Category

Multi Strategy

Brief Multi-Strategy: Crazy Golf: A Plain Person’s Guide to the Forthcoming Brexit Negotiations and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Crazy Golf: A Plain Person’s Guide to the Forthcoming Brexit Negotiations
  2. 🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores
  3. Apple and Big Tech Fade and Fresh Buy Levels in March
  4. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla
  5. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst

1. Crazy Golf: A Plain Person’s Guide to the Forthcoming Brexit Negotiations

Over the next eighteen months the airwaves in the UK will be filled with a relentless bombardment of mindless jargon as the media report on the progress of the negotiations between the EU and the Government on the terms on which trade between them will be carried on after Brexit. (Right now, the UK has left the EU in name only). Words and phrases like ‘free trade’, ‘competitiveness’ and ‘regulatory alignment’ will be bandied about, without anyone who uses them saying what they mean. Quite often the speakers will not know. All of which will have the effect of obscuring from the view of the ordinary person what is actually going on.

In this insight, David Simpson, our guest writer, explains what to expect from the forthcoming Brexit negotiations.


David Simpson is an Economics graduate of University of Edinburgh (First Class Honours) and Trinity College, Dublin (PhD). He served as research assistant to Nobel Laureate Wassily Leontief at Harvard University in the 1960s. He was co-founder of the Fraser of Allander Institute for Research on the Scottish Economy and then, latterly, Chief Economist at Standard Life Plc in Edinburgh. He has published numerous books and articles on economic theory and input-output analysis. Since his retirement he has lived in his native East Lothian, near Edinburgh.

2. 🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

2020 02 18 11 54 10

Source • Japan Analytics

THREE-YEAR LOW – With Bridgestone (5108 JP)‘s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore – the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19’s impact will likely see the 2016 ‘playbook’ repeated next quarter with a lower Results Score and a ‘sideways’ Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. 

Source • Japan Analytics

LEADING INDICATOR – By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office’s Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. 

SCORING METHODOLOGY – For those new to these Insights, we briefly recap our scoring methodology below:-

  • Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.

  • The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.

  • The combined Results & Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

  • All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.


    • SECTOR SCORES •

    Source • Japan Analytics

    In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter’s ‘winners’ and ‘losers’. The chart above shows a  seventeen-year ‘timeline’ of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to ‘bottom’ this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical ‘champion’. 

3. Apple and Big Tech Fade and Fresh Buy Levels in March

Focus is on Apple Inc (AAPL US) and the rising wedge as well as big tech upside fade levels and pullback targets for March. We cover cycles levels in Amazon.com Inc (AMZN US)Alphabet Inc Cl C (GOOG US)Facebook Inc A (FB US)Microsoft Corp (MSFT US) .

Apples’ exhaustive rising wedge stands out as a peak set up with uptick resistance within yesterdays’ gap zone.

As breadth narrows, it comes down to top tech holding the market together. If big tech rolls over then so does the NDX and SPX and the global cycle.

Note that recent tech strength has been on diminishing buy volumes from early February (x Microsoft) for this group which often precedes pullbacks from current overbought readings. Pullback levels and fresh buy zones in March hinge on price congestion and trendline supports holding. Apple and Facebook display the weaker underlying structures. Google and Microsoft show extended rises with pullback risk but remain macro bullish. Amazon exhibits the more bullish underlying technical posture.

4. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla

Image 48627219121582076013131

Highlights since our last monthly- ‘EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions’ are as follows:

  • In the last monthly, we stated that no further cut in NEV subsidy in China would suggest better market conditions for battery players there. However, the recent coronavirus outbreak and the production stoppage signal possible supply chain disruption risk for the battery players, although their key plants are currently located away from the affected province.
  • Panasonic Corp (6752 JP):
    • 3Q results point to recovery.
    • Gigafactory with Tesla made profits during the quarter. However, stabilisation of profits depends on Tesla’s ability to meet production targets.
    • The company continues moving towards Toyota Motor (7203 JP) regardless of the Gigafactory making profits.
  • CATL (A) (300750 CH) confirms tie-up with Tesla Motors (TSLA US). While the move might benefit Tesla, we think otherwise for CATL, as mentioned in CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?. We feel that Panasonic is not losing much by not joining Tesla in China, given its tie-up with Toyota to serve the Chinese market.
  • Tesla has reportedly started the process for building its own battery plant. While this might be true, we think that the success rate of this move and the time period for such an achievement are still questionable.
  • South Korean players seemed rather quiet, except that LG Chem Ltd (051910 KS) has also partnered with Tesla, taking on some risk, while Samsung Sdi (006400 KS) is bent on building its upstream by securing supplies, possibly to serve the deals it has already signed up for.
  • CATL’s share price continued to rise, followed by the Korean players, both outperforming the market. Panasonic’s share price regained following the 3Q earnings release and news on its Gigafactory reporting profits. BYD (1211 HK) continued to see relatively weak performance.

