Brief Thematic: The Pick-Up Game and more

In this briefing:

  1. The Pick-Up Game
  2. Japan Short Interest – Feels like a Squeeze; Softbank Corp Most Shorted
  3. Vietnam Market Update: September 2019
  4. The Week that Was in [email protected] – Ramayana, Plantations, and Thai Media
  5. Shanghai/​​Shenzhen Connect Ideas: YTD High Inflows of $4b (2019-09-06)

1. The Pick-Up Game

  • lululemon: lululemon continues to leverage its cult-like following as it achieves 10% comparable-store sales and 30% e-commerce sales growth in Q2.
  • McDonald’s: The “McDonald’s to Go” concept store could offer a new distribution channel that could be a positive catalyst for McDonald’s.
  • WeWork: Our concerns for WeWork that we shared on August 20 were justified as WeWork is looking to cut its IPO valuation below $20B or shelve it.

The pick-up game is changing the customer and structural capital landscape for companies. I’m excited about McDonald’s new “McDonald’s to Go” pick-up concept store that it is piloting in London as it represents a new distribution channel with promising returns. While the limited menu of “McDonald’s to Go” trades off variety of choice for convenience, lululemon’s order online/pick-up in-store service, which it has now rolled out to nearly all its stores in North America, offers its customers both convenience plus a wider variety of choice. In addition to being a much lower-cost distribution channel than delivery, in-store pick-up and return offers retailers the opportunity to directly interact with customers and enhance the emotional connection. This explains why Nordstrom is making a strange move testing accepting online returns from its rivals at its two new Nordstrom Local stores in NYC. Amazon Go stores are playing pick-up too as Amazon looks to leverage its physical structural capital by trialing pick-up and return options at select Amazon Go stores in NYC and San Francisco. And on a final note, even Facebook is playing the pick-up game — but in a different sense — as it just launched Facebook Dating in the U.S.!

2. Japan Short Interest – Feels like a Squeeze; Softbank Corp Most Shorted

The short notional in the market for the week ended 6 September is US$25.47bn with the largest short positions in Itochu Corp (8001 JP), Toyota Motor (7203 JP), Taiyo Yuden (6976 JP), Canon Inc (7751 JP),  and Sumitomo Mitsui Financial (8316 JP) . Most shorted stocks as a percentage of free float are Amazia, Taiyo Yuden (6976 JP), Leopalace21 Corp (8848 JP) and Extreme Co Ltd (6033 JP), while the stocks with the highest days to cover are Katakura Industries (3001 JP), Vital Ksk Holdings (3151 JP), Mirait Holdings (1417 JP) and J Trust Co Ltd (8508 JP)

The largest increases in short notional over the week were Softbank Corp (9434 JP), Terumo Corp (4543 JP), Pigeon Corp (7956 JP), Kikkoman Corp (2801 JP) and Toshiba Tec (6588 JP) while shorts were covered in Nippon Steel Corporation (5401 JP), Tokai Carbon (5301 JP), Yaskawa Electric (6506 JP) and Seven & I Holdings (3382 JP).   

Sectorally, new short positions were built in Communication Services and Consumer Discretionary, while shorts were covered in Information Technology and Materials.

3. Vietnam Market Update: September 2019

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Vietnam is in an FDI sweet spot: Vietnam has been able to diversify its export structure in recent years, and there is still room for the country to attract additional FDI in the coming years. FDI as a % of GDP in Vietnam recently reached 7.8%, which was much higher than the levels seen in other markets such as Sri Lanka ( 1.8%), Pakistan ( 0.9%), Egypt (3.1%), Kenya (0.9%), Romania (2.9%), and Bangladesh (0.9%).

Vietnam has consequently been a major beneficiary of the US-China trade war, and has seen a strong inflow of FDI from China, which has made China one of the largest investors in Vietnam this year.  Moving forward, other markets such as Bangladesh, Myanmar and Sri Lanka would need to compete by increasing the sophistication of their export structures. Furthermore, it is imperative to note that Vietnam alone is too small to absorb a significant amount of China’s economic activity, and the country also has challenges such as lower labor productivity and higher cost of materials due to the reliance on imports. 

