Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Credit risk markets remained decoupled between the US and Asia as spreads on US Caa-rated entities continued to defy gravity. The risk-on wave continued to swell through US risk asses on additional positive vaccine news. Combined with a Goldilocks election outcome whereby President Trump loses the election, but Joe Biden does not win a mandate, spreads on the US Caa-rated complex tightened to inside Asia’s HY index for the first time since 2014. Is it time to sell the Caa bull market?  Treasury Secretary Mnuchin’s decision to cancel several underutilized emergency Fed programs at the end of the year may raise expectations for the Fed to expand its asset purchase program or target its purchases more directly along the Treasury curve at its December meeting. We are set-up for disappointment.  Against this background, Asia’s HY Additional Tier 1 underperformed Subordinated and Senior Unsecured securities as near-term global growth concerns outweighed vaccine progress. Most of the underperforming bond were issued over the last three months. This suggests these may have been issued at the top of the market, in spread terms. Amongst Additional Tier 1 bonds, Hong Kong-headquartered banks led advances. <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's (23 HK)</a> announcement that it would call its 5.5% coupon December-callable AT1 bond aided sentiment. We first recommended that investors overweight this security in mid-February within <a href="https://www.smartkarma.com/insights/bank-of-east-asia-overweight-short-call-at1-on-refinancing-ability" target="_blank" data-smartkarma-citation="insights:36787" rel="noopener">Bank of East Asia: Overweight Short-Call AT1 on Refinancing Ability</a> and recently re-iterated this call within <a href="https://www.smartkarma.com/insights/bank-of-east-asia-buy-the-inefficient-capital-securities" target="_blank" data-smartkarma-citation="insights:42753" rel="noopener">Bank of East Asia: Buy the Inefficient Capital Securities</a>. Victory lap over.Concurrently, Turkish HY Senior Unsecured bank bonds again materially outperformed their global peers following delivery of a more orthodox monetary policy regime. Nonetheless, Turkish bank bonds continue to trade wide of similarly rated entities in other emerging markets.  Given the starting point for a potential Turkish bank bond rally, we anticipate a virus versus vaccine market immunity in Turkish-bank bonds returns over the near term.   Over US$13 billion was raised by financial institutions in USD, Euros and Sterling across the credit continuum. Amongst higher-yield issued securities, the UK Co-operative Bank’s Caa1 rated bond makes India’s <a href="https://www.smartkarma.com/entities/iifl-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20197:1" rel="noopener">IIFL Finance's (IIFL IN)</a> US$-bond look cheap in comparison. However, unlike India where every bank rescue requires a liability moratorium, the Co-operative Bank resolution three years ago was not damaging to the financial system. India’s rescue of <a href="https://www.smartkarma.com/entities/lakshmi-vilas-bank-ltd" target="_blank" data-smartkarma-citation="entities:17552:1" rel="noopener">Lakshmi Vilas Bank (LVB IN)</a> this week is no exception. For our views on this please see: <a href="https://www.smartkarma.com/insights/lakshmi-vilas-bank-dbs-rescue-is-a-wasted-option" target="_blank" data-smartkarma-citation="insights:45471" rel="noopener">Lakshmi Vilas Bank: DBS Rescue Is a Wasted Option</a>.US$-debt issuance should be slowed by the upcoming US holiday on Thursday. We could see a short-lived resurgence in early December and then drift sideways until heavy issuance re-emerges in January.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Positive vaccine news combined with a goldilocks US election outcome lowers the likelihood of excessive US federal stimulus. This should cap additional upward pressure on US Treasury yields until vision increases on likely H2 ’21 US economic growth, post-vaccine distribution. Reflation remains on hold. This could limit US dollar weakness and limit positive impacts on reflationary beneficiaries such as bank valuations and Emerging Markets (EM) assets.