 Source: CapIQ

5. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst

On February 18th, Doosan Heavy Industries (034020 KS) announced a massive restructuring plan, one of its biggest ever in its 58 years of history. As of the end of September 2019, the company had 6,784 employees, of which about 2,600 are 45 years old or more. This restructuring plan includes a voluntary ERP (early retirement program) for these 2,600 employees.

It has been estimated that nearly 1,000 employees could seek this ERP program, which would represent nearly 15% of its total workforce. Although this massive restructuring program is not good news for the employees of Doosan Heavy Industries, this should act as a positive factor on the stock price of the company since it should be able to boost its operating profit starting 2021.

The United Future Party is pro-nuclear power and if they are able to win the General National Assembly election, it would certainly have a major positive impact on Doosan Heavy Industries (034020 KS). Nonetheless, there are still nearly two months left until the election and in Korea, that is like a lifetime in political ages and so much could change during this period.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: UK: Employment Booms Before Boris-Bounce and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. UK: Employment Booms Before Boris-Bounce
  2. Elite Commercial REIT IPO – Probably Just About Fairly Valued at the Low-End
  3. SK Holdings SoTP Valuation Sensitivity Analysis
  4. Corporate Governance In Japan

1. UK: Employment Booms Before Boris-Bounce

2020 01 21%20lab6

  • Employment unexpectedly surged by 208k 3m-o-3m in Nov-19, even ahead of any potential Boris-bounce to other activity data. The labour market still looks much healthier to me than widely perceived elsewhere, including by policymakers.
  • Vacancies also started to recover in Q4, although most new job adverts will have been held until the new year. A bullish vertical normalisation in the Beveridge curve has begun, in my view, which would remove its recent disinflationary signal.
  • Headline wage growth has slowed slightly, but disinflation and falling productivity support underlying pressures. Unit wage cost growth is more consistent with rate hikes than cuts, but that doesn’t mean the MPC won’t mistakenly cut next week.

2. Elite Commercial REIT IPO – Probably Just About Fairly Valued at the Low-End

Image?1579513098

Elite Commercial REIT (ELITE SP) (ECR) plans to raise up to US$170m in its Singapore listing. 

The initial portfolio will comprise of 97 commercial buildings located across the UK with a total net internal area of approximately 2.6m sqft. The REIT is being sponsored by Elite Partners, Ho Lee Group and Sunway Bhd (SWB MK)

I covered the company’s background and financials in Elite Commercial REIT IPO – Stable Rentals but Small and Old Assets.

In this insight, I’ll talk about valuations and run the deal through our ECM framework.

3. SK Holdings SoTP Valuation Sensitivity Analysis

Skinn

In this insight, we provide an updated sum-of-the parts (SoTP) valuation on SK Holdings (034730 KS). There are many moving parts of SK Holdings and it helps to review the main factors that have been impacting its share price. Our base case valuation of SK Holdings is 326,550 won, which represents a 36% upside from current levels. 

We believe that the 7 MOST IMPORTANT FACTORS impacting the share price of SK Holdings are currently as follows:

1) Share price trend of Sk Innovation (096770 KS)

2) IPO of SK Biopharm 

3) Share price trend of SK Telecom (017670 KS)

4) Changing values of SK Siltron, SK E&S and other private companies

5) Changing values of Sk Materials (036490 KS), SK Networks (001740 KS), and other public companies

6) Shareholder boosting measures (Share buybacks, dividends)

7) The ongoing divorce proceedings between SK Chairman Chey Tae-Won & his wife Roh So-Young

4. Corporate Governance In Japan

Vote

If effectively implemented, the Japan Corporate Governance Code, the Japan Stewardship Code, the Engagement Guidelines and the CGS Guidelines would also represent a sea change in the role of Japanese boards in terms of management selection, management compensation, and capital deployment. If. This is largely a ‘soft” law rather than a hard regulatory change, limiting the regulator’s power to address minority rights.

There is a need to see improvement in governance, independence, board structure, and capital stewardship by a very large number of companies in Japan. Enhancement of diversity on the board will enable increased effectiveness and also strengthen companies’ governance structure.

Investors are calling on companies to hire outside board members and tackle cross-holdings. The TSE-mandated Corporate Governance Code seeks at least two independent outside board members for listed companies and preferably a third, a majority, and provides an example of “at least one-third independent directors”. But these examples, and other much-needed changes, remain inadequate.

