Alpha-Centric ESG Research

Kyle Rudden

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">Singapore Exchange (SGX SP)</a> ESG futures, which enable ESG-tilted exposure in REITs via <a href="https://www.smartkarma.com/entities/sgx-nikkei-esg-reit-index-futures" target="_blank" data-smartkarma-citation="entities:33480:1" rel="noopener">SGX Nikkei ESG-REIT Index Futures (JRTA INDEX)</a>, and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:<ol>
<li>
Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.</li>
<li>
Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.</li>
<li>
Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.</li>
</ol>

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as Singapore Exchange (SGX SP) ESG futures, which enable ESG-tilted exposure in REITs via SGX Nikkei ESG-REIT Index Futures (JRTA INDEX), and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:

Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.

Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.

Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.


Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight">
In this insight, we revisit our valuation of <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 
</div>


In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 


Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

Equity Capital Markets

Coinbase Global  / Equity Capital Markets

Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 5x the value the company received in October 2018 ($8 billion) in private funding transaction. However, our base case value of $39.9 billion is nearly 60% lower than the purported recent private market value of <a href="https://www.axios.com/coinbase-valued-100-billion-direct-listing-9b43e316-7ff7-4f6a-a1db-4dc2481a93ee.html" target="_blank" rel="noopener">$100 billion</a> that Coinbase received recently.
Overall, at an implied market cap value of $100 billion for Coinbase, we think that there is much larger potential downside risk than upside appreciation. As such, we think that the prudent investor should avoid this direct listing of Coinbase if indeed it is priced at nearly $100 billion.

Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 5x the value the company received in October 2018 ($8 billion) in private funding transaction. However, our base case value of $39.9 billion is nearly 60% lower than the purported recent private market value of $100 billion that Coinbase received recently.
Overall, at an implied market cap value of $100 billion for Coinbase, we think that there is much larger potential downside risk than upside appreciation. As such, we think that the prudent investor should avoid this direct listing of Coinbase if indeed it is priced at nearly $100 billion. 

Coinbase Direct Listing Valuation Analysis

China and US Equity Analyst

Roger Xie

Hong Kong Exchanges and Clearing / Equity Bottom-Up

Hong Kong Exchanges and Clearing (388 HK)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. </li>
<li>HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.
</li>
<li>HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 
</li>
</ul>



HKEX (388 HK) share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. 
HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.

HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 



HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

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

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.  

Singapore Exchange – Strains Seen For TW Futures

United States

Intercontinental Exchange, Inc. operates global commodity and financial products marketplaces.  The Company operates electronic energy markets and soft commodity exchanges as well.  ICE offers access to contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including cocoa, coffee, cotton, orange juice, and sugar.

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Intercontinental Exchange (ICE US)

Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

NYSE and Intrinsic Exchange Group announced a new asset class called "Natural Asset Companies" (NACs). Mission-critical hurdles remain, but NACs...

Kyle Rudden

Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year,...

Douglas Kim

Coinbase Direct Listing Valuation Analysis

Our base case valuation of Coinbase is $39.9 billion, which is 60% lower than the purported recent private market value of $100 billion that...

Douglas Kim

HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

HKEx serves as the only offshore gateway to China capital market. We believe the market has over-reacted on higher stamp duty news in the sell...

Roger Xie

Singapore Exchange – Strains Seen For TW Futures

SINGAPORE EXCHANGE: November Stats Look Good Generally Across The Board; However, Taiwan Futures Slippage Could Impact A50.

Thomas J. Monaco

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