Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

Guangzhou Baiyun International Airport (600004 CH)

Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The <a href="https://www.bloomberg.com/quote/280456Z:CN" target="_blank" rel="noopener">International Air Transport Association</a> said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, <a href="https://www.icao.int/Newsroom/Pages/2020-passenger-totals-drop-60-percent-as-COVID19-assault-on-international-mobility-continues.aspx" target="_blank" rel="noopener">according</a> to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a> (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.
<div class="content-highlight">
What's Original?
This insight presents a comprehensive view of the key Chinese airports (<a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a>, Shenzhen Airport, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a>, together with <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a>, <a href="https://www.smartkarma.com/entities/malaysia-airports-hldgs-bhd" target="_blank" data-smartkarma-citation="entities:117:1" rel="noopener">Malaysia Airports Hldgs (MAHB MK)</a>, <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal Co (9706 JP)</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> and <a href="https://www.smartkarma.com/entities/auckland-intl-airport-ltd" target="_blank" data-smartkarma-citation="entities:597:1" rel="noopener">Auckland Intl Airport (AIA NZ)</a>.
</div>

Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The International Air Transport Association said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, according to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. Shenzhen Airport Co A (000089 CH) (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH) all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for Airports of Thailand (AOT TB) -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.

What's Original?
This insight presents a comprehensive view of the key Chinese airports (Beijing Capital International Airport (BCIA) (694 HK), Shenzhen Airport, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH), together with Airports of Thailand (AOT TB), Malaysia Airports Hldgs (MAHB MK), Japan Airport Terminal Co (9706 JP), Sydney Airport (SYD AU) and Auckland Intl Airport (AIA NZ).


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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Post market close on 28 May, the China Securities Index Company announced the changes to the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a> that will be effective after the close of trading on 11 June.There are 25 inclusions and exclusions in the review with an estimated one-way turnover of 3.67%.There are 10 trading days to implementation of the changes. There are 4 inclusions that will have over 1 day of ADV to buy from passive funds while there are 15 deletions that will have over 1 day of ADV to sell. The actual impact could be higher as cash and carry baskets are rebalanced and active managers reposition their portfolios to no deviate too far from their benchmark.The inclusions have outperformed the deletions by 15% over the last month and while there could be a pop in the returns over the next few sessions, we recommend gradually exiting existing positions and re-entering prior to implementation on a selloff in the trade.

Post market close on 28 May, the China Securities Index Company announced the changes to the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) that will be effective after the close of trading on 11 June.There are 25 inclusions and exclusions in the review with an estimated one-way turnover of 3.67%.There are 10 trading days to implementation of the changes. There are 4 inclusions that will have over 1 day of ADV to buy from passive funds while there are 15 deletions that will have over 1 day of ADV to sell. The actual impact could be higher as cash and carry baskets are rebalanced and active managers reposition their portfolios to no deviate too far from their benchmark.The inclusions have outperformed the deletions by 15% over the last month and while there could be a pop in the returns over the next few sessions, we recommend gradually exiting existing positions and re-entering prior to implementation on a selloff in the trade.

CSI300 Index Rebalance: 25 Changes as Long/Short Trade Does Well

HK/China Equity Long-Short

Osbert Tang, CFA

Apr is a good month for <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Apr is a good month for Air China Ltd (H) (753 HK) as it marks the first month since COVID-19 outbreak that its passenger growth outpaced that for China Southern Airlines (1055 HK) - its growth rate is 10.5pp ahead of CSA. In addition, freight traffic growth is also higher, and we think this send out stronger signal for narrower gap between the two going forward.Load factor performance in the month also pointed to a catch-up at Air China, which is a trend that we have been expecting. We believe the increase in vaccination rates, more border openings and resumption of direct international flights will be the major drivers for Air China - the resumption of operations of US Visa offices in China is a clear evidence for the gradual return to business as usual, in our view.

Air China (753 HK): Sending Out Stronger Signals

While the Mar traffic figures continued to show that <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> is still lagging behind <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> in many areas, there is no doubt that such underperformance is reducing sequentially. The latest figures show that Air China is narrowing its gap on passenger load factor, seeing rebound in international passenger traffic, registering better cargo and mail strengths and catching up on freight and overall load factors.We believe many of these attributes fit well into our arguments for a reversal of CSA's outperformance against Air China in this year as we written in <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a>. The relative valuation also suggests CSA is richly valued against Air China. For details, please refer to our attached update presentation file on the trade.

While the Mar traffic figures continued to show that Air China Ltd (H) (753 HK) is still lagging behind China Southern Airlines (1055 HK) in many areas, there is no doubt that such underperformance is reducing sequentially. The latest figures show that Air China is narrowing its gap on passenger load factor, seeing rebound in international passenger traffic, registering better cargo and mail strengths and catching up on freight and overall load factors.We believe many of these attributes fit well into our arguments for a reversal of CSA's outperformance against Air China in this year as we written in 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK). The relative valuation also suggests CSA is richly valued against Air China. For details, please refer to our attached update presentation file on the trade. 

Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)

Beijing Kingsoft Office Softwa / Index Rebalance

Beijing Kingsoft Office Softwa (688111 CH)

We are nearly 95% through the review period for the June review of the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a>. With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.We expect 30 changes at the upcoming June 2021 index review - this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.The expected inclusions have outperformed the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a> on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.We expect 30 changes at the upcoming June 2021 index review - this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.

CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

China

Guangzhou Baiyun International Airport Co., Ltd. operates the Guangzhou Baiyun International Airport and provides related transportation services, including ground, passenger, storage, airplane maintenance and repair, and other services.  The Company also provides food, space rental, and advertising services.

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Guangzhou Baiyun International Airport (600004 CH)

Asia-Pac Airports: Ups, But Mostly Downs

Domestic passenger flow into Shenzhen Airport (000089 CH), Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport...

David Blennerhassett

CSI300 Index Rebalance: 25 Changes as Long/Short Trade Does Well

There are 25 changes to the CSI300 Index that will be implemented at the close on 11 June. One-way turnover is 3.67% and the adds have outperformed...

Brian Freitas

Air China (753 HK): Sending Out Stronger Signals

Apr is the first month since the pandemic that Air China outperformed CSA on overall passenger traffic growth. We expect this trend to gather...

Osbert Tang, CFA

Air China (753 HK): Further Evidences of Improving Against China Southern (1055 HK)

Air China looks to have reduced its gap against China Southern in many operating metrics in Mar, supporting our argument for reversal of share...

Osbert Tang, CFA

CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

We forecast 30 changes to the CSI300 Index at the June review that will be announced at the end of May and effective 11 June. The expected...

Brian Freitas

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