HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a>, which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>.

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive for Zhejiang Expressway Co H (576 HK), which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - China Communications Construction (1800 HK), Shenzhen Intl (152 HK), Sinotrans (598 HK) and China Everbright Environment (257 HK). 

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

The appreciation of Rmb against the USD by 6.5% in 2020 has led to many companies recording exchange losses in their FY20 accounts. However, with the Rmb depreciating against USD so far by 0.2% YTD, we believe it is time to look at the victims in last year and see how they will be affected by a weaker Rmb in this year should the trend sustain.Within our coverage, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a>, <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> and <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)</a> are the key victims in last year with their exchange losses amounting to 5-11% of FY20 profit. Except <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a>, we believe the remaining three names will be the beneficiaries under a scenario of weaker Rmb/USD exchange rate.

The appreciation of Rmb against the USD by 6.5% in 2020 has led to many companies recording exchange losses in their FY20 accounts. However, with the Rmb depreciating against USD so far by 0.2% YTD, we believe it is time to look at the victims in last year and see how they will be affected by a weaker Rmb in this year should the trend sustain.Within our coverage, Sinotrans (598 HK), China Communications Construction (1800 HK), Shenzhen Intl (152 HK) and Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) are the key victims in last year with their exchange losses amounting to 5-11% of FY20 profit. Except Shenzhen Intl (152 HK), we believe the remaining three names will be the beneficiaries under a scenario of weaker Rmb/USD exchange rate. 

A Look on Some Victims of Rmb Appreciation in FY20: How Will They Fare in FY21 if Rmb Stays Weak?

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> (GBIA) and <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a>, <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> and <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>.

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - Guangzhou Baiyun International Airport (600004 CH) (GBIA) and Shenzhen Airport Co A (000089 CH), China Southern Airlines (1055 HK), Sinotrans (598 HK), Kerry Logistics Network (636 HK), Shenzhen Intl (152 HK) and S.F. Holding (002352 CH).

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Back in April of this year, China's President Xi Jinping <a href="http://paper.people.com.cn/rmrb/html/2020-04/16/nw.D110000renmrb_20200416_1-09.htm" target="_blank" rel="noopener">mentioned</a> taking the initiative to seek change and turn "crises into opportunities".
This was expanded upon in a Politburo meeting on the <a href="http://cpc.people.com.cn/n1/2020/0515/c64094-31709627.html?mc_cid=28966ada58&amp;mc_eid=902fe70bde" target="_blank" rel="noopener">14 May</a> under the guise of a "dual circulation" strategy, such that China will seek to primarily rely on "internal circulation" (domestic production, distribution, and consumption) for its future development. This "internal circulation" would be supplemented with "external circulation". 
During a 21 July <a href="https://web.archive.org/web/20200811045300/http://www.xinhuanet.com/politics/leaders/2020-07/21/c_1126267575.htm" target="_blank" rel="noopener">speech</a> to public and private business in Beijing, Xi emphasized that “We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other.
When  co-hosting a China-Germany-EU leaders last week, Xi Jinping <a href="https://news.cgtn.com/news/2020-09-14/Xi-attends-China-Germany-EU-leaders-meeting-via-video-link-TMA0kfp5lK/index.html" target="_blank" rel="noopener">reiterated</a> that "China is working toward the goal of fostering a new, dual-cycle development architecture with the domestic cycle as the mainstay and with domestic and international development reinforcing each other."
This “dual circulation/cycle” strategy may form a key government initiative in the 14th Five-Year Plan (2021-2025), which is expected to be released by the National People's Congress early next year, probably March. A Communist Party leaders’ meeting next month is expected to unveil more detail on this strategy. 
Does this strategy point to China turning its back to the world and taking on a closed and self-sufficient path?

Back in April of this year, China's President Xi Jinping mentioned taking the initiative to seek change and turn "crises into opportunities".
This was expanded upon in a Politburo meeting on the 14 May under the guise of a "dual circulation" strategy, such that China will seek to primarily rely on "internal circulation" (domestic production, distribution, and consumption) for its future development. This "internal circulation" would be supplemented with "external circulation". 
During a 21 July speech to public and private business in Beijing, Xi emphasized that “We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other.
When  co-hosting a China-Germany-EU leaders last week, Xi Jinping reiterated that "China is working toward the goal of fostering a new, dual-cycle development architecture with the domestic cycle as the mainstay and with domestic and international development reinforcing each other."
This “dual circulation/cycle” strategy may form a key government initiative in the 14th Five-Year Plan (2021-2025), which is expected to be released by the National People's Congress early next year, probably March. A Communist Party leaders’ meeting next month is expected to unveil more detail on this strategy. 
Does this strategy point to China turning its back to the world and taking on a closed and self-sufficient path?

China's Dual Circulation: Hedged Integration

With an 11.6% YoY growth (in Rmb terms), China's export trade continued its recovery momentum in Aug. This represents a further acceleration from 10.5% growth in Jul and is the fifth consecutive monthly YoY growth since Apr. Export to US has picked up in the last two months while the growth to ASEAN maintained at over 15%. ASEAN sustained its position as China's largest trading partner, accounting for 15% of China's total trade value in 8M20.We believe China' strong export and trade figures for Aug bode well for both <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a>. Both companies are heavily geared towards China's trade activities and are with particular exposure to the intra-Asia market. Sinotrans has 50% of its freight forwarding volume in 1H20 from this geographical market while SITC has sole presence in intra-Asia trade. In our view, both companies will report solid 3Q20 figures by end-Oct.

With an 11.6% YoY growth (in Rmb terms), China's export trade continued its recovery momentum in Aug. This represents a further acceleration from 10.5% growth in Jul and is the fifth consecutive monthly YoY growth since Apr. Export to US has picked up in the last two months while the growth to ASEAN maintained at over 15%. ASEAN sustained its position as China's largest trading partner, accounting for 15% of China's total trade value in 8M20.We believe China' strong export and trade figures for Aug bode well for both Sinotrans (598 HK) and SITC International (1308 HK). Both companies are heavily geared towards China's trade activities and are with particular exposure to the intra-Asia market. Sinotrans has 50% of its freight forwarding volume in 1H20 from this geographical market while SITC has sole presence in intra-Asia trade. In our view, both companies will report solid 3Q20 figures by end-Oct.

China Transportation: Strong Aug Export to Benefit Sinotrans (598 HK) And SITC Intl (1308 HK)

China

Sinotrans is a leading Chinese integrated logistics services provider specializing in freight forwarding (sea, air, and rail), warehousing, transportation, and supply chain management. The company also offers e-commerce logistics solutions. It is headquartered in Beijing, People's Republic of China, and was incorporated in 2002.

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Sinotrans (598 HK)

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

Good response to the first batch of China public infrastructure REIT issuance indicates investor demand, and this is positive to Zhejiang Exp,...

Osbert Tang, CFA

A Look on Some Victims of Rmb Appreciation in FY20: How Will They Fare in FY21 if Rmb Stays Weak?

We expect Sinotrans, CCCC and CSET to be the beneficiaries of weaker Rmb against USD in this year. However, due to its ownership in Shenzhen...

Osbert Tang, CFA

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

China's support of postal and express industry development in the Greater Bay Area has positive implications on many logistics companies. We...

Osbert Tang, CFA

China's Dual Circulation: Hedged Integration

Back in April, Xi Jinping

David Blennerhassett

China Transportation: Strong Aug Export to Benefit Sinotrans (598 HK) And SITC Intl (1308 HK)

We believe China' strong export and trade figures for Aug bode well for both Sinotrans (598 HK)

Osbert Tang, CFA

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