In today’s briefing:
- China ADRs: PCAOB Resets the Clock on Delistings; Implications
- SPX 4,150 Sell Used to Short
- Discussing Why Meritz Swap Spread Not Being Narrowed & When to Enter
- Morning Views Asia: Kawasan Industri Jababeka
- A Comparison of Aave and Compound
- Block: The Highly Uncertain Pivot Of The Business
China ADRs: PCAOB Resets the Clock on Delistings; Implications
- After getting ‘unprecedented access’ to inspect and investigate audit firms in the PRC, the PCAOB is vacating their 2021 determinations; there will be no ADR delistings in the near future.
- PCAOB inspectors have identified numerous potential deficiencies that are consistent with what the PCAOB has encountered in other first-time inspections around the world.
- The iShares MSCI China ETF (MCHI US), KraneShares CSI China Internet ETF (KWEB US) and NASDAQ Golden Dragon China Index (HXC INDEX) are trading lower in the U.S.
SPX 4,150 Sell Used to Short
- SPX 4,150 turn target met. Our game plan focused on longs established near SPX 3,940 with an ideal sell zone at 4,150 on a brief spike above 4,100.
- We established shorts at that SPX 4,150 (NDX, RTY, CAC, NKY, HSI). Ladder shorts on strength and use dips to reduce.
- Mid December cycle peak may need some top building work into January where we range before a more prominent down leg.
Discussing Why Meritz Swap Spread Not Being Narrowed & When to Enter
- The swap arb spread has been consistently within the 3% to 5% band since November 23, when arb trading should have actually started.
- Meritz Financial’s buyback seems to be making it difficult to build positions on expectations that the price gap relative to Fire and Securities will converge quickly with the swap ratio.
- As the actual risk of repaying financial borrows is small, we should start building up positions two weeks before the end of January, aiming to exit in early or mid-February.
Morning Views Asia: Kawasan Industri Jababeka
Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.
A Comparison of Aave and Compound
- Aave and Compound are two of DeFi’s stalwarts: the two largest lending and borrowing protocols on Ethereum, each with a TVL over ten times larger than the third largest protocol.
- Both protocols have functioned nearly flawlessly this year while a growing number of centralized entities have been failing in often spectacular fashion.
- Aave has accumulated just $2.17mn of bad debt (most of which was generated in a recent, likely unprofitable, exploit covered here) relative to its $3.2bn TVL, while Compound has just $65,000 to its $1.5bn TVL.
Block: The Highly Uncertain Pivot Of The Business
- Block share price continued to underperform on a risk-adjusted basis, even it delivered double digit returns.
- Topline growth is slowing down as macroeconomic environment is no longer supportive and competition intensifies.
- Block’s business model seems ill-positioned to deliver, according to the company.
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