Credit risk markets remained decoupled between the US and Asia as spreads on US Caa-rated entities continued to defy gravity. The risk-on wave continued to swell through US risk asses on additional positive vaccine news. Combined with a Goldilocks election outcome whereby President Trump loses the election, but Joe Biden does not win a mandate, spreads on the US Caa-rated complex tightened to inside Asia’s HY index for the first time since 2014. Is it time to sell the Caa bull market?  Treasury Secretary Mnuchin’s decision to cancel several underutilized emergency Fed programs at the end of the year may raise expectations for the Fed to expand its asset purchase program or target its purchases more directly along the Treasury curve at its December meeting. We are set-up for disappointment.  Against this background, Asia’s HY Additional Tier 1 underperformed Subordinated and Senior Unsecured securities as near-term global growth concerns outweighed vaccine progress. Most of the underperforming bond were issued over the last three months. This suggests these may have been issued at the top of the market, in spread terms. Amongst Additional Tier 1 bonds, Hong Kong-headquartered banks led advances. Bank of East Asia's (23 HK) announcement that it would call its 5.5% coupon December-callable AT1 bond aided sentiment. We first recommended that investors overweight this security in mid-February within Bank of East Asia: Overweight Short-Call AT1 on Refinancing Ability and recently re-iterated this call within Bank of East Asia: Buy the Inefficient Capital Securities. Victory lap over.Concurrently, Turkish HY Senior Unsecured bank bonds again materially outperformed their global peers following delivery of a more orthodox monetary policy regime. Nonetheless, Turkish bank bonds continue to trade wide of similarly rated entities in other emerging markets.  Given the starting point for a potential Turkish bank bond rally, we anticipate a virus versus vaccine market immunity in Turkish-bank bonds returns over the near term.   Over US$13 billion was raised by financial institutions in USD, Euros and Sterling across the credit continuum. Amongst higher-yield issued securities, the UK Co-operative Bank’s Caa1 rated bond makes India’s IIFL Finance's (IIFL IN) US$-bond look cheap in comparison. However, unlike India where every bank rescue requires a liability moratorium, the Co-operative Bank resolution three years ago was not damaging to the financial system. India’s rescue of Lakshmi Vilas Bank (LVB IN) this week is no exception. For our views on this please see: Lakshmi Vilas Bank: DBS Rescue Is a Wasted Option.US$-debt issuance should be slowed by the upcoming US holiday on Thursday. We could see a short-lived resurgence in early December and then drift sideways until heavy issuance re-emerges in January.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Positive vaccine news combined with a goldilocks US election outcome lowers the likelihood of excessive US federal stimulus. This should cap additional upward pressure on US Treasury yields until vision increases on likely H2 ’21 US economic growth, post-vaccine distribution. Reflation remains on hold. This could limit US dollar weakness and limit positive impacts on reflationary beneficiaries such as bank valuations and Emerging Markets (EM) assets.

Bank Credit Weekly: Virus Vs. Vaccine: Time to Sell the Caa-Bull?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

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<a href="https://www.smartkarma.com/entities/japan-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1184:1" rel="noopener">Japan Airlines (9201 JP)</a> plans to raise around US$1.4bn in order to shore up its balance sheet and aid its longer term transformation.
 I have covered the background of the deal in my earlier write-up, <a href="https://www.smartkarma.com/insights/japan-airlines-placement-given-the-uncertain-outlook-might-need-further-correction" target="_blank" rel="noopener">Japan Airlines Placement - Given the Uncertain Outlook, Might Need Further Correction</a>.
</div><div><div id="annotable-executive_summary-2">In this insight, I'll talk about the updates since then.</div></div>


Japan Airlines (9201 JP) plans to raise around US$1.4bn in order to shore up its balance sheet and aid its longer term transformation.
 I have covered the background of the deal in my earlier write-up, Japan Airlines Placement - Given the Uncertain Outlook, Might Need Further Correction.
In this insight, I'll talk about the updates since then.

Japan Airlines Placement - Tricky Tricky, Needs to Correct

Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

Equity Bottom-Up

Moderna may announce its first interim results of the late-stage trial of its COVID-19 vaccine mRNA-1273 as soon as this month. Pfizer and BioNTech confirmed its mRNA-based vaccine candidate against SARS-CoV-2 has already achieved success in first interim analysis from Phase 3 study. With 90%+ efficacy and study enrolled 43,538 participants Pfizer and BioNTech believe that a vaccine may effectively prevent COVID-19. BioNTech used mRNA-based approach and its vaccine candidate BNT162b2 consists of messenger RNA, that provides instructions for human cell to make immunogen, which activates the body’s immune response.Therefore, we see that unproven mRNA approach shows first promising results and this platform technology may also target solid tumors and many forms of cancer. Looks like leading mRNA-based vaccine producers (Moderna, Pfizer/BioNTech, CureVac) are going to win the race leaving behind adenovirus-based COVID-19 vaccine producers (J&amp;J, AstraZeneca, CanSino Biologics). Shares of BioNTech rose 19% in November while shares of Moderna and CureVac jumped 30% and 43% respectively this month. We believe that positive data from Moderna’s late stage study may drive stocks of mRNA-based vaccine producers to new highs.

