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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

China CSSC Holdings Ltd A / Index Rebalance

Post market close on Friday, 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 December.
There are 26 inclusions and exclusions in the review with an estimated one-way turnover of 3.87%.
The inclusions are <a href="https://www.smartkarma.com/entities/tongfang-guoxin-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:15513:1" rel="noopener">Unigroup Guoxin (002049 CH)</a>, <a href="https://www.smartkarma.com/entities/suzhou-dongshan-precision-a" target="_blank" data-smartkarma-citation="entities:8796:1" rel="noopener">Suzhou Dongshan Precision A (002384 CH)</a>, <a href="https://www.smartkarma.com/entities/wuhan-guide-infrared-co-ltd" target="_blank" data-smartkarma-citation="entities:20330:1" rel="noopener">Wuhan Guide Infrared Co,Ltd. (002414 CH)</a>, <a href="https://www.smartkarma.com/entities/jpmf-guangdong-co-ltd-a" target="_blank" data-smartkarma-citation="entities:19050:1" rel="noopener">Jpmf Guangdong Co Ltd A (002600 CH)</a>, <a href="https://www.smartkarma.com/entities/yunnan-chuangxin-new-material" target="_blank" data-smartkarma-citation="entities:27135:1" rel="noopener">Yunnan Chuangxin New Material (002812 CH)</a>, <a href="https://www.smartkarma.com/entities/asymchem-laboratories-tianjin-co-ltd" target="_blank" data-smartkarma-citation="entities:28265:1" rel="noopener">Asymchem Laboratories (002821 CH)</a>, <a href="https://www.smartkarma.com/entities/jafron-biomedical-co-ltd" target="_blank" data-smartkarma-citation="entities:29575:1" rel="noopener">Jafron Biomedical Co Ltd (300529 CH)</a>, <a href="https://www.smartkarma.com/entities/bgi-genomics-co-ltd" target="_blank" data-smartkarma-citation="entities:25890:1" rel="noopener">Bgi Genomics (300676 CH)</a>, <a href="https://www.smartkarma.com/entities/china-cssc-holdings-ltd-a" target="_blank" data-smartkarma-citation="entities:2464:1" rel="noopener">China Cssc Holdings Ltd A (600150 CH)</a>, <a href="https://www.smartkarma.com/entities/beijing-tiantan-biological-products-corp" target="_blank" data-smartkarma-citation="entities:5190:1" rel="noopener">Beijing Tiantan Biological Products (600161 CH)</a>, <a href="https://www.smartkarma.com/entities/jcet-group-co-ltd" target="_blank" data-smartkarma-citation="entities:8628:1" rel="noopener">JCET Group (600584 CH)</a>, <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-a" target="_blank" data-smartkarma-citation="entities:846:1" rel="noopener">Tsingtao Brewery Co Ltd A (600600 CH)</a>, <a href="https://www.smartkarma.com/entities/topchoice-medical-corporation" target="_blank" data-smartkarma-citation="entities:1102:1" rel="noopener">Topchoice Medical (600763 CH)</a>, <a href="https://www.smartkarma.com/entities/shanghai-baosight-software-co" target="_blank" data-smartkarma-citation="entities:28228:1" rel="noopener">Shanghai Baosight Software Co (600845 CH)</a>, <a href="https://www.smartkarma.com/entities/jonjee-high-tech-industrial-and-commercial-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:14622:1" rel="noopener">Jonjee High-Tech Ind.