Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

<p>In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. </p>
<p><strong>Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. </strong>We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.</p>
<p><strong>Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. </strong>To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.</p>
<p><strong>However, our team selections are not investment recommendations. </strong>Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.</p>
<p><strong>With that out of the way, the following is our starting XI.</strong> We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).</p>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;"><strong>Exhibit 1: China Financials | Silver Linings Playbook</strong></td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>
<p></p>
<p>Source: Our analysis</p>
</td>
</tr>
</tbody>
</table>
<p><strong>Related Insights</strong></p>
<p><a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> </p>
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In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 189 stocks over the last week. The average A-H premium was 85.5% as of Jul 3rd.</li>
<li>The average A-H premium changed by 0.4ppt week-on-week, led by consumer staples, health care, energy and offset by utilities, consumer discretionary, materials.</li>
<li>We highlight weekly changes in A-H premium for China Longyuan, Psbc, Cicc, Yangtze Optical Fibre And-H, Midea, Ceb Bank.</li>
</ul>


We analyse the changes of A-H premium on 189 stocks over the last week. The average A-H premium was 85.5% as of Jul 3rd.
The average A-H premium changed by 0.4ppt week-on-week, led by consumer staples, health care, energy and offset by utilities, consumer discretionary, materials.
We highlight weekly changes in A-H premium for China Longyuan, Psbc, Cicc, Yangtze Optical Fibre And-H, Midea, Ceb Bank.


A-H Premium Weekly (Jul 3rd): China Longyuan, Psbc, Cicc, Yangtze Optical Fibre And-H, Midea

<ul>
<li>We analyse the changes of A-H premium on 185 stocks over the last week. The average A-H premium was 85.6% as of Jun 26th.</li>
<li>The average A-H premium changed by 5.5ppt week-on-week, led by real estate, information technology, utilities and offset by communication services, energy.</li>
<li>We highlight weekly changes in A-H premium for Midea, Cmoc, Htsc, China Longyuan, Times Electric, Innocare.</li>
</ul>


We analyse the changes of A-H premium on 185 stocks over the last week. The average A-H premium was 85.6% as of Jun 26th.
The average A-H premium changed by 5.5ppt week-on-week, led by real estate, information technology, utilities and offset by communication services, energy.
We highlight weekly changes in A-H premium for Midea, Cmoc, Htsc, China Longyuan, Times Electric, Innocare.


A-H Premium Weekly (Jun 26th): Midea, Cmoc, Htsc, China Longyuan, Times Electric, Innocare

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p><em>An H/A Spread Monitor Project offering a brief look at recent changes in H-Share and A-Share spreads, Southbound flow and impact, and where the spreads are trading within their own historical ranges.</em></p>
<div>
<h2>The Nitty-Gritty Details Follow</h2>
</div>
<p>There are five sets of data for now:<br>1.   HK-Shanghai Connect Southbound Turnover and Net Buying vs Indices and HKEx Turnover<br>2.   Top 20 Net Southbound buys and sells over the last 5 days<br>3.   H-Share/A-Share Discounts, Changes in Discount over 1 and 4 wks, Changes in Southbound Flow<br>4.   Southbound Flow as a % of Volume and Float on All Eligible Stocks<br>5.   H-Share/A-Share Sector Discount Ranges and Averages Charted Over the Last 12 months </p>
<div>
<h2>Historical Southbound Flows:  Outright &amp; vs HKEx Turnover</h2>
</div>
<p>Net Southbound outflows continued for the fourth month in a row as stock prices continue to fall (net Northbound flows are, on average, still positive, but the last two weeks have seen several net selling days).</p>
<div class="content-remarks">
<p>Note: The charts below show <em>only</em> HK-Shanghai Connect. The HK-Shenzhen Southbound data shows similar patterns in the short time it has been live, and total volumes are on the order of 1/3 the size of HK-Shanghai Connect. </p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/056/709/original/Screen%20Shot%202018-07-03%20at%2011.41.56%20AM.png?1530589373" class="editor-image img-responsive" data-smartkarma-image-id="56709"></figure>
<div style="text-align: left;" class="content-caption">data: Bloomberg, Travis Lundy</div>

An H/A Spread Monitor Project offering a brief look at recent changes in H-Share and A-Share spreads, Southbound flow and impact, and where the spreads are trading within their own historical ranges.

