Category

Hong Kong

Brief Hong Kong: Techtronics (669): American in Hong Kong and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Techtronics (669): American in Hong Kong
  2. Jinmao Hotel (6139 HK): Priced To Check Out
  3. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

1. Techtronics (669): American in Hong Kong

The%20top%20tool%20companies%20on%20the%20globe?1592141698

Techtronic Industries Co Ltd. (669 HK) is an OEM and has its own brand for many DIY tooling kits for the American market (77% of the business) and has flourished over the years as they have profited from the labor arbitrage between the US and the Chinese wages differential. The stock has ADTV of USD 57 million, a market cap of USD 17.45 billion, and its share price is 3.8% lower from its 52 weeks high. 

With the heightened tension between US and China, social unrest in the US and potentially bringing more productions to the US which will reduce the company’s margin, Techtronic Industries Co Ltd. (669 HK) ‘s current market valuation at 28x PER may not hold and investors should expect a potential downside of between 36-50%. 

2. Jinmao Hotel (6139 HK): Priced To Check Out

Image 60013467231592107611121

Jinmao Hotel & Jinmao (China) Hotel Investments and Management Limited (6139 HK) (Jinmao Hotel) was suspended on the 8 June “pursuant to the Code on Takeovers and Mergers“, having gained ~40% in the previous three trading days.

Funny that.

Late Friday afternoon, an Offer by way of a Scheme was announced, at an offer price of $4.80/share, a 30.4% premium to last close. The Offer price is Final. Irrevocables total 21.04%. The Offeror (China Jinmao Holdings (817 HK)) and concert parties hold 66.81%, therefore the blocking stake at the Unitholders Meeting will be 3.319% of shares out. Jinmao is Cayman incorporated, so the headcount test applies. 

$4.80 is roughly a two-year high, and ~90% above where shares were trading at the beginning of the month. Plus a 57.4% premium to NAV (Dec-19). That should be enough to get this Offer over the line.

There is also a question mark over the treatment of the final distribution of HK$0.1543/share.

3. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

Image 70247221131592045045257

On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: Double Bubble, Double Trouble? and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Double Bubble, Double Trouble?
  2. Hong Kong Exchanges & Clearing – Further To Run
  3. Cathay Pacific Rights – The Flow Dynamics
  4. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  5. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?

1. Double Bubble, Double Trouble?

Image 604597554131594500095937

A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

2. Hong Kong Exchanges & Clearing – Further To Run

* Solid Prospects: Hong Kong Exchanges & Clearing’s (388.HK) [HKEx] share price has increased HKD 152.40 (72.1%) since its pandemic panic trough of March 21, 2020. The run appears to price in the entire suite of US-listed mainland Chinese ADRs to be ambitiously shifted to HKEx along with market velocity. HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx;

*June Ahead of Expectations: HKEx June volumes were ahead of expectations in both the cash and the derivatives markets; and

*Just Pay The Dividend: HKEx is sitting on an enormous level of excess cash of over USD 3 bn which likely will be managed more properly when a less deal happy CEO takes over the helm by October 2021. 

3. Cathay Pacific Rights – The Flow Dynamics

Screenshot%202020 07 12%20at%208.23.58%20pm

On 9 June 2020, Cathay Pacific Airways (293 HK) called for a trading halt, and four hours later – just before 1pm local time – announced a…

HK$39.0 BILLION RECAPITALISATION PROPOSAL INVOLVING (1) PROPOSED ISSUE OF PREFERENCE SHARES AND WARRANTS; AND (2) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF SEVEN RIGHTS SHARES FOR EVERY ELEVEN EXISTING SHARES (link here).

This was announcement was discussed admirably on the same day by David Blennerhassett in Cathay Pacific’s Government Stop Gap, with more in-depth coverage of the pro-forma balance sheet combined with run-rate cash-burn estimates in Cathay Pacific: A Bonfire For Money. As you can tell from the titles, he was bearish. That was when the shares were 25% higher than here. 

The Circular was announced on 19 June 2020, and the EGM is scheduled for 13 July 2020 at 2pm. If approved on Monday 13 July, the last day of shares trading WITH RIGHTS will be the 14th of July.