&amp; Com. (600872 CH)</a>, <a href="https://www.smartkarma.com/entities/zhongtai-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29935:1" rel="noopener">Zhongtai Securities Co Ltd (600918 CH)</a>, <a href="https://www.smartkarma.com/entities/boc-international-china-co-a" target="_blank" data-smartkarma-citation="entities:29972:1" rel="noopener">Boc International China Co-A (601696 CH)</a>, <a href="https://www.smartkarma.com/entities/china-merchants-energy-a" target="_blank" data-smartkarma-citation="entities:14450:1" rel="noopener">China Merchants Energy A (601872 CH)</a>, <a href="https://www.smartkarma.com/entities/nanjing-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:27192:1" rel="noopener">Nanjing Securities Co Ltd (601990 CH)</a>, Gan&amp;Lee Pharma (603087 CH), <a href="https://www.smartkarma.com/entities/gongniu-group-co-ltd" target="_blank" data-smartkarma-citation="entities:30060:1" rel="noopener">Gongniu Group Co Ltd (603195 CH)</a>, <a href="https://www.smartkarma.com/entities/beijing-wantai-biological-a" target="_blank" data-smartkarma-citation="entities:30129:1" rel="noopener">Beijing Wantai Biological-A (603392 CH)</a>, <a href="https://www.smartkarma.com/entities/montage-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:28236:1" rel="noopener">Montage Technology Co Ltd (688008 CH)</a>, <a href="https://www.smartkarma.com/entities/china-railway-signal-com-a" target="_blank" data-smartkarma-citation="entities:28237:1" rel="noopener">China Railway Signal &amp; Com-A (688009 CH)</a>, <a href="https://www.smartkarma.com/entities/advanced-micro-fabrication-a" target="_blank" data-smartkarma-citation="entities:30308:1" rel="noopener">Advanced Micro-Fabrication-A (688012 CH)</a> and <a href="https://www.smartkarma.com/entities/shenzhen-transsion-holding-a" target="_blank" data-smartkarma-citation="entities:30323:1" rel="noopener">Shenzhen Transsion Holding-A (688036 CH).</a>
The deletions are <a href="https://www.smartkarma.com/entities/hebei-iron-steel-co-ltd-a" target="_blank" data-smartkarma-citation="entities:11538:1" rel="noopener">Hebei Iron &amp; Steel Co Ltd A (000709 CH)</a>, <a href="https://www.smartkarma.com/entities/sichuan-tianqi-lithium-industries-inc" target="_blank" data-smartkarma-citation="entities:5698:1" rel="noopener">Sichuan Tianqi Lithium Industries, Inc (002466 CH)</a>, <a href="https://www.smartkarma.com/entities/zhejiang-idc-fluid-control-co-ltd" target="_blank" data-smartkarma-citation="entities:18695:1" rel="noopener">STO Express (002468 CH)</a>, <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avic Helicopter Co Ltd A (600038 CH)</a>, <a href="https://www.smartkarma.com/entities/tbea-co-ltd-a" target="_blank" data-smartkarma-citation="entities:20303:1" rel="noopener">Tbea Co Ltd A (600089 CH)</a>, <a href="https://www.smartkarma.com/entities/shanghai-construction-group-co-ltd" target="_blank" data-smartkarma-citation="entities:17136:1" rel="noopener">Shanghai Construction Group Co, Ltd. (600170 CH)</a>, <a href="https://www.smartkarma.com/entities/yanzhou-coal-mining-co-ltd" target="_blank" data-smartkarma-citation="entities:24592:1" rel="noopener">Yanzhou Coal Mining (600188 CH)</a>, <a href="https://www.smartkarma.com/entities/shandong-nanshan-aluminum-a" target="_blank" data-smartkarma-citation="entities:3920:1" rel="noopener">Shandong Nanshan Aluminum A (600219 CH)</a>, <a href="https://www.smartkarma.com/entities/hainan-airlines-co" target="_blank" data-smartkarma-citation="entities:24023:1" rel="noopener">Hainan Airlines Co (600221 CH)</a>, <a href="https://www.smartkarma.com/entities/china-avionics-systems-co-ltd" target="_blank" data-smartkarma-citation="entities:11393:1" rel="noopener">China Avionics Systems Co., Ltd. (600372 CH)</a>, <a href="https://www.smartkarma.com/entities/hla-corp-ltd" target="_blank" data-smartkarma-citation="entities:2586:1" rel="noopener">HLA CORP., Ltd. (600398 CH)</a>, <a href="https://www.smartkarma.com/entities/fangda-carbon-new-material-co-ltd" target="_blank" data-smartkarma-citation="entities:14878:1" rel="noopener">Fangda Carbon New Material Co, Ltd. (600516 CH)</a>, <a