Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

<ul>
<li>We welcome the regulators' formalization of financial asset classifications. This will gradually remove regulatory arbitrage and pave the way for further bank reintermediation.</li>
<li>The new rules will likely have limited impacts on bond holdings that have active secondary markets, but illiquid debt investment plans will come under more intense regulatory and auditor scrutiny.</li>
<li>We see an impact of 10-15bp on the listed banks' reported NPL ratios. That said, a handful of banks may be at risk of capital shortages if the environment worsens. </li>
</ul>


We welcome the regulators' formalization of financial asset classifications. This will gradually remove regulatory arbitrage and pave the way for further bank reintermediation.
The new rules will likely have limited impacts on bond holdings that have active secondary markets, but illiquid debt investment plans will come under more intense regulatory and auditor scrutiny.
We see an impact of 10-15bp on the listed banks' reported NPL ratios. That said, a handful of banks may be at risk of capital shortages if the environment worsens. 


Chinese Banks: New Asset Classification Rules | You Can Run but You Can't Hide

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>In 2Q22, banks continued to face NIM contractions, but the asset quality remained stable in spite of the headwinds from COVID restrictions.</li><li>Earnings growth slightly slowed in 2Q22, dragged by NIM contractions and slower loan growth.</li><li>The 15bps cut of 5-yr LPR and 5bps cut of 1-yr LPR on 22 Aug are in line with market expectations. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

In 2Q22, banks continued to face NIM contractions, but the asset quality remained stable in spite of the headwinds from COVID restrictions.Earnings growth slightly slowed in 2Q22, dragged by NIM contractions and slower loan growth.The 15bps cut of 5-yr LPR and 5bps cut of 1-yr LPR on 22 Aug are in line with market expectations. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Banking Sector – Banks’ Asset Quality Remained Stable in 2Q22

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

Index Rebalance

Shanghai Pudong Development Bank Co. / Index Rebalance

<ul>
<li>There are 5 changes for the <a href="https://www.smartkarma.com/entities/shanghai-stock-exchange-sse-50-a-share-index" target="_blank" data-smartkarma-citation="entities:31073:1" rel="noopener">SSE50 Index</a> that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.</li>
<li>Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.</li>
<li>The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.</li>
</ul>


There are 5 changes for the SSE50 Index that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.
Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.
The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.


SSE50 Index Rebalance: Some Large Impact Changes

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

Equity Bottom-Up

<ul>
<li>
This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; </li>
<li>
Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and</li>
<li>
Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.</li>
</ul>



This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; 

Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and

Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.


<ul>
<li>
”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;</li>
<li>
Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and</li>
<li>
Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.</li>
</ul>



”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;

Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and

Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.


China Evergrande Group – Bank Fallout Coming

China

Shanghai Pudong Development Bank Co., Ltd. provides banking services. The Company provides loans, deposits, accounts settlement, foreign exchange, and other services. Shanghai Pudong Development Bank provides its services to individuals, companies, and other groups.

Shanghai Pudong Development Bank Co. (600000 CH)

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Shanghai Pudong Development Bank Co. (600000 CH)

Chinese Banks: New Asset Classification Rules | You Can Run but You Can't Hide

New asset classification rules have officially been announced. We see this as a long-term positive for the sector as regulators continue to bring...

Stanley Tsai, CFA

China Banking Sector – Banks’ Asset Quality Remained Stable in 2Q22

In 2Q22, banks continued to face NIM contractions, but the asset quality remained stable in spite of the headwinds from COVID restrictions.

CMB International

SSE50 Index Rebalance: Some Large Impact Changes

There are 5 changes to the SSE50 Index in June that will have one-way turnover estimated at 3.95% and will result in a one-way trade of CNY 3,187m....

Brian Freitas

China Evergrande – Repo’d

EVERGRANDE: Under mainland China law, the government can repossess idle land sold to developers without compensation. Mainland Chinese banks no...

Thomas J. Monaco

China Evergrande Group – Bank Fallout Coming

EVERGRANDE: Fitch declared Evergrande in “restricted default”. 367 civil actions have been filed, as they compete with offshore bondholders. Most...

Thomas J. Monaco

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