Starting the 15th of July, the shares will trade ex-rights, and the nil-paid rights themselves will trade between the 24th and 31st of July, inclusive.

Shareholders will receive 7 rights for every 11 shares held, at a rights subscription price of HK$4.68 (46.9% discount to the close of 8 June, and 35% discount to the then-TERP of $7.20) to raise aggregate proceeds of ~HK$11.7bn (there are, of course, pref shares and warrants for another HK$21.5bn). 

There are two days left before the shares go ex-.

4. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 356844492101594441442236

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

5. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?

In these stressed times, risk assets seem excessively buoyed by liquidity again despite what gold, US treasury yields, and the still elevated VIX tell us. The market seems to have given up on earnings and bases a bullish thesis on 2021-22 guesses. We are not, despite what some national media outlets inform us, out of the COVID woods by any means. Are governments throwing in the Health towel before wealth priorities?

Those with a thoughtful disposition, based on History, would be forgiven for throwing in the towel on the bear side. Long/Short strategies are looking about as out of favor as value investing. 

Despite a mega credit bubble, fixed exchange rate and increasing scarcity of foreign exchange perhaps, CSI 300 could rally hard into YE 2020 with a fortified CNH. This is predicated on a weaker dollar which is by no means a certainty. There is talk of a bull market in China and locals are free with their tips. We are told to buy BABA and Tencent ahead of Google and Microsoft on valuation grounds: is that really coherent?

So what tempers enthusiasm or even euphoria? In one word: Hong Kong. Well, it used to be a single word until 1926. This note arrives just as the government has had to close down schools.

The US continues to flex its muscles regarding China. There is an element of scapegoating for sure, blaming China for its own haphazard and subpar response to COVID. In a sense, China’s “illegal” Security Law was a gift from the Gods to Trump and Pompeo. But there is also a hardening bipartisan existential logic too. The US is fed up with IP theft and CCP meddling in internal affairs. (China would say the same thing). Pompeo though is surely right to highlight the goings on in the South China Sea. It is as reprehensible as actions by scores of colonial powers and state sponsored pirates such as the East India Company in days of yore. (Same logic applies to tree-cutting Brazil). And we do live in times of revisionism.

Can the US be serious about starving China of dollars? China is most certainly not a “swap line” amigo. Trump will sign into bipartisan law next week the Hong Kong autonomy act. The legislation gives the administration the power to impose sanctions on officials accused of undermining Hong Kong’s semi-autonomous status, as well as banks and state entities that do “significant transactions” with them. This applies to banks, asset managers, and insurance companies. For sure, there will be rigorous KYC exercises at many banks, not just Bank of China and Minsheng, the favourites of the CCP at home.

The US sanctions could mean freezing the property of individuals and companies or excluding them from the US financial system. They may stop banks from conducting FX transactions over which the US has jurisdiction: freezing access to dollars. The act could force financial institutions to choose between doing business with the US or China. Hong Kong’s national security law makes it illegal to comply with US sanctions against Hong Kong and China.

Trump signed into law a sanctions bill that requires the administration to compile a report on China’s mass internment of millions of Muslim Uighurs and identify Chinese government officials to impose sanctions on. The Treasury said that sanctions apply to Chen Quanguo, the Communist party secretary of Xinjiang,  Zhu Hailun, who helps oversee policy in the province, Wang Mingshan, head of the Xinjiang public security bureau, and Huo Liujun, a former head of the bureau.

Things are certainly complicated by the hiring of Luo Huining as the CCP’s enforcer in Hong Kong: referred to by Kyle Bass as “the butcher of Tibet”. Mr Bass like many before him has his money where his mouth is and its safe to say that he is not long.

Bluff and buster is the response from financiers in Hong Kong. Things will muddle along. While the UK government hardens its stance on Huawei, Standard Chartered and HSBC have openly supported the Security Law. Without Hong Kong and China business, both entities are left rudderless. But the “Five Eyes” security alliance and parts of the EU appear to be taking a stance in the playground of global geopolitics and China’s soft power shortcomings may bring many parts of Asia into the gang. Belt and Road as well as excursions into Africa and LATAM have raised many deep concerns about arrangements though local politicos are only too happy to oblige and do business with the hegemonistic CCP.

