Category

Australia

Brief Australia: LNGL (LNG AU): An Unhappy Ending and more

By | Australia, Daily Briefs

In this briefing:

  1. LNGL (LNG AU): An Unhappy Ending
  2. This Month in Blockchain & Crypto: Bitcoin Vs COVID-19
  3. COVID-19 Alternative Data China Impact Assessment Update #1
  4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. LNGL (LNG AU): An Unhappy Ending

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With the shares down more than 95% from highs, on 28th February 2020, long-suffering ASX-listed Liquefied Natural Gas (LNG AU) (LNGL) announced they had entered into a Bid Implementation Agreement with Singapore-based private company LNG9 PTE LTD (LNG9). 

LNG9 will launch an all-cash Off-market Takeover Bid to acquire all the shares of LNGL (including all shares underlying the outstanding LNGL sponsored ADRs) at an Offer Price of US$0.13/share (or the Australian dollar equivalent- A$0.198/share based on exchange rate on 27th Feb).  The Deal values LNGL at a market cap of approximately US$75mn.

That is a bit less than half the value of the equity raised in early 2015 when the company sold new shares to fund its big push to a FID. Almost five years later and LNG prices are a lot lower, and there is still no FID.

The Offer proposed is conditional on a 90%-minimum acceptance threshold and receiving regulatory approvals. The Tender Offer period is currently expected to be open from 2nd April to 3rd May. 

LNGL’s shares are currently trading at A$0.14, with 41% upside to the Offer Price. That is a VERY big spread and indicates how much risk there is in this.

In this insight, we take a look at the reasons behind this wide spread. 

2. This Month in Blockchain & Crypto: Bitcoin Vs COVID-19

Image 72126525841583220238371

The fact that Bitcoin has not picked up despite the worsening COVID-19 situation has left many questioning the “safe haven” status of Bitcoin. Is Bitcoin behaving in the same way as any other riskier asset? – we believe otherwise.

Source: CoinMarketCap and LSR

3. COVID-19 Alternative Data China Impact Assessment Update #1

Screen%20shot%202020 02 28%20at%2012.23.46%20pm

We recently introduced a novel method to assess the impact of COVID-19 on China’s return to work status following the extension of the Lunar New Year holiday period COVID-19: An Alternative Data Approach To Analysing China’s Return To Work Status. We concluded that 8AM rush hour traffic congestion averaged across China’s ten largest cities each working day last week was 36.3% below normal. Now, one week on, we present the results of our latest analysis and conclude that traffic congestion increased, averaging 26.8% below normal. While this implies that more people were back at work, a positive sign, the results varied significantly by city. Indeed, one particular city recorded even lower congestion compared to a week ago, a sign that things actually got worse there. Here’s a look in detail at our findings.  

4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Australia, Daily Briefs

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. Tracking the Daily COVID-19 Cases for 10 Major Countries

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Buffett 2

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

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We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: This Month in Blockchain & Crypto: Bitcoin Vs COVID-19 and more

By | Australia, Daily Briefs

In this briefing:

  1. This Month in Blockchain & Crypto: Bitcoin Vs COVID-19
  2. COVID-19 Alternative Data China Impact Assessment Update #1
  3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. This Month in Blockchain & Crypto: Bitcoin Vs COVID-19

Image 72126525841583220238371

The fact that Bitcoin has not picked up despite the worsening COVID-19 situation has left many questioning the “safe haven” status of Bitcoin. Is Bitcoin behaving in the same way as any other riskier asset? – we believe otherwise.

Source: CoinMarketCap and LSR

2. COVID-19 Alternative Data China Impact Assessment Update #1

Screen%20shot%202020 02 28%20at%2012.23.46%20pm

We recently introduced a novel method to assess the impact of COVID-19 on China’s return to work status following the extension of the Lunar New Year holiday period COVID-19: An Alternative Data Approach To Analysing China’s Return To Work Status. We concluded that 8AM rush hour traffic congestion averaged across China’s ten largest cities each working day last week was 36.3% below normal. Now, one week on, we present the results of our latest analysis and conclude that traffic congestion increased, averaging 26.8% below normal. While this implies that more people were back at work, a positive sign, the results varied significantly by city. Indeed, one particular city recorded even lower congestion compared to a week ago, a sign that things actually got worse there. Here’s a look in detail at our findings.  

