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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

Semirara Mining & Power / Index Rebalance

<ul>
<li>With just over a month to go in the review period for the August rebalance of the <a href="https://www.smartkarma.com/entities/philippines-stock-exchange-psei-index" target="_blank" data-smartkarma-citation="entities:22912:1" rel="noopener">Philippines Stock Exchange PSEi Index (PCOMP INDEX)</a>, we expect one potential change. </li>
<li>
<a href="https://www.smartkarma.com/entities/security-bank-corp" target="_blank" data-smartkarma-citation="entities:3929:1" rel="noopener">Security Bank (SECB PM)</a> is a potential deletion. <a href="https://www.smartkarma.com/entities/semirara-mining-and-power-corporation" target="_blank" data-smartkarma-citation="entities:18925:1" rel="noopener">Semirara Mining And Power Corp (SCC PM)</a> has a higher inclusion probability as compared to <a href="https://www.smartkarma.com/entities/unionbank-of-the-philippines" target="_blank" data-smartkarma-citation="entities:23192:1" rel="noopener">UnionBank of the Philippines (UBP PM)</a>. </li>
<li>Passive funds will need to trade quite a few days of ADV on the stocks. Historically, the adds have outperformed the deletes in the last leg of the review period.</li>
</ul>


With just over a month to go in the review period for the August rebalance of the Philippines Stock Exchange PSEi Index (PCOMP INDEX), we expect one potential change. 

Security Bank (SECB PM) is a potential deletion. Semirara Mining And Power Corp (SCC PM) has a higher inclusion probability as compared to UnionBank of the Philippines (UBP PM). 
Passive funds will need to trade quite a few days of ADV on the stocks. Historically, the adds have outperformed the deletes in the last leg of the review period.


PCOMP Index Rebalance Preview Aug 22: One Set of Potential Changes

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

<ul>
<li>There are many simple domestic banks that can shine in a complex world</li>
<li>Outside of the largest banks in many regions, there are uncovered gems</li>
<li>This lessor known bank in Philippines has seen dramatic profit growth</li>
</ul>


There are many simple domestic banks that can shine in a complex world
Outside of the largest banks in many regions, there are uncovered gems
This lessor known bank in Philippines has seen dramatic profit growth


Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Metropolitan Bank & Trust / Equity Bottom-Up

<div id="sports_article_writeup">
<p>On the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">5 November</a>, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.</p>
<p>BSP Governor Benjamin Diokno said the agreement "<em>aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions</em>". PCC's Arsenio Balisacan added: "<em>We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". </em></p>
<p>The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.</p>
<p>According to the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">PCC</a>, the "<em>Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies</em>".</p>
<div id="inserted_instream">
<div id="gpt-ad-Instream_Video">For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.</div>
<div></div>
<div>The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.</div>
<div></div>
</div>
<div>The question is: who stands to benefit from this MCA streamlining?</div>
</div>
<p></p>
<hr>
<div id="sports_article_writeup">
<div><em>For more on M&amp;A in the Philippines, please see the <a href="https://www.smartkarma.com/insights/quiddity-philippines-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:31122" rel="noopener">Quiddity Philippines M&amp;A Guide 2019</a>. </em></div>
</div>
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</div>


On the 5 November, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.
BSP Governor Benjamin Diokno said the agreement "aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions". PCC's Arsenio Balisacan added: "We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". 
The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.
According to the PCC, the "Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies".

For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.

The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.


The question is: who stands to benefit from this MCA streamlining?




For more on M&amp;A in the Philippines, please see the Quiddity Philippines M&amp;A Guide 2019. 





Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p>Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.</p><p>While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.</p><p>Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see <a href="https://www.smartkarma.com/insights/credit-suisse-greensill-sows-reputation-risks-underweight-cs-bonds" target="_blank" data-smartkarma-citation="insights:48839" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> for further details.</p><p>Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see <a href="https://www.smartkarma.com/insights/bank-credit-strategy-melt-up-before-meltdown-where-to-position" target="_blank" data-smartkarma-citation="insights:48133" rel="noopener">Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</a> for more details.</p><p>Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.</p><p><strong>Market Outlook</strong>: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.</p>