Amid the euphoria for Chinese assets, we note a creeping weakness in Hong Kong financials and in HSBC and Standard Chartered. We would avoid both entities. In fact, we do not like the risk-reward in Hong Kong. Prior to the China-US spat, ensuing trade/tech/capital war, and local protests, Hong Kong financials were looking over exposed to the property market while trends continue to erode as measured by our PH Score.

Chinese State Banks might be some of the safest in the world. They might be. This does not make them the best investments as shareholder interests are of course secondary to CCP directives. they do not hesitate, when called upon, to bail out a province if required.

We take a look at Dah Sing Banking (2356 HK) where trends are subpar and CRE exposure remains elevated by system standards.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: Techtronics (669): American in Hong Kong and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Techtronics (669): American in Hong Kong
  2. Jinmao Hotel (6139 HK): Priced To Check Out
  3. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO
  4. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Techtronics (669): American in Hong Kong

The%20top%20tool%20companies%20on%20the%20globe?1592141698

Techtronic Industries Co Ltd. (669 HK) is an OEM and has its own brand for many DIY tooling kits for the American market (77% of the business) and has flourished over the years as they have profited from the labor arbitrage between the US and the Chinese wages differential. The stock has ADTV of USD 57 million, a market cap of USD 17.45 billion, and its share price is 3.8% lower from its 52 weeks high. 

With the heightened tension between US and China, social unrest in the US and potentially bringing more productions to the US which will reduce the company’s margin, Techtronic Industries Co Ltd. (669 HK) ‘s current market valuation at 28x PER may not hold and investors should expect a potential downside of between 36-50%. 

2. Jinmao Hotel (6139 HK): Priced To Check Out

Image 60013467231592107611121

Jinmao Hotel & Jinmao (China) Hotel Investments and Management Limited (6139 HK) (Jinmao Hotel) was suspended on the 8 June “pursuant to the Code on Takeovers and Mergers“, having gained ~40% in the previous three trading days.

Funny that.

Late Friday afternoon, an Offer by way of a Scheme was announced, at an offer price of $4.80/share, a 30.4% premium to last close. The Offer price is Final. Irrevocables total 21.04%. The Offeror (China Jinmao Holdings (817 HK)) and concert parties hold 66.81%, therefore the blocking stake at the Unitholders Meeting will be 3.319% of shares out. Jinmao is Cayman incorporated, so the headcount test applies. 

$4.80 is roughly a two-year high, and ~90% above where shares were trading at the beginning of the month. Plus a 57.4% premium to NAV (Dec-19). That should be enough to get this Offer over the line.

There is also a question mark over the treatment of the final distribution of HK$0.1543/share.

3. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

Image 70247221131592045045257

On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

4. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: Hong Kong Exchanges & Clearing – Further To Run and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Hong Kong Exchanges & Clearing – Further To Run
  2. Cathay Pacific Rights – The Flow Dynamics
  3. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  4. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?
  5. Hong Kong: Its Not All Gloom

1. Hong Kong Exchanges & Clearing – Further To Run

* Solid Prospects: Hong Kong Exchanges & Clearing’s (388.HK) [HKEx] share price has increased HKD 152.40 (72.1%) since its pandemic panic trough of March 21, 2020. The run appears to price in the entire suite of US-listed mainland Chinese ADRs to be ambitiously shifted to HKEx along with market velocity. HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx;

*June Ahead of Expectations: HKEx June volumes were ahead of expectations in both the cash and the derivatives markets; and

*Just Pay The Dividend: HKEx is sitting on an enormous level of excess cash of over USD 3 bn which likely will be managed more properly when a less deal happy CEO takes over the helm by October 2021. 

2. Cathay Pacific Rights – The Flow Dynamics

Screenshot%202020 07 12%20at%208.23.58%20pm

On 9 June 2020, Cathay Pacific Airways (293 HK) called for a trading halt, and four hours later – just before 1pm local time – announced a…

HK$39.0 BILLION RECAPITALISATION PROPOSAL INVOLVING (1) PROPOSED ISSUE OF PREFERENCE SHARES AND WARRANTS; AND (2) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF SEVEN RIGHTS SHARES FOR EVERY ELEVEN EXISTING SHARES (link here).

