Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

<ul>
<li>We expect to see a strong start to the week for China financials names, with sentiments buoyed by upbeat consumer spending data over the new year holiday.</li>
<li>Early signs point to relatively loose conditions in the interbank market as trading resumes across the board on Monday. The central bank's easing bias will likely continue.</li>
<li>We see more momentum for the sector ahead of Q4 earnings (brokers &gt; insurers &gt; banks). Stock selection will become more important thereafter.</li>
</ul>


We expect to see a strong start to the week for China financials names, with sentiments buoyed by upbeat consumer spending data over the new year holiday.
Early signs point to relatively loose conditions in the interbank market as trading resumes across the board on Monday. The central bank's easing bias will likely continue.
We see more momentum for the sector ahead of Q4 earnings (brokers &gt; insurers &gt; banks). Stock selection will become more important thereafter.


China Financials Weekly: Jan 30 | A Bubbly Opening

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Guotai Junan International / Event-Driven

<ul>
<li>Yesterday morning (23rd July), broker/investment bank <a href="https://www.smartkarma.com/entities/guotai-junan-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:13438:1" rel="noopener">Guotai Junan International (1788 HK)</a>  (GJI) was suspended pursuant to the Takeovers Code. </li>
<li>GJI is 73.92%-controlled by the recently formed state-backed <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:22740:1" rel="noopener">Guotai Haitong Securities (601211 CH)</a> (GHS) - see <a href="https://skr.ma/aWiHx" target="_blank" rel="noopener">GJS/Haitong Merger: One Formality Reg To Go</a>. </li>
<li>GHS will be taking out GJI. The key question is at what price? </li>
</ul>


Yesterday morning (23rd July), broker/investment bank Guotai Junan International (1788 HK)  (GJI) was suspended pursuant to the Takeovers Code. 
GJI is 73.92%-controlled by the recently formed state-backed Guotai Haitong Securities (601211 CH) (GHS) - see GJS/Haitong Merger: One Formality Reg To Go. 
GHS will be taking out GJI. The key question is at what price? 


Musings On Guotai Haitong (601211 CH)'s Expected Offer For Guotai Junan (1788 HK)

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).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</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>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
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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 
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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

Insurance & Central Asia-focused Analyst, KT Capital Group

Alec Tseung

Insurance & Central Asia-focused Analyst

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is <a href="https://www.smartkarma.com/entities/kiwoom-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:20418:1" rel="noopener">Kiwoom Securities (039490 KS)</a>, <a href="https://www.smartkarma.com/entities/east-money-information-co-a" target="_blank" data-smartkarma-citation="entities:8075:1" rel="noopener">East Money Information Co A (300059 CH)</a>, <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>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a> / <a href="https://www.smartkarma.com/entities/huatai-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:449:1" rel="noopener">Huatai Securities Co Ltd (H) (6886 HK)</a>.  <h2>What is Original?</h2>In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is Kiwoom Securities (039490 KS), East Money Information Co A (300059 CH), Futu Holdings Ltd (FUTU US), Monex Group Inc (8698 JP) / Huatai Securities Co Ltd (H) (6886 HK).  What is Original?In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

Asian Brokers: A Competition Between Value and Growth

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

* 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…

* 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

Haitong Securities is a major Chinese securities company offering a comprehensive suite of financial services, including brokerage, investment banking, asset management, and private equity. The company also provides alternative investments and financial leasing services. It was founded in 1988 and is headquartered in Shanghai, China.

Price Gauge
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Haitong Securities (6HT GR)

China Financials Weekly: Jan 30 | A Bubbly Opening

We expect a strong start to the week for the China financials space, after a new year holiday that confirms investors' hopes for a speedy recovery...

Stanley Tsai, CFA

Musings On Guotai Haitong (601211 CH)'s Expected Offer For Guotai Junan (1788 HK)

I think around $3/share would be viewed as fair. Guotai Haitong Securities has the clout to go MUCH higher. The question is whether they need to.

David Blennerhassett

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

Asian Brokers: A Competition Between Value and Growth

The Original looks into the current competitive landscape of the brokerage sectors in China, Japan, and Korea, with a view to developing a list of...

Alec Tseung

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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