HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The recent surge in Eurozone sovereign yields, particularly for France, has created pressure on the outlook for some HK-listed companies. </li>
<li>While the 100 largest companies generated an average of only 6% of revenue from Europe, 10 companies derived over 20%.</li>
<li>
<a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison (1 HK)</a> group, <a href="https://www.smartkarma.com/entities/shein-global-holdings-limited" target="_blank" data-smartkarma-citation="entities:55372:1" rel="noopener">SHEIN Global (625 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corporation-class-b" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/lenovo-group-limited" target="_blank" data-smartkarma-citation="entities:13359:1" rel="noopener">Lenovo (992 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-biologics-cayman-inc" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a> group, and <a href="https://www.smartkarma.com/entities/cosco-shipping-holdings-co-ltd-class-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO SHIPPING Holdings (1919 HK)</a> are the top. </li>
</ul>


The recent surge in Eurozone sovereign yields, particularly for France, has created pressure on the outlook for some HK-listed companies. 
While the 100 largest companies generated an average of only 6% of revenue from Europe, 10 companies derived over 20%.

CK Hutchison (1 HK) group, SHEIN Global (625 HK), Xiaomi (1810 HK), Lenovo (992 HK), Wuxi Biologics (2269 HK) group, and COSCO SHIPPING Holdings (1919 HK) are the top. 


HK Strategy: Exposure to Europe - Who Are at Risk?

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.

<ul>
<li>There is strong and accelerating growth visible in HFD for US banks, even in the very core bucket of C&amp;I loans</li>
<li>Most recent full month shows 10.1% growth YoY for C&amp;I but Other Loans are up 27.3% Yoy in the same month, which is partly C&amp;I</li>
<li>Deposit distribution is improving, toward CASA, US banks can see better NIM, and net interest income, while economy appears from weekly bank data</li>
</ul>


There is strong and accelerating growth visible in HFD for US banks, even in the very core bucket of C&amp;I loans
Most recent full month shows 10.1% growth YoY for C&amp;I but Other Loans are up 27.3% Yoy in the same month, which is partly C&amp;I
Deposit distribution is improving, toward CASA, US banks can see better NIM, and net interest income, while economy appears from weekly bank data


US Banks - C&I Loans +10.1% YoY in Apr From -2.9% in Jan, Strong Read-Through, Banks & Economy

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sichuan-kelun-biotech-biopharm" target="_blank" data-smartkarma-citation="entities:40071:1" rel="noopener">Sichuan Kelun-Biotech Bio (6990 HK)</a>, <a href="https://www.smartkarma.com/entities/techtronic-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:4561:1" rel="noopener">Techtronic Ind. (669 HK)</a>, <a href="https://www.smartkarma.com/entities/vesync" target="_blank" data-smartkarma-citation="entities:31067:1" rel="noopener">Vesync (2148 HK)</a>, <a href="https://www.smartkarma.com/entities/chervon-holdings-limited" target="_blank" data-smartkarma-citation="entities:35309:1" rel="noopener">Chervon Hldgs (2285 HK)</a>, and <a href="https://www.smartkarma.com/entities/wuxi-apptec-co-ltd-bf4a1265-beef-48b6-b82d-29308426030f" target="_blank" data-smartkarma-citation="entities:27795:1" rel="noopener">WuXi AppTec (2359 HK)</a> have a very high reliance on the US market.</li>
<li>
<a href="https://www.smartkarma.com/entities/vtech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:18812:1" rel="noopener">Vtech Hldgs (303 HK)</a>, <a href="https://www.smartkarma.com/entities/samsonite-international-sa" target="_blank" data-smartkarma-citation="entities:12790:1" rel="noopener">Samsonite (1910 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home (6690 HK)</a>, and <a href="https://www.smartkarma.com/entities/tcl-multimedia-technology" target="_blank" data-smartkarma-citation="entities:15654:1" rel="noopener">Tcl Multimedia (1070 HK)</a> ranked lower on the list, but consumer cutbacks will have a bigger impact. </li>
<li>The spillover effect of a US recession to other countries will pressurise companies that have low direct exposure, like <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> and <a href="https://www.smartkarma.com/entities/prada-s-p-a" target="_blank" data-smartkarma-citation="entities:889:1" rel="noopener">Prada S.P.A. (1913 HK)</a>.</li>
</ul>



Sichuan Kelun-Biotech Bio (6990 HK), Techtronic Ind. (669 HK), Vesync (2148 HK), Chervon Hldgs (2285 HK), and WuXi AppTec (2359 HK) have a very high reliance on the US market.