This was announcement was discussed admirably on the same day by David Blennerhassett in Cathay Pacific’s Government Stop Gap, with more in-depth coverage of the pro-forma balance sheet combined with run-rate cash-burn estimates in Cathay Pacific: A Bonfire For Money. As you can tell from the titles, he was bearish. That was when the shares were 25% higher than here. 

The Circular was announced on 19 June 2020, and the EGM is scheduled for 13 July 2020 at 2pm. If approved on Monday 13 July, the last day of shares trading WITH RIGHTS will be the 14th of July.

Starting the 15th of July, the shares will trade ex-rights, and the nil-paid rights themselves will trade between the 24th and 31st of July, inclusive.

Shareholders will receive 7 rights for every 11 shares held, at a rights subscription price of HK$4.68 (46.9% discount to the close of 8 June, and 35% discount to the then-TERP of $7.20) to raise aggregate proceeds of ~HK$11.7bn (there are, of course, pref shares and warrants for another HK$21.5bn). 

There are two days left before the shares go ex-.

3. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 449688111111594443092973

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

4. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?

In these stressed times, risk assets seem excessively buoyed by liquidity again despite what gold, US treasury yields, and the still elevated VIX tell us. The market seems to have given up on earnings and bases a bullish thesis on 2021-22 guesses. We are not, despite what some national media outlets inform us, out of the COVID woods by any means. Are governments throwing in the Health towel before wealth priorities?

Those with a thoughtful disposition, based on History, would be forgiven for throwing in the towel on the bear side. Long/Short strategies are looking about as out of favor as value investing. 

Despite a mega credit bubble, fixed exchange rate and increasing scarcity of foreign exchange perhaps, CSI 300 could rally hard into YE 2020 with a fortified CNH. This is predicated on a weaker dollar which is by no means a certainty. There is talk of a bull market in China and locals are free with their tips. We are told to buy BABA and Tencent ahead of Google and Microsoft on valuation grounds: is that really coherent?

So what tempers enthusiasm or even euphoria? In one word: Hong Kong. Well, it used to be a single word until 1926. This note arrives just as the government has had to close down schools.

The US continues to flex its muscles regarding China. There is an element of scapegoating for sure, blaming China for its own haphazard and subpar response to COVID. In a sense, China’s “illegal” Security Law was a gift from the Gods to Trump and Pompeo. But there is also a hardening bipartisan existential logic too. The US is fed up with IP theft and CCP meddling in internal affairs. (China would say the same thing). Pompeo though is surely right to highlight the goings on in the South China Sea. It is as reprehensible as actions by scores of colonial powers and state sponsored pirates such as the East India Company in days of yore. (Same logic applies to tree-cutting Brazil). And we do live in times of revisionism.

Can the US be serious about starving China of dollars? China is most certainly not a “swap line” amigo. Trump will sign into bipartisan law next week the Hong Kong autonomy act. The legislation gives the administration the power to impose sanctions on officials accused of undermining Hong Kong’s semi-autonomous status, as well as banks and state entities that do “significant transactions” with them. This applies to banks, asset managers, and insurance companies. For sure, there will be rigorous KYC exercises at many banks, not just Bank of China and Minsheng, the favourites of the CCP at home.

The US sanctions could mean freezing the property of individuals and companies or excluding them from the US financial system. They may stop banks from conducting FX transactions over which the US has jurisdiction: freezing access to dollars. The act could force financial institutions to choose between doing business with the US or China. Hong Kong’s national security law makes it illegal to comply with US sanctions against Hong Kong and China.

Trump signed into law a sanctions bill that requires the administration to compile a report on China’s mass internment of millions of Muslim Uighurs and identify Chinese government officials to impose sanctions on. The Treasury said that sanctions apply to Chen Quanguo, the Communist party secretary of Xinjiang,  Zhu Hailun, who helps oversee policy in the province, Wang Mingshan, head of the Xinjiang public security bureau, and Huo Liujun, a former head of the bureau.

