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.

Thematic (Sector/Industry)

<ul>
<li>The Global Emerging Markets weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.</li>
<li>
 Macro data points:Chinese PMI, and most of the rest of Asia’s PMI data showed declines.</li>
<li>
 Companies mentioned:<a href="https://www.smartkarma.com/entities/petroleo-brasileiro-sa" target="_blank" data-smartkarma-citation="entities:24459:1" rel="noopener">Petroleo Brasileiro Sa (PETR3 BZ)</a>, <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>
</li>
</ul>


The Global Emerging Markets weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.

 Macro data points:Chinese PMI, and most of the rest of Asia’s PMI data showed declines.

 Companies mentioned:Petroleo Brasileiro Sa (PETR3 BZ), Sea Ltd (SE US), Kuaishou Technology (1024 HK), Hcl Technologies (HCLT IN), Baidu (9888 HK)



GEM Weekly (1 Apr 2022): Chinese Macro Activity; Petrobras, Sea, Kuaishou, HCL Tech, Baidu

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<ul>
<li>As a forensic accountant doing equity research, I strive to publish differentiated insights that augment rather than replace the traditional research feed of institutional investors</li>
<li>Fraud risks, aggressive revenue recognition, balance sheet health, quality of earnings and accounting policy changes underpinned a significant majority of my research</li>
<li>In this Insight, I will do a breakdown of my performance in the past half a year including a recap, key statistics and top insight highlights</li>
</ul>


As a forensic accountant doing equity research, I strive to publish differentiated insights that augment rather than replace the traditional research feed of institutional investors
Fraud risks, aggressive revenue recognition, balance sheet health, quality of earnings and accounting policy changes underpinned a significant majority of my research
In this Insight, I will do a breakdown of my performance in the past half a year including a recap, key statistics and top insight highlights


2021 Year in Review - Forensic Accounting in Equity Research

<ul>
<li>Didi's announced that it would delist from US and prepare for a public listing in Hongkong</li>
<li>Didi is racing against time to do so due to various factors such as, lock-up expiry, HK Stock Exchange review of listing applications, and potential cybersecurity review for HK issuers</li>
<li>There could be parallels in terms of key risks for other non-dual listed China ADSs</li>
</ul>


Didi's announced that it would delist from US and prepare for a public listing in Hongkong
Didi is racing against time to do so due to various factors such as, lock-up expiry, HK Stock Exchange review of listing applications, and potential cybersecurity review for HK issuers
There could be parallels in terms of key risks for other non-dual listed China ADSs


Didi (Didi US)'s Delisting and Its Implications for Non-Dual Listed China ADS

<a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a>  is China’s largest online brokerage, both by revenue and market cap, and backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>. <a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">UP Fintech (TIGR US)</a>, also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily <a href="http://sh.people.com.cn/n2/2021/1014/c139965-34956684.html" target="_blank" rel="noopener">stated</a> that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 
<ol>
<li>What are the Relevant Data Laws?</li>
<li>What was new in the People's Daily report? </li>
<li>How have the Online Brokerages sought to mitigate Data Regulations?</li>
<li>Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? </li>
</ol>
More details below the fold.

Futu Holdings Ltd (FUTU US)  is China’s largest online brokerage, both by revenue and market cap, and backed by Tencent (700 HK). UP Fintech (TIGR US), also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant Xiaomi Corp (1810 HK), and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily stated that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 

What are the Relevant Data Laws?
What was new in the People's Daily report? 
How have the Online Brokerages sought to mitigate Data Regulations?
Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? 

More details below the fold.

