</td>
<td>PTT NON-VOTING DR PCL</td>
<td>Energy</td>
<td>Thailand</td>
<td style="text-align: center;">39</td>
</tr>
<tr>
<td style="text-align: center;">5</td>
<td>MEDIATEK INC</td>
<td>Information Technology</td>
<td>Taiwan</td>
<td style="text-align: center;">81</td>
</tr>
<tr>
<td style="text-align: center;">6</td>
<td>PAO NOVATEK GDR</td>
<td>Energy</td>
<td>Russian Federation</td>
<td style="text-align: center;">48</td>
</tr>
<tr>
<td style="text-align: center;">7</td>
<td>GEELY AUTOMOBILE HOLDINGS LTD</td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">2</td>
</tr>
<tr>
<td style="text-align: center;">8</td>
<td>SBERBANK ROSSII</td>
<td>Financials</td>
<td>Russian Federation</td>
<td style="text-align: center;">59</td>
</tr>
<tr>
<td style="text-align: center;">9</td>
<td>SAMSUNG ELECTRONICS LTD</td>
<td>Information Technology</td>
<td>Korea (South)</td>
<td style="text-align: center;">41</td>
</tr>
<tr>
<td style="text-align: center;">10</td>
<td>FIRSTRAND LTD</td>
<td>Financials</td>
<td>South Africa</td>
<td style="text-align: center;">30</td>
</tr>
<tr><td colspan="5" style="text-align: left;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td></tr>
</tbody>
</table>As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

This insight provides the output, and an overview of, our proprietary GEM screening model, which takes a three-pronged approached to finding the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. This model, which has been developed and tweaked over the past 24 months (and implemented in its current state for 12 months), has a solid real-world performance track record, which I set out in the detail below. Notable new entrants to the top decile this month include Gazprom PJSC (GAZP RX), Mediatek Inc (2454 TT), and Sberbank Of Russia Pjsc (SBER LI).









rank
Name
Sector
Location
prev.


1
CNOOC LTD
Energy
China
25


2
GAZPROM
Energy
Russian Federation
89


3
CHINA RESOURCES LAND LTD
Real Estate
China
45


4
PTT NON-VOTING DR PCL
Energy
Thailand
39


5
MEDIATEK INC
Information Technology
Taiwan
81


6
PAO NOVATEK GDR
Energy
Russian Federation
48


7
GEELY AUTOMOBILE HOLDINGS LTD
Consumer Discretionary
China
2


8
SBERBANK ROSSII
Financials
Russian Federation
59


9
SAMSUNG ELECTRONICS LTD
Information Technology
Korea (South)
41


10
FIRSTRAND LTD
Financials
South Africa
30

Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas

As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/firstrand-ltd" target="_blank" data-smartkarma-citation="entities:24971:1" rel="noopener">FirstRand Ltd (FSR SJ)</a> For all of FSR’s “resilience”, a key buzzword along with “normalising” at the bank in its IR material, we fear the situation is more stressed than meets the eye (narrative of “limited vulnerabilities”) given headwinds such as endowment impact, asset quality deterioration, and macro-vaccine uncertainty and that management is putting an understandably brave face on erosion in its main markets. Maybe the glass is “half full”. Management sees better business conditions since June. EM, commodity, and FX tailwinds may be supportive. However, given the current valuation, distorted to some extent by C-19, we have a more cautious standpoint.The Group is composed of FNB, RMB, Wesbank, and UK operations. FNB has mature subsidiaries in Botswana, Eswatini, and Namibia and more challenging emerging operations in Mozambique, Zambia, Tanzania, Ghana and Lesotho. We note that some 35% (and rising) of credit emanates from outside South Africa (mainly Europe as it has extensive UK interests in Aldermore and MotoNovo)- this is a diversifier but hardly an endorsement of the core home market or pan-African proposition. FSR has a reasonably balanced loan portfolio, split by consumer and corporate credit, backed by source of funding from a robust CASA deposit franchise. Digital operations are progressing at a fair clip.FQ221/ FQ220 LTM results show negative fundamental momentum and trends with deterioration in Profitability, in NIM, in Efficiency, in headline Asset Quality and in Capital Adequacy though Liquidity and Provisioning exhibited some enhancement. Growth in “Core Income” was flat, in line with credit growth. Much higher Loan Loss Provisions exerted a downward pull on the bottom-line.<div class="content-highlight">A FV of &gt;20%, a PBV of 2.16x, an Earnings Yield of 4.75%, and a Total Return Ratio of 0.22x are not appealing. The bank commands both a low PH Score™ (3.8) and a bottom quartile VFM ranking given a high valuation and elevated RSI.</div>

