Transport Sector, China and Asia-focused Research

Charles De Trenck

Thematic (Sector/Industry)

Yes there are a few good China companies out there. In general a company like China Merchants has a good long term theme going for it (see April notes). But in shipping there are more badly run companies than good ones.&nbsp; What follows is an update on a piece I did for a specialized shipping publication following a long line of pieces I have put out delving into COSCO and CSCL corporate governance nightmares over the years. The truth is investors were ripped off on valuations from day one, with bankers helping as a result of shoddy work. Seasoned investors of course are not surprised to find this out. But what still amazes after so many years is the extent of mis-deeds and quite often the lack of interest to delve further into the problems. Feedback I've gotten so far are industry insiders agreeing with the extent of the corruption, and an expression of frustration they could not discuss more openly (although I think the spirit of Xi Jinping's exhortations would support further examination. ... recently Reuters and others did look into new facets of breakdowns at CSCL and COSCO).

Yes there are a few good China companies out there. In general a company like China Merchants has a good long term theme going for it (see April notes). But in shipping there are more badly run companies than good ones.&nbsp; What follows is an update on a piece I did for a specialized shipping publication following a long line of pieces I have put out delving into COSCO and CSCL corporate governance nightmares over the years. The truth is investors were ripped off on valuations from day one, with bankers helping as a result of shoddy work. Seasoned investors of course are not surprised to find this out. But what still amazes after so many years is the extent of mis-deeds and quite often the lack of interest to delve further into the problems. Feedback I've gotten so far are industry insiders agreeing with the extent of the corruption, and an expression of frustration they could not discuss more openly (although I think the spirit of Xi Jinping's exhortations would support further examination. ... recently Reuters and others did look into new facets of breakdowns at CSCL and COSCO).

A Brief History of Corporate Governance Nightmares at China's Flagship Shipping Companies

I recently had occasion to update my thinking on China, its massive waste generation in the last 10-15 years, and Chinese Communist Party members as major beneficiaries of this massive waste, and therefore also the continued need for Xi Jinping to keep cleaning up the more blatant instances of corruption and wealth transfer. The commodities boom of &lsquo;00s proved to be backed by a massive wave of over-production, waste and a social movement to self-enrichment by the privileged class of China. President Xi Jinping in many ways is now contributing to lower commodity prices as a byproduct of his crackdown. There is a twist, though. Not only does this piece make a link between Chinese Corruption and massive waste, but it also puts in its conclusions a couple of directional political Catch-22s President Xi may face.&nbsp;

I recently had occasion to update my thinking on China, its massive waste generation in the last 10-15 years, and Chinese Communist Party members as major beneficiaries of this massive waste, and therefore also the continued need for Xi Jinping to keep cleaning up the more blatant instances of corruption and wealth transfer. The commodities boom of &lsquo;00s proved to be backed by a massive wave of over-production, waste and a social movement to self-enrichment by the privileged class of China. President Xi Jinping in many ways is now contributing to lower commodity prices as a byproduct of his crackdown. There is a twist, though. Not only does this piece make a link between Chinese Corruption and massive waste, but it also puts in its conclusions a couple of directional political Catch-22s President Xi may face.&nbsp;

Implications and Fallout from Absolute Corruption of the Political Elite

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

Yangtze Optical Fibre and Cable / Index Rebalance

Yangtze Optical Fibre and Cable (6869 HK)

<ul>
<li>The changes to a global index in February will be announced pre-market open tomorrow and will be implemented at the close of trading on 27 February.</li>
<li>The big market moves since the last rebalance result in many changes with the final number dependent on the day picked to compute market cap and free float market cap.</li>
<li>
<a href="https://www.smartkarma.com/entities/yangtze-optical-fibre-and-h" target="_blank" data-smartkarma-citation="entities:83:1" rel="noopener">Yangtze Optical Fibre And H (6869 HK)</a> is up 90% over the last 3 weeks and the AH premium versus <a href="https://www.smartkarma.com/entities/yangtze-optical-fibre-cable" target="_blank" data-smartkarma-citation="entities:29980:1" rel="noopener">Yangtze Optical Fibre &amp; Cable (601869 CH)</a> has dropped significantly.</li>
</ul>


The changes to a global index in February will be announced pre-market open tomorrow and will be implemented at the close of trading on 27 February.
The big market moves since the last rebalance result in many changes with the final number dependent on the day picked to compute market cap and free float market cap.

Yangtze Optical Fibre And H (6869 HK) is up 90% over the last 3 weeks and the AH premium versus Yangtze Optical Fibre &amp; Cable (601869 CH) has dropped significantly.