One of the fundamental problems with the combination of the Japanese Corporate Governance Code and the Companies Act, and the lack of liability of directors for their own decisions, is that they can hang their hat on irrational economic arguments and there are no repercussions. 

Investors want better “governance”, however, international investors seek more than improving the box-ticking form prized by many Japanese companies. Analysing non-box-ticking ESG/governance is difficult. It is difficult to track and analyse. And even if box-ticking is evident, it is not necessarily true that doing so will raise long-term equity returns. It is possible it will raise costs, which would lower profit growth – this may be good for society, it may not be good for valuations.

International investors are more concerned with improving information access, management responsiveness to investors, and management efforts to make companies become better economic engines. International investors would like to see companies concentrate on their business rather than see them run long-short funds (i.e. hold cross-holdings) with investor capital, hold excess cash, or invest in real estate as an alternative source of income.

A Consultation Paper reviewing the TSE cash equity market – first mentioned in December 2018, followed by a Market Consultation, culminating in four documents posted on the FSA’s website last November – make it clear to the TSE, governmental, and regulatory authorities that existing governance and stewardship levels don’t cut it.

For now, there’s a lot of technocratic navel-gazing.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: 🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. 🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores
  2. Apple and Big Tech Fade and Fresh Buy Levels in March
  3. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla
  4. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst
  5. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

1. 🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

2020 02 19 14 35 06

Source • Japan Analytics

THREE-YEAR LOW – With Bridgestone (5108 JP)‘s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore – the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19’s impact will likely see the 2016 ‘playbook’ repeated next quarter with a lower Results Score and a ‘sideways’ Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. 

Source • Japan Analytics

LEADING INDICATOR – By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office’s Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. 

SCORING METHODOLOGY – For those new to these Insights, we briefly recap our scoring methodology below:-

  • Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.

  • The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.

  • The combined Results & Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

  • All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.


    • SECTOR SCORES •

    Source • Japan Analytics

    In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter’s ‘winners’ and ‘losers’. The chart above shows a  seventeen-year ‘timeline’ of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to ‘bottom’ this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical ‘champion’. 

2. Apple and Big Tech Fade and Fresh Buy Levels in March

Focus is on Apple Inc (AAPL US) and the rising wedge as well as big tech upside fade levels and pullback targets for March. We cover cycles levels in Amazon.com Inc (AMZN US)Alphabet Inc Cl C (GOOG US)Facebook Inc A (FB US)Microsoft Corp (MSFT US) .

Apples’ exhaustive rising wedge stands out as a peak set up with uptick resistance within yesterdays’ gap zone.

As breadth narrows, it comes down to top tech holding the market together. If big tech rolls over then so does the NDX and SPX and the global cycle.

Note that recent tech strength has been on diminishing buy volumes from early February (x Microsoft) for this group which often precedes pullbacks from current overbought readings. Pullback levels and fresh buy zones in March hinge on price congestion and trendline supports holding. Apple and Facebook display the weaker underlying structures. Google and Microsoft show extended rises with pullback risk but remain macro bullish. Amazon exhibits the more bullish underlying technical posture.

3. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla

Image 48627219121582076013131

Highlights since our last monthly- ‘EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions’ are as follows:

  • In the last monthly, we stated that no further cut in NEV subsidy in China would suggest better market conditions for battery players there. However, the recent coronavirus outbreak and the production stoppage signal possible supply chain disruption risk for the battery players, although their key plants are currently located away from the affected province.
  • Panasonic Corp (6752 JP):
    • 3Q results point to recovery.
    • Gigafactory with Tesla made profits during the quarter. However, stabilisation of profits depends on Tesla’s ability to meet production targets.
    • The company continues moving towards Toyota Motor (7203 JP) regardless of the Gigafactory making profits.
  • CATL (A) (300750 CH) confirms tie-up with Tesla Motors (TSLA US). While the move might benefit Tesla, we think otherwise for CATL, as mentioned in CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?. We feel that Panasonic is not losing much by not joining Tesla in China, given its tie-up with Toyota to serve the Chinese market.
  • Tesla has reportedly started the process for building its own battery plant. While this might be true, we think that the success rate of this move and the time period for such an achievement are still questionable.
  • South Korean players seemed rather quiet, except that LG Chem Ltd (051910 KS) has also partnered with Tesla, taking on some risk, while Samsung Sdi (006400 KS) is bent on building its upstream by securing supplies, possibly to serve the deals it has already signed up for.
  • CATL’s share price continued to rise, followed by the Korean players, both outperforming the market. Panasonic’s share price regained following the 3Q earnings release and news on its Gigafactory reporting profits. BYD (1211 HK) continued to see relatively weak performance.