FirstRand Ltd (FSR SJ) For all of FSR’s “resilience”, a key buzzword along with “normalising” at the bank in its IR material, we fear the situation is more stressed than meets the eye (narrative of “limited vulnerabilities”) given headwinds such as endowment impact, asset quality deterioration, and macro-vaccine uncertainty and that management is putting an understandably brave face on erosion in its main markets. Maybe the glass is “half full”. Management sees better business conditions since June. EM, commodity, and FX tailwinds may be supportive. However, given the current valuation, distorted to some extent by C-19, we have a more cautious standpoint.The Group is composed of FNB, RMB, Wesbank, and UK operations. FNB has mature subsidiaries in Botswana, Eswatini, and Namibia and more challenging emerging operations in Mozambique, Zambia, Tanzania, Ghana and Lesotho. We note that some 35% (and rising) of credit emanates from outside South Africa (mainly Europe as it has extensive UK interests in Aldermore and MotoNovo)- this is a diversifier but hardly an endorsement of the core home market or pan-African proposition. FSR has a reasonably balanced loan portfolio, split by consumer and corporate credit, backed by source of funding from a robust CASA deposit franchise. Digital operations are progressing at a fair clip.FQ221/ FQ220 LTM results show negative fundamental momentum and trends with deterioration in Profitability, in NIM, in Efficiency, in headline Asset Quality and in Capital Adequacy though Liquidity and Provisioning exhibited some enhancement. Growth in “Core Income” was flat, in line with credit growth. Much higher Loan Loss Provisions exerted a downward pull on the bottom-line.A FV of &gt;20%, a PBV of 2.16x, an Earnings Yield of 4.75%, and a Total Return Ratio of 0.22x are not appealing. The bank commands both a low PH Score™ (3.8) and a bottom quartile VFM ranking given a high valuation and elevated RSI.

FSR: Provisioning & Liquidity Are Bright Spots in a Challenging Narrative

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Global Equity Strategy: Santa Claus Rally Underway

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Asian bank high yield (HY) Tier 2 bonds are perceived to have lower extension risk than their global Emerging Market peers. Combined with relatively lower spread levels, Asian bank Tier 2 bonds may not look good value; however, this overlooks the value of call certainty. The call versus non-call decision makes a difference to investor returns.We find that the gain from not calling <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's (23 HK)</a> 4% coupon 2021 callable Tier 2 bond is lowest amongst Asian-headquartered banks. This is reflected in the bond’s relatively low spreads. At the same time, the potential gain from not calling Dah Sing Bank’s 2024 callable Tier 2 bond is highest amongst Asian-headquartered banks. This is not reflected in the bond’s relative low spread, not should it be at this point in time.Meanwhile, perceived extension risk is relatively high for the 2022 callable Tier 2 bonds of some Turkish banks. This may suggest market concerns regarding both the willingness to call and, given their low bond ratings, the ability to source sufficient US$ liquidity to retire these bonds.In this, the second of a series of notes on Tier 2 debt instruments, we undertake an assessment of the perceived non-call risk in Asia-headquartered bank bonds as compared to higher yielding bonds in other Emerging Markets. Future reports will consider fundamental perspectives as we identify our top picks and pans in this segment of the bank credit continuum.

Asian bank high yield (HY) Tier 2 bonds are perceived to have lower extension risk than their global Emerging Market peers. Combined with relatively lower spread levels, Asian bank Tier 2 bonds may not look good value; however, this overlooks the value of call certainty. The call versus non-call decision makes a difference to investor returns.We find that the gain from not calling Bank of East Asia's (23 HK) 4% coupon 2021 callable Tier 2 bond is lowest amongst Asian-headquartered banks. This is reflected in the bond’s relatively low spreads. At the same time, the potential gain from not calling Dah Sing Bank’s 2024 callable Tier 2 bond is highest amongst Asian-headquartered banks. This is not reflected in the bond’s relative low spread, not should it be at this point in time.Meanwhile, perceived extension risk is relatively high for the 2022 callable Tier 2 bonds of some Turkish banks. This may suggest market concerns regarding both the willingness to call and, given their low bond ratings, the ability to source sufficient US$ liquidity to retire these bonds.In this, the second of a series of notes on Tier 2 debt instruments, we undertake an assessment of the perceived non-call risk in Asia-headquartered bank bonds as compared to higher yielding bonds in other Emerging Markets. Future reports will consider fundamental perspectives as we identify our top picks and pans in this segment of the bank credit continuum.