Moderna may announce its first interim results of the late-stage trial of its COVID-19 vaccine mRNA-1273 as soon as this month. Pfizer and BioNTech confirmed its mRNA-based vaccine candidate against SARS-CoV-2 has already achieved success in first interim analysis from Phase 3 study. With 90%+ efficacy and study enrolled 43,538 participants Pfizer and BioNTech believe that a vaccine may effectively prevent COVID-19. BioNTech used mRNA-based approach and its vaccine candidate BNT162b2 consists of messenger RNA, that provides instructions for human cell to make immunogen, which activates the body’s immune response.Therefore, we see that unproven mRNA approach shows first promising results and this platform technology may also target solid tumors and many forms of cancer. Looks like leading mRNA-based vaccine producers (Moderna, Pfizer/BioNTech, CureVac) are going to win the race leaving behind adenovirus-based COVID-19 vaccine producers (J&amp;J, AstraZeneca, CanSino Biologics). Shares of BioNTech rose 19% in November while shares of Moderna and CureVac jumped 30% and 43% respectively this month. We believe that positive data from Moderna’s late stage study may drive stocks of mRNA-based vaccine producers to new highs.   

Success of Moderna’s COVID-19 Vaccine May Give a Boost to Stocks of Messenger RNA Companies

CureVac shares have been under selling pressure and fell ~20% in September. For the same period shares of key rivals Moderna and BioNTech rose 7% and ~9% respectively. Moderna and Johnson &amp; Johnson began Phase 3 clinical trials of COVID-19 vaccine candidates this month. The global race for coronavirus vaccine is entering the final stage and leaders are Moderna, Pfizer/BioNTech, AstraZeneca and Johnson &amp; Johnson. All these companies have already initiated larger scale clinical trials (phase 3) for a COVID-19 vaccine. However, management of CureVac is confident larger phase 2/3 study will be launched till the end of the year. In our insight we will focus on approaches, used by biotech companies to develop coronavirus vaccines, and find out how CureVac positions itself as one of the leaders with the fast and disruptive mRNA technology.

CureVac shares have been under selling pressure and fell ~20% in September. For the same period shares of key rivals Moderna and BioNTech rose 7% and ~9% respectively. Moderna and Johnson &amp; Johnson began Phase 3 clinical trials of COVID-19 vaccine candidates this month. The global race for coronavirus vaccine is entering the final stage and leaders are Moderna, Pfizer/BioNTech, AstraZeneca and Johnson &amp; Johnson. All these companies have already initiated larger scale clinical trials (phase 3) for a COVID-19 vaccine. However, management of CureVac is confident larger phase 2/3 study will be launched till the end of the year. In our insight we will focus on approaches, used by biotech companies to develop coronavirus vaccines, and find out how CureVac positions itself as one of the leaders with the fast and disruptive mRNA technology.

Expecting First Results From Phase 1 Clinical Trials Of COVID-19 Vaccine In October

CureVac stock closed at $55.90 per share during the first trading day, the best performance among biotech IPOs this year. Since the beginning of COVID-19 pandemic it was the first IPO of biotech company developing coronavirus vaccines and using innovative messenger RNA approach. The mRNA technology is digitalizing vaccines, which make them highly adaptable. Moreover, the speed of creating vaccines is dramatically increasing and there is an ability to scale the production quickly. Currently, there is no approved product, that utilizes mRNA as a therapeutic or prophylactic vaccine in United States or Europe. However, U.S. Department of Health and Human Services and Department of Defense have already signed the agreement with Moderna, Inc., pioneer in messenger RNA therapeutics, to manufacture and deliver 100 million doses of Moderna’s coronavirus vaccine candidate mRNA-1273.Our Aug 2021 price target of $80 under bull case scenario is based on SOTP analysis, which includes valuation of mRNA technology platform, COVID-19 vaccine opportunity, other vaccines, programs (oncology, rabies vaccine, etc.) and increased year-end 2021 cash. Detailed comparative analysis of mRNA technology platforms applying by Moderna and CureVac to produce coronavirus vaccines will be provided in insight too.