 Source: CapIQ

4. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst

On February 18th, Doosan Heavy Industries (034020 KS) announced a massive restructuring plan, one of its biggest ever in its 58 years of history. As of the end of September 2019, the company had 6,784 employees, of which about 2,600 are 45 years old or more. This restructuring plan includes a voluntary ERP (early retirement program) for these 2,600 employees.

It has been estimated that nearly 1,000 employees could seek this ERP program, which would represent nearly 15% of its total workforce. Although this massive restructuring program is not good news for the employees of Doosan Heavy Industries, this should act as a positive factor on the stock price of the company since it should be able to boost its operating profit starting 2021.

The United Future Party is pro-nuclear power and if they are able to win the General National Assembly election, it would certainly have a major positive impact on Doosan Heavy Industries (034020 KS). Nonetheless, there are still nearly two months left until the election and in Korea, that is like a lifetime in political ages and so much could change during this period.

5. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Sensitivity

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: Shanghai/​​​​​​Shenzhen Connect Flows: Midea, Ping An Bank/Insurance and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Shanghai/​​​​​​Shenzhen Connect Flows: Midea, Ping An Bank/Insurance
  2. HK Connect Flows: One Year High Inflows into Tencent
  3. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

1. Shanghai/​​​​​​Shenzhen Connect Flows: Midea, Ping An Bank/Insurance

Luxshare precision industry co.,ltd.  %28002475 ch%29 weekly northbound inflow2020 01 20%2014 21 33

In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas. 

In this insight, we go through YTD weekly inflows into the A-share market via Shanghai/Shenzhen connect, and top inflows and top three outflows. We will also cover inflows and holdings by sectors, after which we will highlight top five inflows and outflows on a relative basis for large-cap and mid-cap stocks: stocks with a market capitalization above USD 5 billion, and those between USD 1 billion and USD 5 billion.

We highlight top inflows into Midea Group Co Ltd A (000333 CH), Ping An Bank Co Ltd A (000001 CH), and Ping An Insurance Group Co Of China (601318 CH), as well as top outflows from Luxshare Precision Industry (002475 CH), Hangzhou Hikvision (002415 CH), and Shanghai International Airport Co, Ltd. (600009 CH).

2. HK Connect Flows: One Year High Inflows into Tencent

Xiaomi corporation %281810 hk%29 weekly southbound inflow2020 01 20%2014 20 54

In our weekly HK Connect Flow series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.

In a Hong Kong exchange report released in July, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors’ 10% and UK investors’ 7% share respectively. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

We highlight top inflows into Tencent Holdings (700 HK), Xiaomi Corp (1810 HK), and Sunac China Holdings (1918 HK), as well as top outflows from Ping An Insurance (H) (2318 HK), Huaneng Renewables Corp H (958 HK), and China Resources Land (1109 HK).

3. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

Screen%20shot%202020 01 19%20at%202.09.56%20pm

The US and China signed their phase-one trade deal on January 15 but it barely boosted crude beyond a mild bump. Our readers will not have been surprised – because this was exactly the anticipation we had been conveying for some time.

It remains to be seen if the deal – which leaves majority of US tariffs on Chinese goods intact – will move the needle on global economic momentum. As for the oil market, it will need time to decide if the prospects for demand growth need recalibrating. 

In the absence of a “cheer premium” from the trade deal and a firm retreat of the fear premium that the escalating US-Iran tensions had introduced at the start of this month, crude prices are now in a holding pattern.

In the meantime, China’s commitment to boost purchases of US energy commodities may mean increased competition among Asian countries that had stepped up their imports of US crude over the past 18 to 24 months.

Plus: The danger of long-term destabilisation that has reared its head in at least two major oil producers amid an uneasy calm in the Middle East. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: UK: Jobs Making All the Right Moves at End-19 and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. UK: Jobs Making All the Right Moves at End-19
  2. Transfer of Rechargeable Batteries Modules & Packs Business from LG Electronics to LG Chem?
  3. SBI Cards and Payment IPO: Valuation Insights
  4. Home First Finance Pre-IPO – Riding on Affordable Housing
  5. HSCEI Rejection Level

1. UK: Jobs Making All the Right Moves at End-19

Image 62087163631582034607287

  • Employment maintained rapid growth in 4Q19 at 180k, in line with my forecast. Sampling effects have exaggerated the upswing after similarly distorting its downturn, but the resilient underlying message is now consistently reflected.
  • Jobseekers now have a record high propensity to find work, while the net flow of jobs is surging towards higher-skilled work, in further encouraging signs.
  • Inflationary pressures are building as wage growth has weakened far less than productivity, which was hit by temporary output distortions. The downtrend in measures of slack has continued, and vacancies have recovered 25% of their dip.

