Alpha-Centric ESG Research

Kyle Rudden

<p>In <a href="https://www.smartkarma.com/insights/delisting-deceitful-chinese-companies-act-not-a-slam-dunk-and-has-more-bark-than-bite-if-it-passes" target="_blank" data-smartkarma-citation="insights:40025" rel="noopener">"Delisting Deceitful Chinese Companies Act" Not a Slam Dunk and Has More Bark Than Bite if It Passes</a>, I made three "predictions." First, the U.S. House of Representatives would not get around to voting on the "delisting act" before the end of the Congressional session. Second, if the House does vote, it would likely pass the bill. Third, if the bill passes, it would have more bark than bite.</p><p>As a bloke called Meat Loaf once sung, "<em>two out of three ain't bad</em>."</p><p>On Wednesday, the House voted and passed Senate Bill 945, titled the "Holding Foreign Companies Accountable Act." That the House managed to vote amidst the dual chaos of a raging pandemic and an unhinged President – so close to adjourning this 116th Congress – is a surprise. That it voted to pass S945 is not at all surprising, however, given widespread bi-partisan support for the bill.</p><p>The real epiphany comes from additional details provided during House testimony just prior to the vote. Not many, but those details that were disclosed (plus the tone in which they were articulated) shed light on how S945 will be implemented and enforced by the SEC, and why foreign issuers and investors should duly-cautious but not overly-concerned. And why this "delisting bill" is ...</p><p>... more bark than bite.</p><p>This Insight presents an updated analysis of S945 (general and China/Hong Kong-specific aspects), shares new details provided by Representative Brad Sherman, offers an opinion on the SEC's likely approach to writing and enforcing S945 rules, analyses China/Hong Kong stocks most at risk under S945, and stocks affected by the France/Belgium angle (similar to China/Hong Kong).</p>

In "Delisting Deceitful Chinese Companies Act" Not a Slam Dunk and Has More Bark Than Bite if It Passes, I made three "predictions." First, the U.S. House of Representatives would not get around to voting on the "delisting act" before the end of the Congressional session. Second, if the House does vote, it would likely pass the bill. Third, if the bill passes, it would have more bark than bite.As a bloke called Meat Loaf once sung, "two out of three ain't bad."On Wednesday, the House voted and passed Senate Bill 945, titled the "Holding Foreign Companies Accountable Act." That the House managed to vote amidst the dual chaos of a raging pandemic and an unhinged President – so close to adjourning this 116th Congress – is a surprise. That it voted to pass S945 is not at all surprising, however, given widespread bi-partisan support for the bill.The real epiphany comes from additional details provided during House testimony just prior to the vote. Not many, but those details that were disclosed (plus the tone in which they were articulated) shed light on how S945 will be implemented and enforced by the SEC, and why foreign issuers and investors should duly-cautious but not overly-concerned. And why this "delisting bill" is ...... more bark than bite.This Insight presents an updated analysis of S945 (general and China/Hong Kong-specific aspects), shares new details provided by Representative Brad Sherman, offers an opinion on the SEC's likely approach to writing and enforcing S945 rules, analyses China/Hong Kong stocks most at risk under S945, and stocks affected by the France/Belgium angle (similar to China/Hong Kong).

House Passes "Delisting Act" Giving SEC 90 Days to Write Its Rules (And Yes, More Bark Than Bite)

Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Thematic (Sector/Industry)

<div class="content-highlight"><h2>Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China Tensions</h2></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/594/original/China%20Portfolio%20Performance.png?1597832603" class="editor-image img-responsive" data-smartkarma-image-id="153594"></figure><p>The months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.</p><p>We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.</p><p>We provide updated views on each of our portfolio companies below:</p>

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in prices across our entire China tech portfolio. While companies like Huya and Niu outperformed the MSCI China and NASDAQ indices, companies like Tencent remained relatively subdued given rising US-China tensions on mobile app bans.We observe that China Tech companies appear to be looking inwards for growth - focusing more on domestic opportunities while the international regulatory outlook remains uncertain.We provide updated views on each of our portfolio companies below:

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

<div class="content-highlight"><h2>Niu Soars as Market Finally Appreciating EV Micromobility Amidst COVID; Momo Loses Ground to Competitors</h2></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/650/original/01%20Portfolio%20-%20June%2030.png?1593530582" class="editor-image img-responsive" data-smartkarma-image-id="143650"></figure><div class="content-caption">Source: Capital IQ, Zero One</div><p>The months of May and June saw a broad-level recovery in asset prices as both the NASDAQ index and MSCI China index rose by ~12% since our last update on May 5 (<a href="https://www.smartkarma.com/insights/our-tech-portfolio-update-maintain-overweight-on-digital-structural-trends-are-accelerating" target="_blank" data-smartkarma-citation="insights:39068" rel="noopener">Our Tech Portfolio Update: Maintain Overweight on Digital; Structural Trends Are Accelerating</a>).</p><p>Our China tech portfolio significantly outperformed the broader market as COVID winners reaped their rewards. We provide our updated views on each of our holdings below.</p>

Niu Soars as Market Finally Appreciating EV Micromobility Amidst COVID; Momo Loses Ground to CompetitorsSource: Capital IQ, Zero OneThe months of May and June saw a broad-level recovery in asset prices as both the NASDAQ index and MSCI China index rose by ~12% since our last update on May 5 (Our Tech Portfolio Update: Maintain Overweight on Digital; Structural Trends Are Accelerating).Our China tech portfolio significantly outperformed the broader market as COVID winners reaped their rewards. We provide our updated views on each of our holdings below.

