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

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-c2975d60-47cd-4246-a7a6-25297586242b" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance (601318 CH)</a> trades at a 40% premium to <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (2318 HK)</a>. The premium has blown out the last week and there could be a reversal.</li>
<li>The difference in Ping An's AH premium versus the HSAHP Index has shrunk to its narrowest level in the last 10 years.</li>
<li>Shareholding in <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-c2975d60-47cd-4246-a7a6-25297586242b" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group of (601318 CH)</a> via Northbound Connect has dropped and shareholding in <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> via Southbound Connect has increased steadily.</li>
</ul>



Ping An Insurance (601318 CH) trades at a 40% premium to Ping An Insurance (2318 HK). The premium has blown out the last week and there could be a reversal.
The difference in Ping An's AH premium versus the HSAHP Index has shrunk to its narrowest level in the last 10 years.
Shareholding in Ping An Insurance Group of (601318 CH) via Northbound Connect has dropped and shareholding in Ping An Insurance (H) (2318 HK) via Southbound Connect has increased steadily.


Ping An A/​H Premium: Blow Out Could Lead to Sharp Reversal

Asian bank research and consultancy, Tabbush Report

Daniel Tabbush

Asian bank 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 is considerable worsening in net profit, including from key divisions </li>
<li>Despite rising assets for Health and Life, profit in this core division is down a lot</li>
<li>Banking exposure is significant, with a poor outlook, and making Ping An less pure</li>
</ul>


There is considerable worsening in net profit, including from key divisions 
Despite rising assets for Health and Life, profit in this core division is down a lot
Banking exposure is significant, with a poor outlook, and making Ping An less pure


Ping An Insurance - Dramatic Worsening Key Areas, Big Bank Exposure, Macro Insurance Stats Are Poor

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>Over three quarters of Global equity managers are underweight China.  Average weights sit at the bottom of the 10 year range, with 18% of funds holding no exposure at all.</li>
<li>Continued rotation over the last 6-months. Within Asia, Japan has taken the lead as the key exposure, whilst Global funds prefer European countries as their main overweight positions.</li>
<li>Tencent owned by 22% of funds, Alibaba by just 18%.  China re-opening/COVID relaxation places Global funds vulnerable to outperformance.</li>
</ul>


Over three quarters of Global equity managers are underweight China.  Average weights sit at the bottom of the 10 year range, with 18% of funds holding no exposure at all.
Continued rotation over the last 6-months. Within Asia, Japan has taken the lead as the key exposure, whilst Global funds prefer European countries as their main overweight positions.
Tencent owned by 22% of funds, Alibaba by just 18%.  China re-opening/COVID relaxation places Global funds vulnerable to outperformance.


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>
Related Insights
<a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> 
<a href="https://www.smartkarma.com/insights/glut-and-famine-we-might-see-snow-in-china-this-summer" target="_blank" data-smartkarma-citation="insights:52840" rel="noopener">Glut and Famine: We Might See Snow in China This Summer</a> 
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<a href="https://www.smartkarma.com/insights/china-macro-exports-disappoint-but-it-s-still-early-in-the-game" target="_blank" data-smartkarma-citation="insights:52728" rel="noopener">China Macro: Exports Disappoint, but It's Still Early in the Game</a> 
<a href="https://www.smartkarma.com/insights/glut-and-famine-china-s-monetary-conditions-a-notch-tighter-in-may" target="_blank" data-smartkarma-citation="insights:51799" rel="noopener">Glut and Famine: China's Monetary Conditions a Notch Tighter in May</a> 
<a href="https://www.smartkarma.com/insights/icbc-the-bond-identity-a-zero-growth-dividend-discount-story" target="_blank" data-smartkarma-citation="insights:51463" rel="noopener">ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story</a> 
<a href="https://www.smartkarma.com/insights/boc-aviation-2588-hk-the-stars-don-t-look-bigger-but-they-do-look-brighter" target="_blank" data-smartkarma-citation="insights:52283" rel="noopener">BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter</a>