2. Transfer of Rechargeable Batteries Modules & Packs Business from LG Electronics to LG Chem?

Lgele

  • One of the big winning sectors in the Korean stock market this year has been the rechargeable batteries related stocks including Samsung Sdi (006400 KS) and LG Chem Ltd (051910 KS). In the past few days, there has been some increasing news flow in the local media regarding a potential transfer of the rechargeable batteries modules and packs business from LG Electronics (066570 KS) to LG Chem.
  • On a relative basis, this transfer would likely to have a GREATER POSITIVE impact on LG Electronics since the battery modules and packs business has been losing money in the past several years and this transfer would allow LG Electronics to reduce the operating losses from this business unit (Vehicle Component Solutions).
  • For now, nothing has been decided regarding the potential transfer of the rechargeable battery modules and packs business from LG Electronics to LG Chem. This is just in the discussion stage right now. However, this business transfer seems to make a lot of sense and one could wonder why they did not complete this move earlier (especially from the point of view of LG Electronics shareholders). 

3. SBI Cards and Payment IPO: Valuation Insights

Forecasts

SBI Cards (SBICARDS IN) is the second-largest credit card issuer in India, with an 18.0% market share of the Indian credit card market as measured by the number of credit cards outstanding as of 30 September 2019. SBI Cards will likely raise around Rs95 billion ($1.3 billion) at a valuation of Rs600 billion ($8.4 billion) and the IPO will be launched in the first week of March, according to press reports.

In our initiation note, we stated that peeling back the benefit of market growth, SBI Cards’ fundamentals offer more positives than negatives. Our valuation analysis suggests that that the rumoured Rs600 billion valuation will be attractive particularly for growth-oriented investors.

4. Home First Finance Pre-IPO – Riding on Affordable Housing

Image?1581998114

Home First Finance (HFF) is an affordable housing finance company targeting first time home buyers in low and middle-income groups. The company is backed by True North, GIC and Bessemer who together own over 90% of the company.

HFF has grown rapidly over the past few years, driven by an expansion in its branch network and large number of new customers. Over FY17-19, HFF’s loan grew at CAGR of 70%, while its earnings grew even faster with NII growing at 76.2%, PPoP at 145% and PAT at 160% CAGR.  It still remains largely focussed on housing loans and has pristine asset quality.

However, its funding sources lack diversity and its margin is artificially inflated by its high capitalisation. Furthermore, the company talks a lot about tech but a lot of its functions appear to be still very contact heavy and hence, salesforce/customer service dependant.

5. HSCEI Rejection Level

Hscei

Hang Seng China Enterprises Index (HSCEI INDEX) has rallied back to test the underside of broken wedge support which is now labeled backswing resistance. Current resistance near 10,920 is a natural rejection level.

It is the rising wedge formation in H shares that has our attention as well as similar wedge patterns noted in the HSI, Korea and Singapore.

Wedge patterns like this show a 70% probability of breaking to the downside but when you add in the bear divergence tact, odds increase to 85%. Given the late January break of wedge support this is labeled a re test where a rejection is expected with 11,000 acting as a key pivot level just above noted resistance.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: Apple and Big Tech Fade and Fresh Buy Levels in March and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Apple and Big Tech Fade and Fresh Buy Levels in March
  2. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla
  3. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst
  4. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  5. UK: Jobs Making All the Right Moves at End-19

1. Apple and Big Tech Fade and Fresh Buy Levels in March

Focus is on Apple Inc (AAPL US) and the rising wedge as well as big tech upside fade levels and pullback targets for March. We cover cycles levels in Amazon.com Inc (AMZN US)Alphabet Inc Cl C (GOOG US)Facebook Inc A (FB US)Microsoft Corp (MSFT US) .

Apples’ exhaustive rising wedge stands out as a peak set up with uptick resistance within yesterdays’ gap zone.

As breadth narrows, it comes down to top tech holding the market together. If big tech rolls over then so does the NDX and SPX and the global cycle.

Note that recent tech strength has been on diminishing buy volumes from early February (x Microsoft) for this group which often precedes pullbacks from current overbought readings. Pullback levels and fresh buy zones in March hinge on price congestion and trendline supports holding. Apple and Facebook display the weaker underlying structures. Google and Microsoft show extended rises with pullback risk but remain macro bullish. Amazon exhibits the more bullish underlying technical posture.

2. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla

Image 48627219121582076013131

Highlights since our last monthly- ‘EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions’ are as follows:

  • In the last monthly, we stated that no further cut in NEV subsidy in China would suggest better market conditions for battery players there. However, the recent coronavirus outbreak and the production stoppage signal possible supply chain disruption risk for the battery players, although their key plants are currently located away from the affected province.
  • Panasonic Corp (6752 JP):
    • 3Q results point to recovery.
    • Gigafactory with Tesla made profits during the quarter. However, stabilisation of profits depends on Tesla’s ability to meet production targets.
    • The company continues moving towards Toyota Motor (7203 JP) regardless of the Gigafactory making profits.
  • CATL (A) (300750 CH) confirms tie-up with Tesla Motors (TSLA US). While the move might benefit Tesla, we think otherwise for CATL, as mentioned in CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?. We feel that Panasonic is not losing much by not joining Tesla in China, given its tie-up with Toyota to serve the Chinese market.
  • Tesla has reportedly started the process for building its own battery plant. While this might be true, we think that the success rate of this move and the time period for such an achievement are still questionable.
  • South Korean players seemed rather quiet, except that LG Chem Ltd (051910 KS) has also partnered with Tesla, taking on some risk, while Samsung Sdi (006400 KS) is bent on building its upstream by securing supplies, possibly to serve the deals it has already signed up for.
  • CATL’s share price continued to rise, followed by the Korean players, both outperforming the market. Panasonic’s share price regained following the 3Q earnings release and news on its Gigafactory reporting profits. BYD (1211 HK) continued to see relatively weak performance.

 Source: CapIQ

3. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst

On February 18th, Doosan Heavy Industries (034020 KS) announced a massive restructuring plan, one of its biggest ever in its 58 years of history. As of the end of September 2019, the company had 6,784 employees, of which about 2,600 are 45 years old or more. This restructuring plan includes a voluntary ERP (early retirement program) for these 2,600 employees.

It has been estimated that nearly 1,000 employees could seek this ERP program, which would represent nearly 15% of its total workforce. Although this massive restructuring program is not good news for the employees of Doosan Heavy Industries, this should act as a positive factor on the stock price of the company since it should be able to boost its operating profit starting 2021.

The United Future Party is pro-nuclear power and if they are able to win the General National Assembly election, it would certainly have a major positive impact on Doosan Heavy Industries (034020 KS). Nonetheless, there are still nearly two months left until the election and in Korea, that is like a lifetime in political ages and so much could change during this period.

4. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Dcf

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

5. UK: Jobs Making All the Right Moves at End-19

Image 78516630241582034607287

  • Employment maintained rapid growth in 4Q19 at 180k, in line with my forecast. Sampling effects have exaggerated the upswing after similarly distorting its downturn, but the resilient underlying message is now consistently reflected.
  • Jobseekers now have a record high propensity to find work, while the net flow of jobs is surging towards higher-skilled work, in further encouraging signs.
  • Inflationary pressures are building as wage growth has weakened far less than productivity, which was hit by temporary output distortions. The downtrend in measures of slack has continued, and vacancies have recovered 25% of their dip.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: HK Connect Flows: One Year High Inflows into Tencent and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. HK Connect Flows: One Year High Inflows into Tencent
  2. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

1. HK Connect Flows: One Year High Inflows into Tencent

Xiaomi corporation %281810 hk%29 weekly southbound inflow2020 01 20%2014 20 54

In our weekly HK Connect Flow series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.

In a Hong Kong exchange report released in July, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors’ 10% and UK investors’ 7% share respectively. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

We highlight top inflows into Tencent Holdings (700 HK), Xiaomi Corp (1810 HK), and Sunac China Holdings (1918 HK), as well as top outflows from Ping An Insurance (H) (2318 HK), Huaneng Renewables Corp H (958 HK), and China Resources Land (1109 HK).

2. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

Screen%20shot%202020 01 19%20at%202.09.56%20pm

The US and China signed their phase-one trade deal on January 15 but it barely boosted crude beyond a mild bump. Our readers will not have been surprised – because this was exactly the anticipation we had been conveying for some time.

It remains to be seen if the deal – which leaves majority of US tariffs on Chinese goods intact – will move the needle on global economic momentum. As for the oil market, it will need time to decide if the prospects for demand growth need recalibrating. 

In the absence of a “cheer premium” from the trade deal and a firm retreat of the fear premium that the escalating US-Iran tensions had introduced at the start of this month, crude prices are now in a holding pattern.