3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: Governments and Policies Adapting to Critical Known Unknown and more

By | Australia, Daily Briefs

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. Tracking the Daily COVID-19 Cases for 10 Major Countries
  5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

1. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: COVID-19 Alternative Data China Impact Assessment Update #1 and more

By | Australia, Daily Briefs

In this briefing:

  1. COVID-19 Alternative Data China Impact Assessment Update #1
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. COVID-19 Alternative Data China Impact Assessment Update #1

Screen%20shot%202020 02 28%20at%2012.23.46%20pm

We recently introduced a novel method to assess the impact of COVID-19 on China’s return to work status following the extension of the Lunar New Year holiday period COVID-19: An Alternative Data Approach To Analysing China’s Return To Work Status. We concluded that 8AM rush hour traffic congestion averaged across China’s ten largest cities each working day last week was 36.3% below normal. Now, one week on, we present the results of our latest analysis and conclude that traffic congestion increased, averaging 26.8% below normal. While this implies that more people were back at work, a positive sign, the results varied significantly by city. Indeed, one particular city recorded even lower congestion compared to a week ago, a sign that things actually got worse there. Here’s a look in detail at our findings.  

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: Costs of and Response to COVID-19 and more

By | Australia, Daily Briefs

In this briefing:

  1. Costs of and Response to COVID-19
  2. Fault Lines and Positive Surprises: Buy Car Makers
  3. Tracking the Daily COVID-19 Cases for 10 Major Countries
  4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

1. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

3. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

Funds c

  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Australia, Daily Briefs

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Australia, Daily Briefs

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. Healius: Jangho’s Preferential Option
  3. Bank M&A in Asia – a Decade in Review

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

2. Healius: Jangho’s Preferential Option

Image 56335789421582698442176

Yesterday, PE outfit Partners Group announced it had acquired, via an option deed with Jangho, a relevant interest in 15.88% of the shares in Healius (HLS AU). This was followed by an announcement of a non-binding indicative proposal from Partners at $3.40/share, a 23% premium to last close, by way of a Scheme. 

This morning, Healius announced its 1H19 results. Revenue, EBIT and NPAT were up 7%, 4%, and 8% compared to the six-month period ending 31 Dec 2018.  A dividend of A$0.26/share (fully franked, 38% payout) was declared with an ex-date on the 26 March.

Healius also announced the sale process of part or all of the medical center business to “focus on a range of growth initiated in the diagnostic division and, in time, the day hospital businesses.” 

There are questions marks over the merits of offloading “part” of the medical centres. There is also possible pushback on the fairness of Partners’ indicative proposal.

But ASIC taking a closer look at the Partners/Jangho call option deed may frustrate the deal.

As always, more below the fold.

3. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Australia: Fault Lines and Positive Surprises: Buy Car Makers and more

By | Australia, Daily Briefs

In this briefing:

  1. Fault Lines and Positive Surprises: Buy Car Makers
  2. Tracking the Daily COVID-19 Cases for 10 Major Countries
  3. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  4. Active Vs. Passive Investing Post COVID-19 Coronavirus World
  5. Fiscal Response to COVID-19: Bazooka or Spud Gun?

1. Fault Lines and Positive Surprises: Buy Car Makers

Image 16957330731585274683132

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

2. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19c

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

3. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

4. Active Vs. Passive Investing Post COVID-19 Coronavirus World

Funds c

  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

5. Fiscal Response to COVID-19: Bazooka or Spud Gun?

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Last week in our Insight, COVID-19: A Perspective on Policy, we wrote about the unfolding government and central bank responses to the virus crisis. In the past few days there have been many more including interest rate cuts in Indonesia, the Philippines, Taiwan and Thailand. The US is readying a supposed US$2trn fiscal package and the UK has increased its support for workers while offering (stupidly) a huge loan facility to businesses. Government action to support demand, not supply, is the, predictable, default.  

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Brief Australia: Healius: Jangho’s Preferential Option and more

By | Australia, Daily Briefs

In this briefing:

  1. Healius: Jangho’s Preferential Option
  2. Bank M&A in Asia – a Decade in Review

1. Healius: Jangho’s Preferential Option

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Yesterday, PE outfit Partners Group announced it had acquired, via an option deed with Jangho, a relevant interest in 15.88% of the shares in Healius (HLS AU). This was followed by an announcement of a non-binding indicative proposal from Partners at $3.40/share, a 23% premium to last close, by way of a Scheme. 

This morning, Healius announced its 1H19 results. Revenue, EBIT and NPAT were up 7%, 4%, and 8% compared to the six-month period ending 31 Dec 2018.  A dividend of A$0.26/share (fully franked, 38% payout) was declared with an ex-date on the 26 March.

Healius also announced the sale process of part or all of the medical center business to “focus on a range of growth initiated in the diagnostic division and, in time, the day hospital businesses.” 

There are questions marks over the merits of offloading “part” of the medical centres. There is also possible pushback on the fairness of Partners’ indicative proposal.

But ASIC taking a closer look at the Partners/Jangho call option deed may frustrate the deal.

As always, more below the fold.

2. Bank M&A in Asia – a Decade in Review

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Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

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