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

ICBC <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">(1398 HK</a> | <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-a" target="_blank" data-smartkarma-citation="entities:494:1" rel="noopener">601398 CH)</a> 
The market rout since April has taken ICBC-H <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">(1398 HK)</a> back to HKD5.00/share. The stock is now trading at historically low forward P/B and P/E multiples and offers a hefty yield of 7%. Investors are pricing the shares exactly as if the bank is a dividend stock with no perpetual growth.
A perpetual bond may just be what the bank is. The market-implied NPL ratio of over 8% is not out of the realm of possibility. We forecast cumulative loan write-offs of CNY1 trillion (USD155 billion) over the next five years. It doesn't take another global crisis for us to get there. Asset quality concerns will continue to weigh heavily on the stock and the lack of catalysts will limit re-rating potential, in our view.
A multi-year ROE compression story is taking shape. Even the most bullish forecasts see the bank's ROE trending lower as impairment charges eat into interest and fee income. A strong provision level helps to an extent. But we expect the bank to burn down its reserve cover considerably in 2021E to 2025E just to maintain its dividends. 
Asset quality will likely get worse, but the mortgage book provides a glimmer of hope. ICBC continues to be a major funding source of China's capital-intensive recovery. The bank's infrastructure book has grown by CNY1.6 trillion (USD247 billion) since 2016. Indirect exposures to local government finances have also been on the rise. On a more positive note, the mortgage book has been a star. Even if NPLs tick up moderately as the portfolio seasons, homeowners are paying most of the bank's shareholder dividends.
We are underweight ICBC-H against MSCI China <a href="https://www.smartkarma.com/entities/msci-china-index" target="_blank" data-smartkarma-citation="entities:22895:1" rel="noopener">(MXCN INDEX)</a> and would look to build a net short position if the stock edges past HKD6.00/share. The bank's dividend capacity puts a floor on the stock, but offers limited room for capital appreciation. The key risks to our call are macro-related. Rising tides lift all boats and any unexpected form of monetary easing by the PBOC will drive the shares higher.
(Attachment: Financial Summary)

ICBC (1398 HK | 601398 CH) 
The market rout since April has taken ICBC-H (1398 HK) back to HKD5.00/share. The stock is now trading at historically low forward P/B and P/E multiples and offers a hefty yield of 7%. Investors are pricing the shares exactly as if the bank is a dividend stock with no perpetual growth.
A perpetual bond may just be what the bank is. The market-implied NPL ratio of over 8% is not out of the realm of possibility. We forecast cumulative loan write-offs of CNY1 trillion (USD155 billion) over the next five years. It doesn't take another global crisis for us to get there. Asset quality concerns will continue to weigh heavily on the stock and the lack of catalysts will limit re-rating potential, in our view.
A multi-year ROE compression story is taking shape. Even the most bullish forecasts see the bank's ROE trending lower as impairment charges eat into interest and fee income. A strong provision level helps to an extent. But we expect the bank to burn down its reserve cover considerably in 2021E to 2025E just to maintain its dividends. 
Asset quality will likely get worse, but the mortgage book provides a glimmer of hope. ICBC continues to be a major funding source of China's capital-intensive recovery. The bank's infrastructure book has grown by CNY1.6 trillion (USD247 billion) since 2016. Indirect exposures to local government finances have also been on the rise. On a more positive note, the mortgage book has been a star. Even if NPLs tick up moderately as the portfolio seasons, homeowners are paying most of the bank's shareholder dividends.
We are underweight ICBC-H against MSCI China (MXCN INDEX) and would look to build a net short position if the stock edges past HKD6.00/share. The bank's dividend capacity puts a floor on the stock, but offers limited room for capital appreciation. The key risks to our call are macro-related. Rising tides lift all boats and any unexpected form of monetary easing by the PBOC will drive the shares higher.
(Attachment: Financial Summary)

ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story

China

Ping An Insurance (Group) Company of China Limited provides products and services through its five ecosystems in financial services, healthcare, auto services, real estate services and Smart City solutions. The Group's insurance business writes property, casualty, and life insurance products.

Ping An Insurance Group of (601318 CH)

Ping An A/H Premium: Blow Out Could Lead to Sharp Reversal

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Stanley Tsai, CFA

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The Ping An AH premium has dropped from the highs of 40% mid last week. There should be a further drop in the AH premium, but it could be a bumpy...

Brian Freitas

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Expect earnings to be released soon. There remains considerable risk to core insurance operations, with worsening China and Hong Kong markets, but...

Daniel Tabbush

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Over 3/4 of Global equity managers are underweight China. Average weights sit at the bottom of the 10 year range, with 18% of funds holding no...

Steven Holden

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Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

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ICBC-H offers a hefty yield of 7% and is trading precisely as a zero-growth dividend-paying stock. But we are not buyers just yet and there is a...

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Ping An A/H Premium: Blow Out Could Lead to Sharp Reversal