Stronger than expected US employment data combined with uncertainty surrounding the Fed’s next steps to drive broader credit markets wider by weekend, although financials remained better bid. Taperless tantrums may be repeated over the near term but financials may be less impacted.While US CCC-rated bonds and Asia High Yield sold-off, almost all European contingent capital and Asia High Yield bonds tightened in credit spread terms as investors remained anchored to banks as an economic recovery play. Investors grabbed longer duration Additional Tier 1 (AT1) bonds as the week progressed, on economic strength expectations, while lower duration Senior Unsecured bonds outperformed on rising interest rate expectations. Friday’s non-farm report generated concerns on European growth in a rising rate environment. Queue central bank assurances that they will respond to rising rates over the next few weeks.Despite higher spreads available in more moderate duration AT1 notes, Europe's outperformers were almost exclusively long duration bonds. This outperformance is a very bullish signal. However, we are not convinced that this should apply to each of these institutions.  Please see Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds for further details.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle.  Performance attributes varied amongst the various bank credit classes in Asia. Risk-on sentiment drove higher risk AT1 and less subordinated Tier 2 bonds tighter. Meanwhile duration concerns drove investors to target higher spreads per unit of duration in BBB-rated and High Yield Senior Unsecured notes. Taken together, this performance outcome is likely evidence of the melt-up in spreads that we anticipated several weeks ago. Please see Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position for more details.Admittedly, however, we are surprised by the credit strength of Asia-headquartered financials during the global rates rout. We attribute this to two items. First, China is further along the Covid-19 curve in recovery and will clearly benefit as the rest of the world catches-up. Second, financials are a leverage play on the global recovery. Taken together, Asia financials overall are well placed to continue outperforming other markets over the near term.Market Outlook: The Fed will likely Twist before it Tapers, but the timing of both remain uncertain as real long term interest rates remain negative. In the interim, global treasury markets may remain unsettled. The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market IEM) friendly; however, a strong US economic rebound should benefit EM and European financials. Short duration in investment grade financials combined with high credit spreads in High Yield financials and more subordinated debt may remain the way forward.

Bank Credit Weekly: One Size Does Not Fit All

<p>Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in February. Global monetary accommodation is in large part responsible for recent outperformance. Credit fundamentals have yet to catch-up with spreads in bonds which continue to outperform. Continued performance, however, cannot be ruled out as credit tourists crowd-in and markets melt-up.</p><p>Asia’s US$-denominated bank bonds (x-Japan) had an outstanding month with each of the +100 bonds that we track tightening during the month of February, in Z-spread terms. The return of the economic reflation trade, with rising long-term rates on increased economic growth expectations, and short-term levels anchored by central banks globally, pushed investors to grab low risk, high duration securities. This could unwind spectacularly when real inflation concerns appear.</p><p>Short duration, non-investment grade bond lagged with lower rated bonds at the bottom in terms of performance. Fundamental concerns remain regarding the weakest financial credits in Asia and these remain concentrated in India. At the same time, extension risk concerns may be overdone amongst the callable bonds which underperformed in February.</p><p>In addition to identifying the bonds which out- and under-performed in February, we dive deeper into the Philippine banks which outperformed, despite starting at already tight spread levels, and we consider if extension risk being priced into the short-callable, China-centric, bonds is appropriate.</p>

Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in February. Global monetary accommodation is in large part responsible for recent outperformance. Credit fundamentals have yet to catch-up with spreads in bonds which continue to outperform. Continued performance, however, cannot be ruled out as credit tourists crowd-in and markets melt-up.Asia’s US$-denominated bank bonds (x-Japan) had an outstanding month with each of the +100 bonds that we track tightening during the month of February, in Z-spread terms. The return of the economic reflation trade, with rising long-term rates on increased economic growth expectations, and short-term levels anchored by central banks globally, pushed investors to grab low risk, high duration securities. This could unwind spectacularly when real inflation concerns appear.Short duration, non-investment grade bond lagged with lower rated bonds at the bottom in terms of performance. Fundamental concerns remain regarding the weakest financial credits in Asia and these remain concentrated in India. At the same time, extension risk concerns may be overdone amongst the callable bonds which underperformed in February.In addition to identifying the bonds which out- and under-performed in February, we dive deeper into the Philippine banks which outperformed, despite starting at already tight spread levels, and we consider if extension risk being priced into the short-callable, China-centric, bonds is appropriate.

Bank Credit Compass: High Duration, Low Risk Notes Outperform in Feb.

Philippines

Metropolitan Bank & Trust Co. (Metrobank) is a universal bank in the Philippines that provides a wide range of banking and financial services. Its core business activities include corporate, commercial, and consumer banking, offering products such as accounts, cards, loans, investment options, and trade finance. Metrobank is headquartered in Makati City, Philippines, and was founded on September 5, 1962.

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Metropolitan Bank & Trust (MBT PM)

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Daniel Tabbush

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David Blennerhassett

Bank Credit Weekly: One Size Does Not Fit All

Performance attributes varied amongst bank credit classes. Short duration in IG financials combined with high credit spreads in HY and more...

Hank Calenti, CFA

Bank Credit Compass: High Duration, Low Risk Notes Outperform in Feb.

Lower risk tolerance combined with duration desires to drive performance in Feb. Continued performance cannot be ruled out as credit tourists crowd...

Hank Calenti, CFA

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