The Nitty-Gritty Details Follow

There are five sets of data for now: 1.   HK-Shanghai Connect Southbound Turnover and Net Buying vs Indices and HKEx Turnover 2.   Top 20 Net Southbound buys and sells over the last 5 days 3.   H-Share/A-Share Discounts, Changes in Discount over 1 and 4 wks, Changes in Southbound Flow 4.   Southbound Flow as a % of Volume and Float on All Eligible Stocks 5.   H-Share/A-Share Sector Discount Ranges and Averages Charted Over the Last 12 months 

Historical Southbound Flows:  Outright &amp; vs HKEx Turnover

Net Southbound outflows continued for the fourth month in a row as stock prices continue to fall (net Northbound flows are, on average, still positive, but the last two weeks have seen several net selling days).

Note: The charts below show only HK-Shanghai Connect. The HK-Shenzhen Southbound data shows similar patterns in the short time it has been live, and total volumes are on the order of 1/3 the size of HK-Shanghai Connect. 


data: Bloomberg, Travis Lundy

Quiddity Weekly H/A: Spread Monitor & Southbound Flows [Week to 29 Jun 2018]

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

<p>* Regulatory headwinds the sector appear to be abating;</p><p>* Fundamentals  - at worst - appear to be stabilizing;</p><p>* Brokerage sector valuations and projected returns are inviting.  </p><p>The mainland Chinese brokers have essentially been in the doldrums since the heavy regulatory interventions of 2015. H-share names now significantly discount dissipating regulatory headwinds. Anecdotal evidence also suggests that the China Securities Regulatory Commission’s (CSRC) attitude toward domestic capital markets…</p>

* Regulatory headwinds the sector appear to be abating;* Fundamentals  - at worst - appear to be stabilizing;* Brokerage sector valuations and projected returns are inviting.  The mainland Chinese brokers have essentially been in the doldrums since the heavy regulatory interventions of 2015. H-share names now significantly discount dissipating regulatory headwinds. Anecdotal evidence also suggests that the China Securities Regulatory Commission’s (CSRC) attitude toward domestic capital markets…

Mainland Chinese Brokers - Red, Right, Return

China

GF Securities Co., Ltd. provides comprehensive capital market services to corporations, individuals, institutional investors, financial institutions, and government clients in China. Its core business segments include investment banking, wealth management, trading and institution, and investment management, offering services such as equity and debt financing, brokerage, asset management, and investment advisory. The company was founded in 1991 and is headquartered in Guangzhou, China.

Price Gauge
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GF Securities (1776 HK)

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

A-H Premium Weekly (Jul 3rd): China Longyuan, Psbc, Cicc, Yangtze Optical Fibre And-H, Midea

We analyzed A-H premium changes in the past week and highlight A-H premium changes for China Longyuan, Psbc, Cicc, Yangtze Optical Fibre And-H,...

Ke Yan, CFA, FRM

A-H Premium Weekly (Jun 26th): Midea, Cmoc, Htsc, China Longyuan, Times Electric, Innocare

We analyzed A-H premium changes in the past week and highlight A-H premium changes for Midea, Cmoc, Htsc, China Longyuan, Times Electric, Innocare.

Ke Yan, CFA, FRM

Quiddity Weekly H/A: Spread Monitor & Southbound Flows [Week to 29 Jun 2018]

An H/A Spread Monitor Project offering a brief look at recent changes in H-Share and A-Share spreads, Southbound flow and impact, and where the...

Travis Lundy

Mainland Chinese Brokers - Red, Right, Return

* Regulatory headwinds the sector appear to be abating;* Fundamentals - at worst - appear to be stabilizing;* Brokerage sector valuations and...

Thomas J. Monaco

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52-week Range

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