Things are certainly complicated by the hiring of Luo Huining as the CCP’s enforcer in Hong Kong: referred to by Kyle Bass as “the butcher of Tibet”. Mr Bass like many before him has his money where his mouth is and its safe to say that he is not long.

Bluff and buster is the response from financiers in Hong Kong. Things will muddle along. While the UK government hardens its stance on Huawei, Standard Chartered and HSBC have openly supported the Security Law. Without Hong Kong and China business, both entities are left rudderless. But the “Five Eyes” security alliance and parts of the EU appear to be taking a stance in the playground of global geopolitics and China’s soft power shortcomings may bring many parts of Asia into the gang. Belt and Road as well as excursions into Africa and LATAM have raised many deep concerns about arrangements though local politicos are only too happy to oblige and do business with the hegemonistic CCP.

Amid the euphoria for Chinese assets, we note a creeping weakness in Hong Kong financials and in HSBC and Standard Chartered. We would avoid both entities. In fact, we do not like the risk-reward in Hong Kong. Prior to the China-US spat, ensuing trade/tech/capital war, and local protests, Hong Kong financials were looking over exposed to the property market while trends continue to erode as measured by our PH Score.

Chinese State Banks might be some of the safest in the world. They might be. This does not make them the best investments as shareholder interests are of course secondary to CCP directives. they do not hesitate, when called upon, to bail out a province if required.

We take a look at Dah Sing Banking (2356 HK) where trends are subpar and CRE exposure remains elevated by system standards.

5. Hong Kong: Its Not All Gloom

Capture1

Hong Kong has been in economic downturn since 2Q19 but is starting to show signs of recovery. An expected surge in Chinese company listings, the introduction of the wealth management connect and China’s determination to push ahead with the rollout of the Belt&Road and Greater Bay Area initiatives should lend additional impetus. Tellingly despite concerns about the new security bill global multinationals are staying put and not giving up on the island economy.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: Jinmao Hotel (6139 HK): Priced To Check Out and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Jinmao Hotel (6139 HK): Priced To Check Out
  2. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO
  3. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Jinmao Hotel (6139 HK): Priced To Check Out

Image 60013467231592107611121

Jinmao Hotel & Jinmao (China) Hotel Investments and Management Limited (6139 HK) (Jinmao Hotel) was suspended on the 8 June “pursuant to the Code on Takeovers and Mergers“, having gained ~40% in the previous three trading days.

Funny that.

Late Friday afternoon, an Offer by way of a Scheme was announced, at an offer price of $4.80/share, a 30.4% premium to last close. The Offer price is Final. Irrevocables total 21.04%. The Offeror (China Jinmao Holdings (817 HK)) and concert parties hold 66.81%, therefore the blocking stake at the Unitholders Meeting will be 3.319% of shares out. Jinmao is Cayman incorporated, so the headcount test applies. 

$4.80 is roughly a two-year high, and ~90% above where shares were trading at the beginning of the month. Plus a 57.4% premium to NAV (Dec-19). That should be enough to get this Offer over the line.

There is also a question mark over the treatment of the final distribution of HK$0.1543/share.

2. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

Image 70247221131592045045257

On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

3. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

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Brief Hong Kong: Cathay Pacific Rights – The Flow Dynamics and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Cathay Pacific Rights – The Flow Dynamics
  2. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  3. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?
  4. Hong Kong: Its Not All Gloom
  5. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

1. Cathay Pacific Rights – The Flow Dynamics

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On 9 June 2020, Cathay Pacific Airways (293 HK) called for a trading halt, and four hours later – just before 1pm local time – announced a…

HK$39.0 BILLION RECAPITALISATION PROPOSAL INVOLVING (1) PROPOSED ISSUE OF PREFERENCE SHARES AND WARRANTS; AND (2) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF SEVEN RIGHTS SHARES FOR EVERY ELEVEN EXISTING SHARES (link here).

This was announcement was discussed admirably on the same day by David Blennerhassett in Cathay Pacific’s Government Stop Gap, with more in-depth coverage of the pro-forma balance sheet combined with run-rate cash-burn estimates in Cathay Pacific: A Bonfire For Money. As you can tell from the titles, he was bearish. That was when the shares were 25% higher than here. 