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

<a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a> recorded 2Q21 revenue and net income of HKD1.6 billion and HKD0.5 billion, a yoy growth of 129% and 126% respectively. Paying client growth continued its solid momentum, tripling from Q2 2020's levels (303k) to to cross the million mark.
The sequential qoq metrics paint a less rosy picture given the moderation of the US ADR and HK market in Q2 2021, compared to the market exuberance seen during the mid February 2021 peak. This has had a direct impact on Futu's brokerage business and related activities such as margin financing, IPO subscriptions, and securities borrowing and lending.
Investors have taken the poor sequential metrics in their stride, with Futu's share price posting mid teen gains since results release (on 31 August 2021). The prevailing narrative is that negatives are fully priced in, regulatory overhang has cleared somewhat, and there is optimism surrounding Futu's international expansion plans which continue apace. 
China tech stocks have also performed well in recent weeks, with pockets of investors identifying a bottom fishing opportunities.  This in turn benefits Futu in the coming quarters as trading velocity and client additions probably increased sequentially in July and August 2021. 
In <a href="https://www.smartkarma.com/insights/futu-holdings-an-inflection-point-imminent" target="_blank" data-smartkarma-citation="insights:55330" rel="noopener">Futu Holdings - An Inflection Point Imminent?</a>, we discussed the possibility of a negative re-rating of the share price and laid out an analytical framework to better evaluate this. How has this changed in light of the Q2 2021 results and how investors have actually reacted since? 
We re-examine these factors in this article.

Futu Holdings Ltd (FUTU US) recorded 2Q21 revenue and net income of HKD1.6 billion and HKD0.5 billion, a yoy growth of 129% and 126% respectively. Paying client growth continued its solid momentum, tripling from Q2 2020's levels (303k) to to cross the million mark.
The sequential qoq metrics paint a less rosy picture given the moderation of the US ADR and HK market in Q2 2021, compared to the market exuberance seen during the mid February 2021 peak. This has had a direct impact on Futu's brokerage business and related activities such as margin financing, IPO subscriptions, and securities borrowing and lending.
Investors have taken the poor sequential metrics in their stride, with Futu's share price posting mid teen gains since results release (on 31 August 2021). The prevailing narrative is that negatives are fully priced in, regulatory overhang has cleared somewhat, and there is optimism surrounding Futu's international expansion plans which continue apace. 
China tech stocks have also performed well in recent weeks, with pockets of investors identifying a bottom fishing opportunities.  This in turn benefits Futu in the coming quarters as trading velocity and client additions probably increased sequentially in July and August 2021. 
In Futu Holdings - An Inflection Point Imminent?, we discussed the possibility of a negative re-rating of the share price and laid out an analytical framework to better evaluate this. How has this changed in light of the Q2 2021 results and how investors have actually reacted since? 
We re-examine these factors in this article. 

Futu - Predictable Sequential Weakness in Q2 2021 but Some Bright Spots

United States

Futu Holdings Limited operates as a holding company. The Company, through its subsidiaries, offers an online brokerage platform that enables individual investors to trade in listed stocks. Futu Holdings serves customers in the United States, China, and Hong Kong.

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Futu Holdings Ltd (FUTU US)

GEM Weekly (1 Apr 2022): Chinese Macro Activity; Petrobras, Sea, Kuaishou, HCL Tech, Baidu

The Global Emerging Markets weekly provides a summary of the key news and related developments impacting the largest countries and constituents of...

Wium Malan, CFA

2021 Year in Review - Forensic Accounting in Equity Research

As a forensic accountant doing equity research, I strive to publish differentiated insights that augment investment research. I look back at 2021's...

Jason Yap, CFA

Didi (Didi US)'s Delisting and Its Implications for Non-Dual Listed China ADS

As Didi races against time to delist from US, it faces, amongst others, lock-up expiry, HK listing review, and potential cybersecurity review. What...

Jason Yap, CFA

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

China's online brokerages risk running afoul of new data privacy rules and personal information protection laws. This is compounded by poor trading...

Jason Yap, CFA

Futu - Predictable Sequential Weakness in Q2 2021 but Some Bright Spots

Futu predictably reported sequentially weak Q2 2021 results due to market volatility. S&M efficiency and international expansion dilution are...

Jason Yap, CFA

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)