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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the Hong Kong Hang Seng Index (HSI INDEX) as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the Hong Kong Hang Seng Index (HSI INDEX) as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

HSI Market Consultation - Name Changes as We Await the Conclusions

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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 Bottom-Up

<ul class="">
<li>Internet users increased 9.5% in China in 2020.</li>
<li>Shanghai Police prosecuted 14 Renren (RENN) employees for piracy of TV series.</li>
<li>Tiktok indicted Tencent (700 HK) for monopoly.</li>
<li>Bilibili has invested in 33 cartoon producers in the past 12 months.</li>
</ul>


Internet users increased 9.5% in China in 2020.
Shanghai Police prosecuted 14 Renren (RENN) employees for piracy of TV series.
Tiktok indicted Tencent (700 HK) for monopoly.
Bilibili has invested in 33 cartoon producers in the past 12 months.


China Internet Weekly (8Feb21): TikTok Sued Tencent, Tencent Believed to Be Behind Renren Arrest

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

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

Ping An Insurance – Hope Is Not A Strategy

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

Quantitative Analysis

Following the <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop Corp Class A (GME US)</a> saga that has been all over the financial press (and is now spreading into the mainstream press), we have been getting questions on names in Hong Kong that could be prone to a squeeze.We do not believe that retail players in Hong Kong have the heft that retail investors in the US do, nor are single stock options frequently used (though there is a lot of retail activity in warrants on large cap names), but the pain that is being felt in global portfolios could lead to unwinding in Hong Kong shorts too.Some highly shorted stocks in Hong Kong that have seen prices jump today along with volume surge are <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a>, <a href="https://www.smartkarma.com/entities/hang-seng-bank-ltd" target="_blank" data-smartkarma-citation="entities:24:1" rel="noopener">Hang Seng Bank (11 HK)</a>, <a href="https://www.smartkarma.com/entities/vitasoy-intl-holdings-ltd" target="_blank" data-smartkarma-citation="entities:2807:1" rel="noopener">Vitasoy Intl Holdings (345 HK)</a>, <a href="https://www.smartkarma.com/entities/china-literature-ltd" target="_blank" data-smartkarma-citation="entities:24388:1" rel="noopener">China Literature (772 HK)</a>, <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 (23 HK)</a>, <a href="https://www.smartkarma.com/entities/mtr-corp" target="_blank" data-smartkarma-citation="entities:13289:1" rel="noopener">MTR Corp (66 HK)</a>, <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a>, <a href="https://www.smartkarma.com/entities/samsonite-international-sa" target="_blank" data-smartkarma-citation="entities:12790:1" rel="noopener">Samsonite (1910 HK)</a> and <a href="https://www.smartkarma.com/entities/wharf-real-estate-investment" target="_blank" data-smartkarma-citation="entities:26031:1" rel="noopener">Wharf Real Estate Investment (1997 HK)</a>.We identify more stocks that could be prone to short covering based on short interest as a percentage of issued shares, free float and in terms of days of ADV to cover.

Following the GameStop Corp Class A (GME US) saga that has been all over the financial press (and is now spreading into the mainstream press), we have been getting questions on names in Hong Kong that could be prone to a squeeze.We do not believe that retail players in Hong Kong have the heft that retail investors in the US do, nor are single stock options frequently used (though there is a lot of retail activity in warrants on large cap names), but the pain that is being felt in global portfolios could lead to unwinding in Hong Kong shorts too.Some highly shorted stocks in Hong Kong that have seen prices jump today along with volume surge are Ping An Healthcare and Technology Company Limited (1833 HK), Hang Seng Bank (11 HK), Vitasoy Intl Holdings (345 HK), China Literature (772 HK), Bank of East Asia (23 HK), MTR Corp (66 HK), Want Want (151 HK), Samsonite (1910 HK) and Wharf Real Estate Investment (1997 HK).We identify more stocks that could be prone to short covering based on short interest as a percentage of issued shares, free float and in terms of days of ADV to cover.

China

Ping An Healthcare and Technology Company Limited provides health care software solutions. The Company offers mobile platform for online consultation, hospital referral and appointment, health management, and wellness interaction services, as well as connects consumers and patients with health care resources. Ping An Healthcare and Technology serves customers in China.

Ping An Healthcare and Technology (1833 HK)

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Ping An Healthcare and Technology (1833 HK)

HSI Market Consultation - Name Changes as We Await the Conclusions

The conclusions of the HSI market consultation could be announced on 26 Feb along with the March review. Given recent large listings and price...

Brian Freitas

China Internet Weekly (8Feb21): TikTok Sued Tencent, Tencent Believed to Be Behind Renren Arrest

Shanghai Police prosecuted 14 employees in Renren for piracy of TV series. Tiktok indicted Tencent for monopoly. Bilibili has invested in 33...

Ming Lu

Ping An Insurance – Hope Is Not A Strategy

PING AN INSURANCE: Ping An reported 2H20 an operating profit decline of 12.2% HOH. Despite bottom-line improvement in Life, results are truly...

Thomas J. Monaco

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

HK Shorts: Squeeze-O-Meter

Following the GameStop saga, we try to identify stocks in HK that could be susceptible to a short squeeze based on short interest vs issued shares...

Brian Freitas

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