In the meantime, China’s commitment to boost purchases of US energy commodities may mean increased competition among Asian countries that had stepped up their imports of US crude over the past 18 to 24 months.

Plus: The danger of long-term destabilisation that has reared its head in at least two major oil producers amid an uneasy calm in the Middle East. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65 and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65
  2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

1. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

Screen%20shot%202020 01 19%20at%202.09.56%20pm

The US and China signed their phase-one trade deal on January 15 but it barely boosted crude beyond a mild bump. Our readers will not have been surprised – because this was exactly the anticipation we had been conveying for some time.

It remains to be seen if the deal – which leaves majority of US tariffs on Chinese goods intact – will move the needle on global economic momentum. As for the oil market, it will need time to decide if the prospects for demand growth need recalibrating. 

In the absence of a “cheer premium” from the trade deal and a firm retreat of the fear premium that the escalating US-Iran tensions had introduced at the start of this month, crude prices are now in a holding pattern.

In the meantime, China’s commitment to boost purchases of US energy commodities may mean increased competition among Asian countries that had stepped up their imports of US crude over the past 18 to 24 months.

Plus: The danger of long-term destabilisation that has reared its head in at least two major oil producers amid an uneasy calm in the Middle East. 

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla
  2. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst
  3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  4. UK: Jobs Making All the Right Moves at End-19
  5. Transfer of Rechargeable Batteries Modules & Packs Business from LG Electronics to LG Chem?

1. EV Batteries Monthly: COVID 19 Risks; Panasonic-Tesla Gigafactory Profits & CATL Partners with Tesla

Image 48627219121582076013131

Highlights since our last monthly- ‘EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions’ are as follows:

  • In the last monthly, we stated that no further cut in NEV subsidy in China would suggest better market conditions for battery players there. However, the recent coronavirus outbreak and the production stoppage signal possible supply chain disruption risk for the battery players, although their key plants are currently located away from the affected province.
  • Panasonic Corp (6752 JP):
    • 3Q results point to recovery.
    • Gigafactory with Tesla made profits during the quarter. However, stabilisation of profits depends on Tesla’s ability to meet production targets.
    • The company continues moving towards Toyota Motor (7203 JP) regardless of the Gigafactory making profits.
  • CATL (A) (300750 CH) confirms tie-up with Tesla Motors (TSLA US). While the move might benefit Tesla, we think otherwise for CATL, as mentioned in CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?. We feel that Panasonic is not losing much by not joining Tesla in China, given its tie-up with Toyota to serve the Chinese market.
  • Tesla has reportedly started the process for building its own battery plant. While this might be true, we think that the success rate of this move and the time period for such an achievement are still questionable.
  • South Korean players seemed rather quiet, except that LG Chem Ltd (051910 KS) has also partnered with Tesla, taking on some risk, while Samsung Sdi (006400 KS) is bent on building its upstream by securing supplies, possibly to serve the deals it has already signed up for.
  • CATL’s share price continued to rise, followed by the Korean players, both outperforming the market. Panasonic’s share price regained following the 3Q earnings release and news on its Gigafactory reporting profits. BYD (1211 HK) continued to see relatively weak performance.

 Source: CapIQ

2. Doosan Heavy Industries – A Massive Restructuring & Big Political Event Catalyst

On February 18th, Doosan Heavy Industries (034020 KS) announced a massive restructuring plan, one of its biggest ever in its 58 years of history. As of the end of September 2019, the company had 6,784 employees, of which about 2,600 are 45 years old or more. This restructuring plan includes a voluntary ERP (early retirement program) for these 2,600 employees.

It has been estimated that nearly 1,000 employees could seek this ERP program, which would represent nearly 15% of its total workforce. Although this massive restructuring program is not good news for the employees of Doosan Heavy Industries, this should act as a positive factor on the stock price of the company since it should be able to boost its operating profit starting 2021.

The United Future Party is pro-nuclear power and if they are able to win the General National Assembly election, it would certainly have a major positive impact on Doosan Heavy Industries (034020 KS). Nonetheless, there are still nearly two months left until the election and in Korea, that is like a lifetime in political ages and so much could change during this period.

3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Sensitivity

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

4. UK: Jobs Making All the Right Moves at End-19

Image 42497665971582034607288

  • Employment maintained rapid growth in 4Q19 at 180k, in line with my forecast. Sampling effects have exaggerated the upswing after similarly distorting its downturn, but the resilient underlying message is now consistently reflected.
  • Jobseekers now have a record high propensity to find work, while the net flow of jobs is surging towards higher-skilled work, in further encouraging signs.
  • Inflationary pressures are building as wage growth has weakened far less than productivity, which was hit by temporary output distortions. The downtrend in measures of slack has continued, and vacancies have recovered 25% of their dip.