The Circular was announced on 19 June 2020, and the EGM is scheduled for 13 July 2020 at 2pm. If approved on Monday 13 July, the last day of shares trading WITH RIGHTS will be the 14th of July.

Starting the 15th of July, the shares will trade ex-rights, and the nil-paid rights themselves will trade between the 24th and 31st of July, inclusive.

Shareholders will receive 7 rights for every 11 shares held, at a rights subscription price of HK$4.68 (46.9% discount to the close of 8 June, and 35% discount to the then-TERP of $7.20) to raise aggregate proceeds of ~HK$11.7bn (there are, of course, pref shares and warrants for another HK$21.5bn). 

There are two days left before the shares go ex-.

2. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

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The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

3. Hong Kong Financials: Bluff and Bluster? Taxi Driver Tip Time in China?

In these stressed times, risk assets seem excessively buoyed by liquidity again despite what gold, US treasury yields, and the still elevated VIX tell us. The market seems to have given up on earnings and bases a bullish thesis on 2021-22 guesses. We are not, despite what some national media outlets inform us, out of the COVID woods by any means. Are governments throwing in the Health towel before wealth priorities?

Those with a thoughtful disposition, based on History, would be forgiven for throwing in the towel on the bear side. Long/Short strategies are looking about as out of favor as value investing. 

Despite a mega credit bubble, fixed exchange rate and increasing scarcity of foreign exchange perhaps, CSI 300 could rally hard into YE 2020 with a fortified CNH. This is predicated on a weaker dollar which is by no means a certainty. There is talk of a bull market in China and locals are free with their tips. We are told to buy BABA and Tencent ahead of Google and Microsoft on valuation grounds: is that really coherent?

So what tempers enthusiasm or even euphoria? In one word: Hong Kong. Well, it used to be a single word until 1926. This note arrives just as the government has had to close down schools.

The US continues to flex its muscles regarding China. There is an element of scapegoating for sure, blaming China for its own haphazard and subpar response to COVID. In a sense, China’s “illegal” Security Law was a gift from the Gods to Trump and Pompeo. But there is also a hardening bipartisan existential logic too. The US is fed up with IP theft and CCP meddling in internal affairs. (China would say the same thing). Pompeo though is surely right to highlight the goings on in the South China Sea. It is as reprehensible as actions by scores of colonial powers and state sponsored pirates such as the East India Company in days of yore. (Same logic applies to tree-cutting Brazil). And we do live in times of revisionism.

Can the US be serious about starving China of dollars? China is most certainly not a “swap line” amigo. Trump will sign into bipartisan law next week the Hong Kong autonomy act. The legislation gives the administration the power to impose sanctions on officials accused of undermining Hong Kong’s semi-autonomous status, as well as banks and state entities that do “significant transactions” with them. This applies to banks, asset managers, and insurance companies. For sure, there will be rigorous KYC exercises at many banks, not just Bank of China and Minsheng, the favourites of the CCP at home.

The US sanctions could mean freezing the property of individuals and companies or excluding them from the US financial system. They may stop banks from conducting FX transactions over which the US has jurisdiction: freezing access to dollars. The act could force financial institutions to choose between doing business with the US or China. Hong Kong’s national security law makes it illegal to comply with US sanctions against Hong Kong and China.

Trump signed into law a sanctions bill that requires the administration to compile a report on China’s mass internment of millions of Muslim Uighurs and identify Chinese government officials to impose sanctions on. The Treasury said that sanctions apply to Chen Quanguo, the Communist party secretary of Xinjiang,  Zhu Hailun, who helps oversee policy in the province, Wang Mingshan, head of the Xinjiang public security bureau, and Huo Liujun, a former head of the bureau.

Things are certainly complicated by the hiring of Luo Huining as the CCP’s enforcer in Hong Kong: referred to by Kyle Bass as “the butcher of Tibet”. Mr Bass like many before him has his money where his mouth is and its safe to say that he is not long.

Bluff and buster is the response from financiers in Hong Kong. Things will muddle along. While the UK government hardens its stance on Huawei, Standard Chartered and HSBC have openly supported the Security Law. Without Hong Kong and China business, both entities are left rudderless. But the “Five Eyes” security alliance and parts of the EU appear to be taking a stance in the playground of global geopolitics and China’s soft power shortcomings may bring many parts of Asia into the gang. Belt and Road as well as excursions into Africa and LATAM have raised many deep concerns about arrangements though local politicos are only too happy to oblige and do business with the hegemonistic CCP.