Vietnam’s growth has been hinging upon strong manufacturing oriented growth, as manufacturing exports account for 85% of total exports, compared to only 65% in 2010. Vietnam’s GDP grew by 7.1% in 2018, which was the highest growth rate experienced in a decade, and well above other regional peers, with the exception of India. Vietnam has been able to move up the value chain by manufacturing higher value exports such as phones, computers, cameras and electronics, as countries such as South Korea have been using Vietnam as a low cost hub for electronics manufacturing. 

One key attractive factor of Vietnam includes its relatively stable political and macro picture, which makes it a key stand out within other frontier and smaller emerging markets. Nearly every market in this space has experienced some type of adversity within the past two years, yet Vietnam has had a very stable and improving investment narrative since 2015.  Investors that have considered other alternatives have had to stomach notable macro and geopolitical risks.

Vietnam has been befitting from favorable trade relations with the United States, and the country has already taken very strategic steps to diversify its trade, through trade agreements with Asian and European countries.

Vietnam easily has the most stable and attractive investment narrative within MSCI frontier markets, and it still remains strategically positioned within “frontier and emerging market purgatory”.

4. The Week that Was in [email protected] – Ramayana, Plantations, and Thai Media

This past week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Macro Insights

In Tax Package Offers Sweeping Cuts for 2021 / KPK Under Attack / Governance Issues Hampering Outlook, CrossASEAN insight Provider Kevin O’Rourke lays out his views on the most important political and economic developments over the past week in Indonesia. 

Equity Bottom-up Insights

In the first company report in a Smartkarma Originals series on ASEAN Retail, Ramayana Lestari (RALS IJ) – Metamorphosis?, CrossASEAN Insight Provider Angus Mackintosh takes a deep-dive into one of Indonesia’s oldest department stores operators, which is in the midst of a strategic transformation, which could propel the company into an era of higher growth.

In Eagle High Plantations: ‘A Return to Profits’…but Deleveraging to Be Prioritised Commodities specialist Charles Spencer revisits one of Indonesia’s youngest palm oil plantation companies, which looks toon the cusp of making profits. 

In Berli Jucker and Aqua Weather the Downturn, Thai guru Athaporn Arayasantiparb, CFA reports back on Berli Jucker (BJC TB) and Aqua Corporation Public Co L (AQUA TB) following company visits and finds both companies making the most of a bad situation. 

In RATCH: Entrenched Leader in Thai Utilities Sector with Attractive Valuation, out friends at Country Group initiate coverage of Ratchaburi Elec Gen Hodg Pub (RATCH TB) with a BUY rating, based on a target price of Bt81.5, derived from a sum-of-the-parts (SOTP) methodology. 

Sector and Thematic

In Thai Media Spotlight: Christmas Movie Line-Up & Life After Digital TV License Returns, our Thai guru Athaporn Arayasantiparb, CFA circles back to the media sector and zeros in on Bec World Public (BEC TB)

In her bi-weekly insight on the peculiarities of Singapore property market, Singapore Real Deals (Issue 9): Cautiously Optimistic, Developers Remain Selective in Landbanking,Anni Kum analyses  the closing of tenders for the three sites at Tan Quee Lan Street, Bernam Street and one-north Gateway announced by the Urban Redevelopment Authority (URA) on 5th September 2019.

5. Shanghai/​​Shenzhen Connect Ideas: YTD High Inflows of $4b (2019-09-06)

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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. 

In this insight, we highlight the YTD strongest inflows last week of USD 4 billion, led by inflows into financial stocks. Stock holdings by the northbound investor also hit one year high of USD 161 billion. 

We highlight inflows into Ping An Insurance Group Co Of China (601318 CH), China Merchants Bank A (600036 CH), Gree Electric Appliances Inc Of Zhuhai (000651 CH), Shenzhen Huiding Technology (603160 CH), Anhui Conch Cement Co Ltd A (600585 CH), Zoomlion Heavy Industry S A (000157 CH).

We highlight outflows from Yunnan Baiyao Group Co., (000538 CH), Inspur Electronic Infmtn Indtry (000977 CH), Wus Printed Circuit (Kunshan) Co,Ltd. (002463 CH), Air China Ltd (A) (601111 CH), and Wus Printed Circuit (Kunshan) Co,Ltd. (002463 CH).

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