5. Transfer of Rechargeable Batteries Modules & Packs Business from LG Electronics to LG Chem?

Lgele

  • One of the big winning sectors in the Korean stock market this year has been the rechargeable batteries related stocks including Samsung Sdi (006400 KS) and LG Chem Ltd (051910 KS). In the past few days, there has been some increasing news flow in the local media regarding a potential transfer of the rechargeable batteries modules and packs business from LG Electronics (066570 KS) to LG Chem.
  • On a relative basis, this transfer would likely to have a GREATER POSITIVE impact on LG Electronics since the battery modules and packs business has been losing money in the past several years and this transfer would allow LG Electronics to reduce the operating losses from this business unit (Vehicle Component Solutions).
  • For now, nothing has been decided regarding the potential transfer of the rechargeable battery modules and packs business from LG Electronics to LG Chem. This is just in the discussion stage right now. However, this business transfer seems to make a lot of sense and one could wonder why they did not complete this move earlier (especially from the point of view of LG Electronics shareholders). 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Multi-Strategy: SBI Cards and Payment IPO: Valuation Insights and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. SBI Cards and Payment IPO: Valuation Insights
  2. Home First Finance Pre-IPO – Riding on Affordable Housing
  3. HSCEI Rejection Level
  4. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs
  5. The Guerrilla War Against The PBOC

1. SBI Cards and Payment IPO: Valuation Insights

Val

SBI Cards (SBICARDS IN) is the second-largest credit card issuer in India, with an 18.0% market share of the Indian credit card market as measured by the number of credit cards outstanding as of 30 September 2019. SBI Cards will likely raise around Rs95 billion ($1.3 billion) at a valuation of Rs600 billion ($8.4 billion) and the IPO will be launched in the first week of March, according to press reports.

In our initiation note, we stated that peeling back the benefit of market growth, SBI Cards’ fundamentals offer more positives than negatives. Our valuation analysis suggests that that the rumoured Rs600 billion valuation will be attractive particularly for growth-oriented investors.

2. Home First Finance Pre-IPO – Riding on Affordable Housing

Image?1581998113

Home First Finance (HFF) is an affordable housing finance company targeting first time home buyers in low and middle-income groups. The company is backed by True North, GIC and Bessemer who together own over 90% of the company.

HFF has grown rapidly over the past few years, driven by an expansion in its branch network and large number of new customers. Over FY17-19, HFF’s loan grew at CAGR of 70%, while its earnings grew even faster with NII growing at 76.2%, PPoP at 145% and PAT at 160% CAGR.  It still remains largely focussed on housing loans and has pristine asset quality.

However, its funding sources lack diversity and its margin is artificially inflated by its high capitalisation. Furthermore, the company talks a lot about tech but a lot of its functions appear to be still very contact heavy and hence, salesforce/customer service dependant.

3. HSCEI Rejection Level

Hscei

Hang Seng China Enterprises Index (HSCEI INDEX) has rallied back to test the underside of broken wedge support which is now labeled backswing resistance. Current resistance near 10,920 is a natural rejection level.

It is the rising wedge formation in H shares that has our attention as well as similar wedge patterns noted in the HSI, Korea and Singapore.

Wedge patterns like this show a 70% probability of breaking to the downside but when you add in the bear divergence tact, odds increase to 85%. Given the late January break of wedge support this is labeled a re test where a rejection is expected with 11,000 acting as a key pivot level just above noted resistance.

4. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs

Platform

Our base case valuation of Metanet Mplatform is EV of 296 billion won, a market cap of 360 billion won, and an implied price of 17,215 won, which is 25% higher than the mid-point of the bankers’ IPO price range of 12,500 won to 15,000 won. As such, we have a positive view of the Metanet Mplatform IPO. 

The company’s core business is in the customer/contact centers. Driven by technology innovation, customer/contact centers are becoming increasingly automated, which will likely provide an attractive opportunity for the company to capitalize on its know-how of this business to further improve upon its economies of scale and reduce costs.

Lemon has received the highest interest level (measured in terms of platform views per report) among the four Korean IPOs that we have written about. So if the level of interest in Lemon is 100, JNTC is 90 and Metanet Mplatform is much lower at 50. Overall, among these four companies, Lemon is likely to receive the highest institutional investors’ interest, followed by JNTC, Metanet Mplatform, and NPD.  Now, the more difficult part (this is where the art of investing really comes into play) is to perceive and understand how much of this investors’ interest will have factored in the IPO demand and their share prices. 

5. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.