Asian Bank HY Tier 2: Extension Risk Perceptions Vs Global Emerging Market Peers

High yield Tier 2 bonds of Asia-headquartered banks trade at an attractive valuation relative to Tier 2 bonds of other Emerging Market banks. The Tier 2 bonds of <a href="https://www.smartkarma.com/entities/bangkok-bank-public-co-ltd" target="_blank" data-smartkarma-citation="entities:213:1" rel="noopener">Bangkok Bank (BBL TB)</a>, <a href="https://www.smartkarma.com/entities/china-citic-bank-corp-ltd-ea6c25fd-4b20-45cb-a4a6-df7a60136f03" target="_blank" data-smartkarma-citation="entities:653:1" rel="noopener">China CITIC Bank (998 HK)</a> and <a href="https://www.smartkarma.com/entities/kasikornbank-pcl" target="_blank" data-smartkarma-citation="entities:293:1" rel="noopener">Kasikornbank PCL (KBANK TB)</a> continue to offer a large spread pick-up on a relative value basis.At the same time, several Turkish bank Tier 2 bonds trade with little Option Adjusted Spread pick-up relative to their Senior Unsecured debt. Either these Tier 2 bonds are completely illiquid or considerable distress is priced into Turkish bank Senior Unsecured bonds. A combination of both may be likely. High yield Tier 2 bonds of Latin American banks offer value between Asian and Turkish bank bond levels.In this, the first of a series of notes on Tier 2 debt instruments, we undertake a relative value assessment of Asia-headquartered bank bonds as compared to higher yielding bonds in other Emerging Markets. Future reports will consider call risk and fundamental perspectives as we identify our top picks in pans in this segment of the bank credit continuum.

High yield Tier 2 bonds of Asia-headquartered banks trade at an attractive valuation relative to Tier 2 bonds of other Emerging Market banks. The Tier 2 bonds of Bangkok Bank (BBL TB), China CITIC Bank (998 HK) and Kasikornbank PCL (KBANK TB) continue to offer a large spread pick-up on a relative value basis.At the same time, several Turkish bank Tier 2 bonds trade with little Option Adjusted Spread pick-up relative to their Senior Unsecured debt. Either these Tier 2 bonds are completely illiquid or considerable distress is priced into Turkish bank Senior Unsecured bonds. A combination of both may be likely. High yield Tier 2 bonds of Latin American banks offer value between Asian and Turkish bank bond levels.In this, the first of a series of notes on Tier 2 debt instruments, we undertake a relative value assessment of Asia-headquartered bank bonds as compared to higher yielding bonds in other Emerging Markets. Future reports will consider call risk and fundamental perspectives as we identify our top picks in pans in this segment of the bank credit continuum.

Asian Bank HY Tier 2: Relative Value Vs Global Emerging Market Peers

South Africa

FirstRand Limited is a portfolio of separately branded, integrated financial services businesses offering a universal set of transactional, lending, investment and insurance products and services in South Africa, certain markets in sub-Saharan Africa and the UK.

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FirstRand (FSR SJ)

Screening for GEMs: May 2021

This insight provides an overview of our proprietary GEM screening model which is based on a multifactor screening model, a Deep Neural Network...

Wium Malan, CFA

FSR: Provisioning & Liquidity Are Bright Spots in a Challenging Narrative

FirstRand can benefit from commodity, FX, and EM tailwinds. We are though more cautious at these levels which price in a lot of benign news.

Paul Hollingworth

Global Equity Strategy: Santa Claus Rally Underway

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns across indexes, and we continue to...

Vermilion Research

Asian Bank HY Tier 2: Extension Risk Perceptions Vs Global Emerging Market Peers

Asian bank high yield (HY) Tier 2 bonds are perceived to have lower extension risk than their global Emerging Market peers. Combined with...

Hank Calenti, CFA

Asian Bank HY Tier 2: Relative Value Vs Global Emerging Market Peers

High yield Tier 2 bonds of Asia-headquartered banks trade at an attractive valuation relative to Tier 2 bonds of other Emerging Market banks. The...

Hank Calenti, CFA

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