href="https://www.smartkarma.com/entities/offshore-oil-engineering-co-ltd-a" target="_blank" data-smartkarma-citation="entities:4968:1" rel="noopener">Offshore Oil Engineering A (600583 CH)</a>, <a href="https://www.smartkarma.com/entities/sichuan-chuantou-energy-stock-co-ltd" target="_blank" data-smartkarma-citation="entities:2557:1" rel="noopener">Sichuan Chuantou Energy Stock (600674 CH)</a>, <a href="https://www.smartkarma.com/entities/tonghua-dongbao-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:10358:1" rel="noopener">Tonghua Dongbao Pharmaceutical (600867 CH)</a>, <a href="https://www.smartkarma.com/entities/bank-of-xi-an-co-ltd" target="_blank" data-smartkarma-citation="entities:29936:1" rel="noopener">Bank of Xi'an Co Ltd (600928 CH)</a>, <a href="https://www.smartkarma.com/entities/cnooc-energy-technology-a" target="_blank" data-smartkarma-citation="entities:29941:1" rel="noopener">Cnooc Energy Technology &amp; -A (600968 CH)</a>, <a href="https://www.smartkarma.com/entities/china-film-co-ltd" target="_blank" data-smartkarma-citation="entities:29943:1" rel="noopener">China Film Co Ltd (600977 CH)</a>, <a href="https://www.smartkarma.com/entities/ningbo-port-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9969:1" rel="noopener">Ningbo Port (601018 CH)</a>, <a href="https://www.smartkarma.com/entities/baiyin-nonferrous-group-co-a" target="_blank" data-smartkarma-citation="entities:29955:1" rel="noopener">Baiyin Nonferrous Group Co-A (601212 CH)</a>, <a href="https://www.smartkarma.com/entities/qingdao-port-international-co" target="_blank" data-smartkarma-citation="entities:29958:1" rel="noopener">Qingdao Port International Co (601298 CH)</a>, <a href="https://www.smartkarma.com/entities/red-star-macalline-group-corp" target="_blank" data-smartkarma-citation="entities:26732:1" rel="noopener">Red Star Macalline Group (601828 CH)</a>, <a href="https://www.smartkarma.com/entities/china-coal-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:24607:1" rel="noopener">China Coal Energy (601898 CH)</a>, <a href="https://www.smartkarma.com/entities/bbmg-corporation" target="_blank" data-smartkarma-citation="entities:22769:1" rel="noopener">BBMG Corporation (601992 CH)</a>, <a href="https://www.smartkarma.com/entities/bank-of-guiyang-co-ltd" target="_blank" data-smartkarma-citation="entities:27479:1" rel="noopener">Bank of Guiyang Co Ltd (601997 CH)</a> and <a href="https://www.smartkarma.com/entities/hoshine-silicon-industry-c-a" target="_blank" data-smartkarma-citation="entities:26646:1" rel="noopener">Hoshine Silicon Industry C-A (603260 CH)</a>.
Only 3 of the inclusions have over 1 day of ADV to buy, while there are a lot more deletions that have over 1 day of ADV to sell.
The index universe has also been expanded to include STAR Board stocks that have been listed for over 1 year. The change was implemented at this review (with no advance notice) and will see the inclusion of <a href="https://www.smartkarma.com/entities/montage-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:28236:1" rel="noopener">Montage Technology Co Ltd (688008 CH)</a>, <a href="https://www.smartkarma.com/entities/china-railway-signal-com-a" target="_blank" data-smartkarma-citation="entities:28237:1" rel="noopener">China Railway Signal &amp; Com-A (688009 CH)</a>, <a href="https://www.smartkarma.com/entities/advanced-micro-fabrication-a" target="_blank" data-smartkarma-citation="entities:30308:1" rel="noopener">Advanced Micro-Fabrication-A (688012 CH)</a> and <a href="https://www.smartkarma.com/entities/shenzhen-transsion-holding-a" target="_blank" data-smartkarma-citation="entities:30323:1" rel="noopener">Shenzhen Transsion Holding-A (688036 CH)</a> into 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>.

