Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Back in October, I wrote in <a href="https://skr.ma/gLnnk" target="_blank" rel="noopener">PICC's (1339 HK) Lifetime Low Implied Stub</a> that <a href="https://www.smartkarma.com/entities/people-s-insurance-co-group-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:362:1" rel="noopener">People's Insurance (1339 HK)</a> was trading at an all-time low implied stub. It's widened further since. </li>
<li>Over the past 12-months, excluding PICC's 68.98% stake in <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty (2328 HK)</a>, the market has assigned HK$42.6bn less for PICC's steady and profitable life/health insurance stub ops.</li>
<li>What gives? Falling interest rates is one. EV insurance in another. Yet this bifurcation is extreme.</li>
</ul>


Back in October, I wrote in PICC's (1339 HK) Lifetime Low Implied Stub that People's Insurance (1339 HK) was trading at an all-time low implied stub. It's widened further since. 
Over the past 12-months, excluding PICC's 68.98% stake in PICC Property &amp; Casualty (2328 HK), the market has assigned HK$42.6bn less for PICC's steady and profitable life/health insurance stub ops.
What gives? Falling interest rates is one. EV insurance in another. Yet this bifurcation is extreme.


PICC's (1339 HK)'s Implied Stub Plumbs New Lows As Interest Rate Cuts Bite

Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

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 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/people-s-insurance-co-group-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:362" rel="noopener">People's Insurance (PICC) (1339 HK)</a> is currently trading at an all-time low implied stub.</li>
<li>Stripping out PICC's 68.98% stake in <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a>, the market is assigning HK$35.6bn less for its steady and profitable life/health insurance stub ops, year-to-date. </li>
<li>PICC is outperforming the HSI. It's just that PICC P&amp;C is on a hot streak, possibly driven (pun intended) by EV insurance. </li>
</ul>



People's Insurance (PICC) (1339 HK) is currently trading at an all-time low implied stub.
Stripping out PICC's 68.98% stake in PICC Property &amp; Casualty H (2328 HK), the market is assigning HK$35.6bn less for its steady and profitable life/health insurance stub ops, year-to-date. 
PICC is outperforming the HSI. It's just that PICC P&amp;C is on a hot streak, possibly driven (pun intended) by EV insurance. 


PICC's (1339 HK) Lifetime Low Implied Stub

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

KT Capital Group

Principal investments and advisory firm that focuses on connecting the CIS countries with East Asia.

Principal investments and advisory firm

Equity Bottom-Up

PICC Property & Casualty H / Equity Bottom-Up

<ul>
<li>The insurance sector should definitely warrant more investor attention going forward as some insurance names in the region have had a very strong year in 2022.</li>
<li>Two key markets we view positively in 2023 are China's P&amp;C and Korea's L&amp;H insurance markets, given their favorable industry catalysts and tailwinds. </li>
<li>Among all the insurance stocks in these two markets, we believe PICC P&amp;C and Samsung Life will continue to have an exciting year ahead.</li>
</ul>


The insurance sector should definitely warrant more investor attention going forward as some insurance names in the region have had a very strong year in 2022.
Two key markets we view positively in 2023 are China's P&amp;C and Korea's L&amp;H insurance markets, given their favorable industry catalysts and tailwinds. 
Among all the insurance stocks in these two markets, we believe PICC P&amp;C and Samsung Life will continue to have an exciting year ahead.


APAC Insurers Series (#1): A Hidden Gem in This Bear Market?

<ul>
<li>China's motor insurance has been showing signs of growth after years of decline due to deregulations and reforms in the sector.</li>
<li>Motor insurance tailwind will benefit large players the most. Bullish on PICC P&amp;C since it's the largest player in motor insurance and to likely benefit the most from the tailwind.</li>
<li>Bearish on CPIC since its P&amp;C business is much smaller than PICC P&amp;C and Ping An P&amp;C, while its L&amp;H growth continues to be under pressure.  </li>
</ul>


China's motor insurance has been showing signs of growth after years of decline due to deregulations and reforms in the sector.
Motor insurance tailwind will benefit large players the most. Bullish on PICC P&amp;C since it's the largest player in motor insurance and to likely benefit the most from the tailwind.
Bearish on CPIC since its P&amp;C business is much smaller than PICC P&amp;C and Ping An P&amp;C, while its L&amp;H growth continues to be under pressure.  


China

The People's Insurance Company (Group) of China Limited, through its subsidiaries, offers a range of property and casualty insurance products. The Company also offers asset management services for a variety of customers throughout China.

People's Insurance (PICC) (1339 HK)

PICC's (1339 HK)'s Implied Stub Plumbs New Lows As Interest Rate Cuts Bite

When the NAV discount/implied stub momentum starts to reverse, go long that People's Insurance (1339 HK), short PICC Property & Casualty (2328 HK).

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China Financials: Silver Linings Playbook

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PICC's (1339 HK) Lifetime Low Implied Stub

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APAC Insurers Series (#1): A Hidden Gem in This Bear Market?

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China Insurance: PICC P&C Vs. CPIC

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