Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

Global Commodity-Related Equity Sectors In Secular Bull

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Thematic (Sector/Industry)

This is the first in a series of reports on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific. The purpose of this report is to provide an overview of the IABS asset class, which remains relatively new to Asia. An IABS transaction involves a sponsor and/or manager sourcing project and infrastructure loans from originators (i.e. banks), underwriting them and issuing securitized notes backed by these assets to investors. This helps originators recycle their balance sheets, while offering investors exposure to these projects and infrastructure loans in a credit-enhanced format, enabling them to originate more project and infrastructure loans.  For the Asia Pacific region, IABS can help bridge a funding gap for infrastructure financing, which according to the Asian Development Bank (ADB) in 2017, amounts to USD 467bn per annum.
IABS is typically backed by a diversified portfolio of project and infrastructure loans. Long-term investors such as life insurers and pension funds can benefit from matching their long-dated liabilities with longer-dated IABS. An investment-grade credit rating for IABS would also fit into the investment mandates of life insurers, pension funds and asset managers. In addition, investors benefit from instant diversification across projects, sectors and geographies/regions, compared to investing directly in individual loans or projects. Furthermore, the elevated credit profile of a senior tranche minimizes the capital cushion that an institutional investor may need to put up against its investments. Last but not least, IABS offers institutional investors access to an asset class with significant barriers to entry, managed by an experienced collateral manager.
As with any credit product, IABS is not risk-free and, depending on how each IABS is structured, IABS could be exposed to loans without public ratings, concentration risk (in certain sectors, countries, guarantors, offtakers and projects), political risk, operational risk of a collateral manager, counterparty risk from loan participation exposures, and prolonged recovery periods in case of loan defaults. It should be noted that such risks are generally taken into consideration in the ratings process of IABS, either through the credit estimate (i.e. private ratings) assigned to the underlying loans or the stress testing of the loan portfolio and IABS structure.

This is the first in a series of reports on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific. The purpose of this report is to provide an overview of the IABS asset class, which remains relatively new to Asia. An IABS transaction involves a sponsor and/or manager sourcing project and infrastructure loans from originators (i.e. banks), underwriting them and issuing securitized notes backed by these assets to investors. This helps originators recycle their balance sheets, while offering investors exposure to these projects and infrastructure loans in a credit-enhanced format, enabling them to originate more project and infrastructure loans.  For the Asia Pacific region, IABS can help bridge a funding gap for infrastructure financing, which according to the Asian Development Bank (ADB) in 2017, amounts to USD 467bn per annum.
IABS is typically backed by a diversified portfolio of project and infrastructure loans. Long-term investors such as life insurers and pension funds can benefit from matching their long-dated liabilities with longer-dated IABS. An investment-grade credit rating for IABS would also fit into the investment mandates of life insurers, pension funds and asset managers. In addition, investors benefit from instant diversification across projects, sectors and geographies/regions, compared to investing directly in individual loans or projects. Furthermore, the elevated credit profile of a senior tranche minimizes the capital cushion that an institutional investor may need to put up against its investments. Last but not least, IABS offers institutional investors access to an asset class with significant barriers to entry, managed by an experienced collateral manager.
As with any credit product, IABS is not risk-free and, depending on how each IABS is structured, IABS could be exposed to loans without public ratings, concentration risk (in certain sectors, countries, guarantors, offtakers and projects), political risk, operational risk of a collateral manager, counterparty risk from loan participation exposures, and prolonged recovery periods in case of loan defaults. It should be noted that such risks are generally taken into consideration in the ratings process of IABS, either through the credit estimate (i.e. private ratings) assigned to the underlying loans or the stress testing of the loan portfolio and IABS structure.

Infrastructure Asset-Backed Securities: New Asset Class for Asia

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

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme.

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme. 

Reserve Bank of India – The Fun Never Stops

Research and consultancy, Tabbush Report

Daniel Tabbush

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.

The next step for banks is to purge costs. As banks brace for more defaults, less loan demand,  higher credit costs, we must expect a wholesale effort on cutting costs. Many banks held off on their cost cutting plans early in the year to ease financial stress for staff and their dependents. It is doubtful that this lasts, especially with more countries reinstating insane policies of locking down citizens as an attempt to stop C19 deaths. The one controllable for banks is operating costs. However, this raises an additional question of ‘free banking’ as put forward by SmartKarma some weeks ago. Perhaps this is when more banks begin charging for basic banking services, alongside cost cutting.