CureVac stock closed at $55.90 per share during the first trading day, the best performance among biotech IPOs this year. Since the beginning of COVID-19 pandemic it was the first IPO of biotech company developing coronavirus vaccines and using innovative messenger RNA approach. The mRNA technology is digitalizing vaccines, which make them highly adaptable. Moreover, the speed of creating vaccines is dramatically increasing and there is an ability to scale the production quickly. Currently, there is no approved product, that utilizes mRNA as a therapeutic or prophylactic vaccine in United States or Europe. However, U.S. Department of Health and Human Services and Department of Defense have already signed the agreement with Moderna, Inc., pioneer in messenger RNA therapeutics, to manufacture and deliver 100 million doses of Moderna’s coronavirus vaccine candidate mRNA-1273.Our Aug 2021 price target of $80 under bull case scenario is based on SOTP analysis, which includes valuation of mRNA technology platform, COVID-19 vaccine opportunity, other vaccines, programs (oncology, rabies vaccine, etc.) and increased year-end 2021 cash. Detailed comparative analysis of mRNA technology platforms applying by Moderna and CureVac to produce coronavirus vaccines will be provided in insight too.

How High Can CureVac Stock Go After Blockbuster IPO? We Update Bull Case Scenario to $80 Per Share

United States

Moderna, Inc. operates as a biotechnology company. The Company focuses on the discovery and development of messenger RNA therapeutics and vaccines. Moderna develops mRNA medicines for infectious, immuno-oncology, and cardiovascular diseases.

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Moderna (MRNA US)

Bank Credit Weekly: Virus Vs. Vaccine: Time to Sell the Caa-Bull?

Is it time to sell the Caa-bull market? Some AT1 bonds seem to be at a market top. We are set-up for disappointment. Nonetheless, we anticipate...

Hank Calenti, CFA

Japan Airlines Placement - Tricky Tricky, Needs to Correct

Japan Airlines (9201 JP) plans to raise around US$1.4bn in order to shore up its balance sheet and aid its longer term transformation.

Sumeet Singh

Success of Moderna’s COVID-19 Vaccine May Give a Boost to Stocks of Messenger RNA Companies

mRNA-based COVID-19 vaccine producers made a big step forward to defeat coronavirus and prevent future pandemics around the world

Andrei Zakharov

Expecting First Results From Phase 1 Clinical Trials Of COVID-19 Vaccine In October

CureVac shares have been under selling pressure and fell ~20% in September. For the same period shares of key rivals Moderna and BioNTech rose 7%...

Andrei Zakharov

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Bank Credit Weekly: Virus Vs. Vaccine: Time to Sell the Caa-Bull?

Is it time to sell the Caa-bull market? Some AT1 bonds seem to be at a market top. We are set-up for disappointment. Nonetheless, we anticipate...

Hank Calenti, CFA

Japan Airlines Placement - Tricky Tricky, Needs to Correct

Japan Airlines (9201 JP) plans to raise around US$1.4bn in order to shore up its balance sheet and aid its longer term transformation.

Sumeet Singh

Success of Moderna’s COVID-19 Vaccine May Give a Boost to Stocks of Messenger RNA Companies

mRNA-based COVID-19 vaccine producers made a big step forward to defeat coronavirus and prevent future pandemics around the world

Andrei Zakharov

Expecting First Results From Phase 1 Clinical Trials Of COVID-19 Vaccine In October

CureVac shares have been under selling pressure and fell ~20% in September. For the same period shares of key rivals Moderna and BioNTech rose 7%...

Andrei Zakharov

How High Can CureVac Stock Go After Blockbuster IPO? We Update Bull Case Scenario to $80 Per Share

CureVac stock closed at $55.90 per share during the first trading day, the best performance among biotech IPOs this year. Since the beginning of...

Andrei Zakharov