Vtech Hldgs (303 HK), Samsonite (1910 HK), Haier Smart Home (6690 HK), and Tcl Multimedia (1070 HK) ranked lower on the list, but consumer cutbacks will have a bigger impact. 
The spillover effect of a US recession to other countries will pressurise companies that have low direct exposure, like Orient Overseas International (316 HK) and Prada S.P.A. (1913 HK).


China & HK Strategy: Who Are the Victims of a US Recession?

<ul>
<li>Domestic credit growth in Hong Kong weakened further in latest monthly release at -2.2% YoY. Weekly Centa City Leading Index grinds lower, a more HFD point relevant to credit</li>
<li>The acceleration in domestic credit growth in Indonesia is unique, where growth is up to +11.2% YoY in most recent month vs +5.2% YoY in the same month last year  </li>
<li>We remain concerned about credit metrics for HK's banks given contracting growth, worsening property, which is collateral. Many HK banks have done little in provisioning </li>
</ul>


Domestic credit growth in Hong Kong weakened further in latest monthly release at -2.2% YoY. Weekly Centa City Leading Index grinds lower, a more HFD point relevant to credit
The acceleration in domestic credit growth in Indonesia is unique, where growth is up to +11.2% YoY in most recent month vs +5.2% YoY in the same month last year  
We remain concerned about credit metrics for HK's banks given contracting growth, worsening property, which is collateral. Many HK banks have done little in provisioning 


Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

Equity Bottom-Up

<ul>
<li>HSBC will release its results on Thursday and there remains risk of far worse credit metrics, not only related to CRE lending in HK and China</li>
<li>Construction loan risks are tangentially related to CRE and are also considered fairly high risk, where HSBC can see sizable migration to stage 3 loans</li>
<li>HSBC remains highly concentrated in UK and N America in its wholesale lending book, which we do not believe is well understood, and risky given economies</li>
</ul>


HSBC will release its results on Thursday and there remains risk of far worse credit metrics, not only related to CRE lending in HK and China
Construction loan risks are tangentially related to CRE and are also considered fairly high risk, where HSBC can see sizable migration to stage 3 loans
HSBC remains highly concentrated in UK and N America in its wholesale lending book, which we do not believe is well understood, and risky given economies


HSBC - Results on Thursday, Risk of BoCom Mark Down, Heavy UK, US Corporate Lending Not Positive

United Kingdom

Standard Chartered is a global bank providing corporate and investment banking, wealth and retail banking, and financial markets products and services. Its main activities include global markets trading, lending and financial solutions, transaction services, and wealth solutions. The company serves a diverse clientele across Asia, Africa, and the Middle East, as well as in Europe and the Americas. Headquartered in London, England, UK, the company was founded in 1853.

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HK Strategy: Exposure to Europe - Who Are at Risk?

A recent surge in Eurozone sovereign yields will put pressure on some companies. The 100 largest HK companies have only 6% of their revenue from...

Osbert Tang, CFA

US Banks - C&I Loans +10.1% YoY in Apr From -2.9% in Jan, Strong Read-Through, Banks & Economy

HFD for US banks, shows very strong acceleration in C&I loans, and also other loans, which will also include C&I. Data suggests good economic...

Daniel Tabbush

China & HK Strategy: Who Are the Victims of a US Recession?

Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...

Osbert Tang, CFA

Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

Domestic credit growth HFD shows weakening figures in Hong Kong, far better figures and strong in Indonesia, and still strong, rising in Taiwan....

Daniel Tabbush

HSBC - Results on Thursday, Risk of BoCom Mark Down, Heavy UK, US Corporate Lending Not Positive

Bank of Nova Scotia's further and sizeable goodwill impairment on its China bank holding during its 4Q ending October 2024, suggests that HSBC may...

Daniel Tabbush

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Market Cap (USDm)

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HK Strategy: Exposure to Europe - Who Are at Risk?

A recent surge in Eurozone sovereign yields will put pressure on some companies. The 100 largest HK companies have only 6% of their revenue from...

Osbert Tang, CFA

US Banks - C&I Loans +10.1% YoY in Apr From -2.9% in Jan, Strong Read-Through, Banks & Economy

HFD for US banks, shows very strong acceleration in C&I loans, and also other loans, which will also include C&I. Data suggests good economic...

Daniel Tabbush

China & HK Strategy: Who Are the Victims of a US Recession?

​Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...

Osbert Tang, CFA

Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

Domestic credit growth HFD shows weakening figures in Hong Kong, far better figures and strong in Indonesia, and still strong, rising in Taiwan....

Daniel Tabbush

HSBC - Results on Thursday, Risk of BoCom Mark Down, Heavy UK, US Corporate Lending Not Positive

Bank of Nova Scotia's further and sizeable goodwill impairment on its China bank holding during its 4Q ending October 2024, suggests that HSBC may...

Daniel Tabbush

Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...