Post market close on Friday, 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 December.
There are 26 inclusions and exclusions in the review with an estimated one-way turnover of 3.87%.
The inclusions are Unigroup Guoxin (002049 CH), Suzhou Dongshan Precision A (002384 CH), Wuhan Guide Infrared Co,Ltd. (002414 CH), Jpmf Guangdong Co Ltd A (002600 CH), Yunnan Chuangxin New Material (002812 CH), Asymchem Laboratories (002821 CH), Jafron Biomedical Co Ltd (300529 CH), Bgi Genomics (300676 CH), China Cssc Holdings Ltd A (600150 CH), Beijing Tiantan Biological Products (600161 CH), JCET Group (600584 CH), Tsingtao Brewery Co Ltd A (600600 CH), Topchoice Medical (600763 CH), Shanghai Baosight Software Co (600845 CH), Jonjee High-Tech Ind.&amp; Com. (600872 CH), Zhongtai Securities Co Ltd (600918 CH), Boc International China Co-A (601696 CH), China Merchants Energy A (601872 CH), Nanjing Securities Co Ltd (601990 CH), Gan&amp;Lee Pharma (603087 CH), Gongniu Group Co Ltd (603195 CH), Beijing Wantai Biological-A (603392 CH), Montage Technology Co Ltd (688008 CH), China Railway Signal &amp; Com-A (688009 CH), Advanced Micro-Fabrication-A (688012 CH) and Shenzhen Transsion Holding-A (688036 CH).
The deletions are Hebei Iron &amp; Steel Co Ltd A (000709 CH), Sichuan Tianqi Lithium Industries, Inc (002466 CH), STO Express (002468 CH), Avic Helicopter Co Ltd A (600038 CH), Tbea Co Ltd A (600089 CH), Shanghai Construction Group Co, Ltd. (600170 CH), Yanzhou Coal Mining (600188 CH), Shandong Nanshan Aluminum A (600219 CH), Hainan Airlines Co (600221 CH), China Avionics Systems Co., Ltd. (600372 CH), HLA CORP., Ltd. (600398 CH), Fangda Carbon New Material Co, Ltd. (600516 CH), Offshore Oil Engineering A (600583 CH), Sichuan Chuantou Energy Stock (600674 CH), Tonghua Dongbao Pharmaceutical (600867 CH), Bank of Xi'an Co Ltd (600928 CH), Cnooc Energy Technology &amp; -A (600968 CH), China Film Co Ltd (600977 CH), Ningbo Port (601018 CH), Baiyin Nonferrous Group Co-A (601212 CH), Qingdao Port International Co (601298 CH), Red Star Macalline Group (601828 CH), China Coal Energy (601898 CH), BBMG Corporation (601992 CH), Bank of Guiyang Co Ltd (601997 CH) and Hoshine Silicon Industry C-A (603260 CH).
Only 3 of the inclusions have over 1 day of ADV to buy, while there are a lot more deletions that have over 1 day of ADV to sell.
The index universe has also been expanded to include STAR Board stocks that have been listed for over 1 year. The change was implemented at this review (with no advance notice) and will see the inclusion of Montage Technology Co Ltd (688008 CH), China Railway Signal &amp; Com-A (688009 CH), Advanced Micro-Fabrication-A (688012 CH) and Shenzhen Transsion Holding-A (688036 CH) into the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). 