Amid the euphoria for Chinese assets, we note a creeping weakness in Hong Kong financials and in HSBC and Standard Chartered. We would avoid both entities. In fact, we do not like the risk-reward in Hong Kong. Prior to the China-US spat, ensuing trade/tech/capital war, and local protests, Hong Kong financials were looking over exposed to the property market while trends continue to erode as measured by our PH Score.

Chinese State Banks might be some of the safest in the world. They might be. This does not make them the best investments as shareholder interests are of course secondary to CCP directives. they do not hesitate, when called upon, to bail out a province if required.

We take a look at Dah Sing Banking (2356 HK) where trends are subpar and CRE exposure remains elevated by system standards.

4. Hong Kong: Its Not All Gloom

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Hong Kong has been in economic downturn since 2Q19 but is starting to show signs of recovery. An expected surge in Chinese company listings, the introduction of the wealth management connect and China’s determination to push ahead with the rollout of the Belt&Road and Greater Bay Area initiatives should lend additional impetus. Tellingly despite concerns about the new security bill global multinationals are staying put and not giving up on the island economy.

5. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

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In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

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Brief Hong Kong: Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO
  2. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

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On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

2. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

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The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

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Brief Hong Kong: Asia Short Interest Weekly – Shorts Covered as Markets Melted Up and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

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Brief Hong Kong: Asia Short Interest Weekly – Shorts Covered as Markets Melted Up and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up
  2. Post-Covid 19 – Economic Reality Bites

1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

2. Post-Covid 19 – Economic Reality Bites

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A severe global recession is baked in the cake is the realisation steadily dawning on market commentators and institutions. Corporate profits have collapsed. Debt levels are rising rapidly. Both are ingredients for investment led economic downturn. So far markets buoyed by cheap liquidity markets have chosen to ignore economic reality but that might be changing.

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Brief Hong Kong: Asia Short Interest Weekly – Shorts Covered as Markets Melted Up and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up
  2. Post-Covid 19 – Economic Reality Bites
  3. Alibaba Pictures (1060): Rushing to Cinema?
  4. Spring WSTS Semiconductor Forecast Gives Mixed Outlook

1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

2. Post-Covid 19 – Economic Reality Bites

Capture

A severe global recession is baked in the cake is the realisation steadily dawning on market commentators and institutions. Corporate profits have collapsed. Debt levels are rising rapidly. Both are ingredients for investment led economic downturn. So far markets buoyed by cheap liquidity markets have chosen to ignore economic reality but that might be changing.

3. Alibaba Pictures (1060): Rushing to Cinema?

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Due to the reopening of the economy, the market hurried to think that viewers will flock back to the cinemas, creating a revenue growth potential for the company and the share price rebounded after the relief from the reopening post-COVID-19 in China. 

The reality is that people are not in a rush to go out to watch a movie in a cinema citing COVID-19 contraction risk, and the availability of online entertainment as a substitute. With not many people are rushing to the cinema to watch a movie, the volume will inevitably lower especially in the first quarter was basically almost zero due to the COVID-19 induced lockdown. 

If investors are betting on Alibaba Pictures (1060 HK)  due to their revenue growth rate and therefore are willing to pay such an expensive level, they should think twice as the growth rate has plateaued and last year was a negative growth for the company. 

It is also worth mentioning that the company is trading at 3x higher than its peers including Maoyan Entertainment, a Tencent Holdings (700 HK) backed company, that has broken even and generated some profits. It is trading at 30x PER.

Alibaba Pictures, unless it starts to break-even anytime soon or a vaccine is found and made available in China, is a SELL especially when its peers, a Tencent-backed company, have generated some profits.  

4. Spring WSTS Semiconductor Forecast Gives Mixed Outlook

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The Spring WSTS semiconductor forecast has been announced and it is very similar at the top-line level to the organization’s Autumn forecast published six months ago.  At a more detailed level, though, there have been some significant changes that we explore here.

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