The next step for banks is to purge costs. As banks brace for more defaults, less loan demand,  higher credit costs, we must expect a wholesale effort on cutting costs. Many banks held off on their cost cutting plans early in the year to ease financial stress for staff and their dependents. It is doubtful that this lasts, especially with more countries reinstating insane policies of locking down citizens as an attempt to stop C19 deaths. The one controllable for banks is operating costs. However, this raises an additional question of ‘free banking’ as put forward by SmartKarma some weeks ago. Perhaps this is when more banks begin charging for basic banking services, alongside cost cutting.

* ICIJ Points Fingers Post-Swedbank Fiasco: The International Consortium of Investigative Journalists (ICIJ) reviewed over 2,100 suspicious activity reports (SARs), which were filed with the US Treasury’s Financial Crimes Enforcement Network (FINCEN). The report suggests that there was about USD 2 tn in questionable transactions between 1999-2017, which were flagged by the sector’s internal compliance officers from over 90 financial institutions;  and*Expect An Active DOJ Under Biden/Harris: If Biden/Harris win, Deutsche and Turkey’s Halkbank (HALKB.TI) would appear to be most as risk with a more proactive Department of Justice (DOJ). However, not far behind are others including: HSBC Holdings (5.HK/HSBA/LN) and Standard Chartered (2888.HK/STAN.LN). In addition, when mainland Chinese-US relations materially deteriorate under a Biden administration, we would fully anticipate the entire mainland Chinese financial system to be under a magnifying glass.

* ICIJ Points Fingers Post-Swedbank Fiasco: The International Consortium of Investigative Journalists (ICIJ) reviewed over 2,100 suspicious activity reports (SARs), which were filed with the US Treasury’s Financial Crimes Enforcement Network (FINCEN). The report suggests that there was about USD 2 tn in questionable transactions between 1999-2017, which were flagged by the sector’s internal compliance officers from over 90 financial institutions;  and*Expect An Active DOJ Under Biden/Harris: If Biden/Harris win, Deutsche and Turkey’s Halkbank (HALKB.TI) would appear to be most as risk with a more proactive Department of Justice (DOJ). However, not far behind are others including: HSBC Holdings (5.HK/HSBA/LN) and Standard Chartered (2888.HK/STAN.LN). In addition, when mainland Chinese-US relations materially deteriorate under a Biden administration, we would fully anticipate the entire mainland Chinese financial system to be under a magnifying glass.

Asia Banks – Watch Your Anti-Money Laundering Risk Again

United Kingdom

Standard Chartered is a British multinational banking and financial services company that offers corporate, institutional, wealth, and retail banking services. It provides global markets trading, lending and financial solutions, transaction services, and wealth solutions. The company is headquartered in London, England, and was founded in 1853.

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Standard Chartered (2888 HK)

Infrastructure Asset-Backed Securities: New Asset Class for Asia

This is our first report on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific which provides an overview of the asset class, new to Asia.

Bondcritic

Reserve Bank of India – The Fun Never Stops

RESERVE BANK OF INDIA: Certain Borrowers Are Dis-Satisfied With "Interest On Interest Waiver" And Proposed Additional Modifications To RBI...

Thomas J. Monaco

Global Banks – Cost Purge

We must expect the previously good delta in credit costs to wane or to reverse altogether alongside renewed lockdowns. To preserve profit, banks...

Daniel Tabbush

Asia Banks – Watch Your Anti-Money Laundering Risk Again

* ICIJ Points Fingers Post-Swedbank Fiasco: The International Consortium of Investigative Journalists (ICIJ) reviewed over 2,100 suspicious...

Thomas J. Monaco

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52-week Range

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Global Commodity-Related Equity Sectors In Secular Bull

We believe commodities are in the early stages of a new secular bull market. Global Materials & Energy remain our favorite Sector overweights - add...

Vermilion Research

Infrastructure Asset-Backed Securities: New Asset Class for Asia

This is our first report on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific which provides an overview of the asset class, new to Asia.

Bondcritic

Reserve Bank of India – The Fun Never Stops

RESERVE BANK OF INDIA: Certain Borrowers Are Dis-Satisfied With "Interest On Interest Waiver" And Proposed Additional Modifications To RBI...

Thomas J. Monaco

Global Banks – Cost Purge

We must expect the previously good delta in credit costs to wane or to reverse altogether alongside renewed lockdowns. To preserve profit, banks...

Daniel Tabbush

Asia Banks – Watch Your Anti-Money Laundering Risk Again

* ICIJ Points Fingers Post-Swedbank Fiasco: The International Consortium of Investigative Journalists (ICIJ) reviewed over 2,100 suspicious...

Thomas J. Monaco