STAR Board: CSI300 Index Rebalance: Rule Change Sees STAR Board Stocks Included

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

Our 20-Feb flash note put our recommendation on <a href="https://www.smartkarma.com/entities/hna-group-co-ltd" target="_blank" data-smartkarma-citation="entities:25987:1" rel="noopener">Hna Group (HNAGRZ CH)</a>'s SANYPH 21s under review on the Bloomberg news on 19-Feb that the Hainan Provincial Government is under discussion to take control of HNA Group Company Limited (HNA) and sell-off HNA’s airline assets. HNA’s senior management denied the talk existed, and that Bloomberg’s news was a rumor, according to China Business Daily on 20-Feb.
Over the past weekend, HNA’s management announced it would set-up a risk management committee to manage the company’s liquidity, in particular. The committee will comprise representatives from <a href="https://www.smartkarma.com/entities/china-development-bank" target="_blank" data-smartkarma-citation="entities:28423:1" rel="noopener">China Development Bank (SDBZ CH)</a>, Civil Aviation Administration of China (CAAC), and the Hainan Provincial Government.
According to South China Morning Post, HNA’s board of directors will appoint (1) Mr. Gu Gang, the Chairman of Hainan Development Holdings (HDH), as the group’s executive chairman and (2) Mr. Ren Qinghua, a director of the Hainan Yangpu Economic Development Zone (HYED), as a co-CEO, alongside the current CEO (Adam Tan). Both HDH and HYED are controlled by the Hainan Provincial Government.
Management said the change in board governance does not mean a takeover and/or a change of control. There are no other details on the acquisition or capital injection into HNA but we believe the event unfolding over the weekend tells us HNA’s potential default is now being taken more seriously by local and central governments.
And that seriousness has reduced HNA’s default probability, let alone cost of bankruptcy, for the group’s shareholders. We also believe the implementation of a government acquisition would be challenging as HNA's structure is complex. HNA has grown too fast and is too big that it needs to be broken down, and a restructuring of HNA could be best done under the state umbrella to ensure sufficient liquidity, in our view. The restructuring effort means bondholders need to pay more attention to a change of control and asset sales down the road as these two provisions could be triggered.
As we pointed out in our last flash note, the decision by the Hainan Provincial Government is not a surprise ( <a href="https://www.smartkarma.com/insights/hna-group-to-be-or-not-to-be-nationalized" target="_blank" data-smartkarma-citation="insights:36812" rel="noopener">HNA Group:  To Be or Not To Be (Nationalized)</a> ).

Our 20-Feb flash note put our recommendation on Hna Group (HNAGRZ CH)'s SANYPH 21s under review on the Bloomberg news on 19-Feb that the Hainan Provincial Government is under discussion to take control of HNA Group Company Limited (HNA) and sell-off HNA’s airline assets. HNA’s senior management denied the talk existed, and that Bloomberg’s news was a rumor, according to China Business Daily on 20-Feb.
Over the past weekend, HNA’s management announced it would set-up a risk management committee to manage the company’s liquidity, in particular. The committee will comprise representatives from China Development Bank (SDBZ CH), Civil Aviation Administration of China (CAAC), and the Hainan Provincial Government.
According to South China Morning Post, HNA’s board of directors will appoint (1) Mr. Gu Gang, the Chairman of Hainan Development Holdings (HDH), as the group’s executive chairman and (2) Mr. Ren Qinghua, a director of the Hainan Yangpu Economic Development Zone (HYED), as a co-CEO, alongside the current CEO (Adam Tan). Both HDH and HYED are controlled by the Hainan Provincial Government.
Management said the change in board governance does not mean a takeover and/or a change of control. There are no other details on the acquisition or capital injection into HNA but we believe the event unfolding over the weekend tells us HNA’s potential default is now being taken more seriously by local and central governments.
And that seriousness has reduced HNA’s default probability, let alone cost of bankruptcy, for the group’s shareholders. We also believe the implementation of a government acquisition would be challenging as HNA's structure is complex. HNA has grown too fast and is too big that it needs to be broken down, and a restructuring of HNA could be best done under the state umbrella to ensure sufficient liquidity, in our view. The restructuring effort means bondholders need to pay more attention to a change of control and asset sales down the road as these two provisions could be triggered.
As we pointed out in our last flash note, the decision by the Hainan Provincial Government is not a surprise ( HNA Group:  To Be or Not To Be (Nationalized) ).

Bloomberg reported on 19-Feb that the Hainan Provincial Government is under discussion to take control of <a href="https://www.smartkarma.com/entities/hna-group-co-ltd" target="_blank" data-smartkarma-citation="entities:25987:1" rel="noopener">Hna Group (HNAGRZ CH)</a> (HNA) and sell-off HNA’s airline assets, mainly to three biggest carriers ( <a href="https://www.smartkarma.com/entities/air-china-ltd-a" target="_blank" data-smartkarma-citation="entities:1080:1" rel="noopener">Air China Ltd (A) (601111 CH)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-a" target="_blank" data-smartkarma-citation="entities:24749:1" rel="noopener">China Southern Airlines Co-A (600029 CH)</a> , and <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-a" target="_blank" data-smartkarma-citation="entities:27588:1" rel="noopener">China Eastern Airlines Co-A (600115 CH)</a>). We understand there is no confirmation from management yet.
China Business Daily reported today (20-Feb) that HNA’s senior management has denied the talk existed and that Bloomberg’s news was a rumor.