Global Index: Potential Changes in February for Asia Pac

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd-5dfaf2c5-76d3-4f34-a77d-118787fd7091" target="_blank" data-smartkarma-citation="entities:23752:1" rel="noopener">Guotai Junan Securities (2611 HK)</a>/<a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities Co Ltd (H) (6837 HK)</a> merger is a done deal.  The key risk, as with<a href="https://www.smartkarma.com/entities/china-traditional-chinese-medicine" target="_blank" data-smartkarma-citation="entities:351:1" rel="noopener">TCM (570 HK)</a>'s Offer, is one of timing.</li>
<li>IF you are an arbitrageur,  Buy <a href="https://www.smartkarma.com/entities/shin-kong-financial-holding" target="_blank" data-smartkarma-citation="entities:15351:1" rel="noopener">Shin Kong Financial Holding (2888 TT)</a> vs A Basket of FHC Peers (not including Taishin).</li>
<li>
<a href="https://www.smartkarma.com/entities/first-pacific-co-ltd" target="_blank" data-smartkarma-citation="entities:173:1" rel="noopener">First Pacific Co (142 HK)</a>'s 46.2% share of <a href="https://www.smartkarma.com/entities/metro-pacific-investments-co" target="_blank" data-smartkarma-citation="entities:1054:1" rel="noopener">Metro Pacific Investments Co (MPI PM)</a>at delisting last year was worth ~US$1.25bn. It is now potentially worth ~US$3.21bn. </li>
</ul>


The Guotai Junan Securities (2611 HK)/Haitong Securities Co Ltd (H) (6837 HK) merger is a done deal.  The key risk, as withTCM (570 HK)'s Offer, is one of timing.
IF you are an arbitrageur,  Buy Shin Kong Financial Holding (2888 TT) vs A Basket of FHC Peers (not including Taishin).

First Pacific Co (142 HK)'s 46.2% share of Metro Pacific Investments Co (MPI PM)at delisting last year was worth ~US$1.25bn. It is now potentially worth ~US$3.21bn. 


Last Week in Event SPACE: Guotai/Haitong, Shin Kong, China Conch Ventures, First Pac, Zhejiang E'way

<ul>
<li>Since <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd-5dfaf2c5-76d3-4f34-a77d-118787fd7091" target="_blank" data-smartkarma-citation="entities:23752:1" rel="noopener">Guotai Junan Securities (2611 HK)</a> and <a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities Co Ltd (H) (6837 HK)</a> were suspended around a month ago, pending a merger, a basket of peers are up 37%. </li>
<li>The Shanghai Composite is up 21%. Volumes are up, commissions are up. <a href="https://www.smartkarma.com/entities/citic-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:164:1" rel="noopener">Citic Securities (600030 CH)</a>, the largest broker by market cap, is up 42% in the past month. </li>
<li>
<a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway (576 HK)</a> is also up ~45% in recent weeks due to its 40.3% look-through stake in <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities (601878 CH)</a>.  The question: how much more in the tank?</li>
</ul>


Since Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK) were suspended around a month ago, pending a merger, a basket of peers are up 37%. 
The Shanghai Composite is up 21%. Volumes are up, commissions are up. Citic Securities (600030 CH), the largest broker by market cap, is up 42% in the past month. 

Zhejiang Expressway (576 HK) is also up ~45% in recent weeks due to its 40.3% look-through stake in Zheshang Securities (601878 CH).  The question: how much more in the tank?


Zhejiang Expressway (576 HK): "Cheap" Access To Zheshang Securities

China

Zhejiang Expressway Co., Ltd. is an investment holding company primarily engaged in the design, construction, operation, maintenance, and management of high-grade roads. It also operates a securities business offering broking, asset management, and other financial services. The company was founded on March 1, 1997, and is headquartered in Hangzhou, China.

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Zhejiang Expressway (576 HK)

A Brief History of Corporate Governance Nightmares at China's Flagship Shipping Companies

Yes there are a few good China companies out there. In general a company like China Merchants has a good long term theme going for it (see April...

Charles De Trenck

Implications and Fallout from Absolute Corruption of the Political Elite

I recently had occasion to update my thinking on China, its massive waste generation in the last 10-15 years, and Chinese Communist Party members...

Charles De Trenck

Global Index: Potential Changes in February for Asia Pac

A global index announces tomorrow and rebalances at the close on 27 Feb. There will be a lot of changes with China leading the way. Stocks have...

Brian Freitas

Last Week in Event SPACE: Guotai/Haitong, Shin Kong, China Conch Ventures, First Pac, Zhejiang E'way

It’s Sunday! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed during the...

David Blennerhassett

Zhejiang Expressway (576 HK): "Cheap" Access To Zheshang Securities

I question the sustainabilty. Arguably, these brokerage stocks are not trading with any specific fundamental in mind; but one in which investors...

David Blennerhassett

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