Our Tech Portfolio Update: COVID Winners Reaping Rewards, Niu Soars 80%+

<p>During the month of April, we saw a broad-level recovery in asset prices on optimism of countries around the world beginning to ease lockdowns and restart their economies.</p><p>Given that much uncertainty remains on the depth and length of the economic fallout from COVID-19, we continue to advise investors to hold digital businesses over traditional businesses. Thus far, digital businesses have remained relatively resilient and we believe that they can continue to outperform the broader market as decades-long structural trends are brought forward.</p>

During the month of April, we saw a broad-level recovery in asset prices on optimism of countries around the world beginning to ease lockdowns and restart their economies.Given that much uncertainty remains on the depth and length of the economic fallout from COVID-19, we continue to advise investors to hold digital businesses over traditional businesses. Thus far, digital businesses have remained relatively resilient and we believe that they can continue to outperform the broader market as decades-long structural trends are brought forward.

Our Tech Portfolio Update: Maintain Overweight on Digital; Structural Trends Are Accelerating

<p>Since we published our initial China tech portfolio piece, markets have collapsed as the COVID-19 outbreak evolved into a global pandemic.</p><p>It appears so far that our portfolio has held up better than the broader NASDAQ index where most of our stocks are listed, and for our China-listed names, they have held up better than MSCI China. Our view that digital-first companies can outperform during a pandemic-induced downturn over non-digital appears to be playing out, at least thus far.</p><p>We continue to believe there is more potential for downside than upside in the markets as the global economy is likely to only get worse from here (<a href="https://www.smartkarma.com/insights/5-charts-show-why-a-major-economic-downturn-is-inevitable-now" target="_blank" data-smartkarma-citation="insights:37422" rel="noopener">5 Charts Show Why a Major Economic Downturn Is Inevitable Now</a>). Despite market declines, we still see risk of further downside and see no urgency to add shares. However, we believe holding one's required equity exposure in digital over non-digital businesses is one way to outperform on a relative basis. </p>

Since we published our initial China tech portfolio piece, markets have collapsed as the COVID-19 outbreak evolved into a global pandemic.It appears so far that our portfolio has held up better than the broader NASDAQ index where most of our stocks are listed, and for our China-listed names, they have held up better than MSCI China. Our view that digital-first companies can outperform during a pandemic-induced downturn over non-digital appears to be playing out, at least thus far.We continue to believe there is more potential for downside than upside in the markets as the global economy is likely to only get worse from here (5 Charts Show Why a Major Economic Downturn Is Inevitable Now). Despite market declines, we still see risk of further downside and see no urgency to add shares. However, we believe holding one's required equity exposure in digital over non-digital businesses is one way to outperform on a relative basis. 

Our Tech Portfolio Update: Holding Up Better Than Relevant Indices So Far

United States

Ruhnn Holding Limited operates as a holding company. The Company, through its subsidiaries, provides e-commerce and marketing platform that connects a large number of businesses, including brands, online retailers, designers, manufacturers, and suppliers. Ruhnn Holding serves customers in China.

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Ruhnn Holding Ltd (RUHN US)

House Passes "Delisting Act" Giving SEC 90 Days to Write Its Rules (And Yes, More Bark Than Bite)

The U.S. House of Representatives passed Senate Bill 945, the "Holding Foreign Companies Accountable Act." New details support the notion that S945...

Kyle Rudden

Our Tech Portfolio Update: Capitalizing on Domestic Opportunities Amidst Heightened US-China Tension

Huya Merger News Propels Stock Upwards; Tencent Gains Subdued from Rising US-China TensionsThe months of July and August saw a broad level rise in...

Vincent Fernando, CFA

Our Tech Portfolio Update: COVID Winners Reaping Rewards, Niu Soars 80%+

Niu Soars as Market Finally Appreciating EV Micromobility Amidst COVID; Momo Loses Ground to CompetitorsThe months of May and June saw a...

Vincent Fernando, CFA

Our Tech Portfolio Update: Maintain Overweight on Digital; Structural Trends Are Accelerating

During the month of April, we saw a broad-level recovery in asset prices on optimism of countries around the world beginning to ease lockdowns and...

Vincent Fernando, CFA

Our Tech Portfolio Update: Holding Up Better Than Relevant Indices So Far

Since we published our initial China tech portfolio piece, markets have collapsed as the COVID-19 outbreak evolved into a global pandemic.It...

Vincent Fernando, CFA

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