Bloomberg reported on 19-Feb that the Hainan Provincial Government is under discussion to take control of Hna Group (HNAGRZ CH) (HNA) and sell-off HNA’s airline assets, mainly to three biggest carriers ( Air China Ltd (A) (601111 CH), China Southern Airlines Co-A (600029 CH) , and China Eastern Airlines Co-A (600115 CH)). We understand there is no confirmation from management yet.
China Business Daily reported today (20-Feb) that HNA’s senior management has denied the talk existed and that Bloomberg’s news was a rumor.

HNA Group:  To Be or Not To Be (Nationalized)

Thematic (Sector/Industry)

The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.
COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.
We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).
We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.
Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil &amp; gas, and discretionary consumer goods industries.

The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.
COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.
We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).
We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.
Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil &amp; gas, and discretionary consumer goods industries.

<a href="https://www.smartkarma.com/entities/25987" target="_blank" data-smartkarma-citation="entities:25987:1">Hna Group (HNAGRZ CH)</a>  (HNA)’s recent negative headlines worried us on the group’s liquidity despite the expectation of support from the Chinese bank consortium, led by China Development Bank. CWT International (CWTI) defaulted on 16-April and had assets seized by creditors. <a href="https://www.smartkarma.com/entities/24023" target="_blank" data-smartkarma-citation="entities:24023:1">Hainan Airlines Co (600221 CH)</a> received an adverse opinion from its auditor. Hong Kong Airlines have gone into a legal battle between major shareholders to investigate inter-company transactions with HNA.
HNA has so far repaid its USD bond obligations under our coverage (SANYPH 11/18s, SANYPH 12/18s, HONAIR 1/19s, and GRCHAR 3/19s). Our base case scenario calls for the Chinese bank consortium to support HNA’s solvency but HNA’s large empire and our perception of lagging corporate governance could lead to defaults similar to the CWTI case. The fact that HNA’s airlines are also in financial troubles tells us HNA’s debacle is far from over.
We cannot rule out HNA’s defaults (even though we expect HNA to pay back the debt thereafter) and do not consider the bonds as investible by asset managers. However, for retail investors who can stomach the volatility and a technical default, we still expect a full recovery from SANYPH 8/19s. We maintain our UNDERWEIGHT recommendation on SANYPH 8/19s, HAIAIR 10/20s, SANYPH 10/21s, and HONAIR Perpetual.

Hna Group (HNAGRZ CH)  (HNA)’s recent negative headlines worried us on the group’s liquidity despite the expectation of support from the Chinese bank consortium, led by China Development Bank. CWT International (CWTI) defaulted on 16-April and had assets seized by creditors. Hainan Airlines Co (600221 CH) received an adverse opinion from its auditor. Hong Kong Airlines have gone into a legal battle between major shareholders to investigate inter-company transactions with HNA.
HNA has so far repaid its USD bond obligations under our coverage (SANYPH 11/18s, SANYPH 12/18s, HONAIR 1/19s, and GRCHAR 3/19s). Our base case scenario calls for the Chinese bank consortium to support HNA’s solvency but HNA’s large empire and our perception of lagging corporate governance could lead to defaults similar to the CWTI case. The fact that HNA’s airlines are also in financial troubles tells us HNA’s debacle is far from over.
We cannot rule out HNA’s defaults (even though we expect HNA to pay back the debt thereafter) and do not consider the bonds as investible by asset managers. However, for retail investors who can stomach the volatility and a technical default, we still expect a full recovery from SANYPH 8/19s. We maintain our UNDERWEIGHT recommendation on SANYPH 8/19s, HAIAIR 10/20s, SANYPH 10/21s, and HONAIR Perpetual.

China

Hainan Airlines Co., Ltd. provides passenger and freight air transportation. The Company also provides charter flight services. 

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Hainan Airlines Co (600221 CH)

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