Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>Globally, banking regulators are upping their scrutiny of Big Techs in finance, with China at the forefront of the regulatory effort to “level the playing field” between Big Techs and its banks</li>
<li>China stands out globally for the broad and rapid establishment of its Big Techs across the domestic finance ecosystem, led by <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> </li>
<li>Regulatory constraints on Ant Group’s online finance operations could potentially curtail the growth of its credit business; yet it has recently been reported that Ant is calling for a higher share of commissions from transactions on its payments platform</li>
<li>This could provide Ant with a revenue boost to its payments business, but we still see the big risk to Ant’s prospects (and its revised valuation) coming from tighter restrictions to its lending business and possibly the asset management arm, as well as the introduction of the e-Yuan eroding its leadership in digital payments</li>
<li>Consequently, we remain cautious on <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, and we stick with our view that key beneficiaries are smaller FinTechs like <a href="https://www.smartkarma.com/entities/lexinfintech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26036:1" rel="noopener">Lexinfintech Holdings (LX US)</a> and, in the bank sector, the domestic bank <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>
</li>
<li>Risks to our view include lighter touch regulation from PBoC on the large FinTechs including Ant; another risk is Ant Group being able to avoid a meaningful loss of market share in payments and being able to deliver stronger than expected returns from asset management operations to more than offset the restrictions on credit operations</li>
</ul>


Globally, banking regulators are upping their scrutiny of Big Techs in finance, with China at the forefront of the regulatory effort to “level the playing field” between Big Techs and its banks
China stands out globally for the broad and rapid establishment of its Big Techs across the domestic finance ecosystem, led by Ant Financial Services Group (6688 HK) 
Regulatory constraints on Ant Group’s online finance operations could potentially curtail the growth of its credit business; yet it has recently been reported that Ant is calling for a higher share of commissions from transactions on its payments platform
This could provide Ant with a revenue boost to its payments business, but we still see the big risk to Ant’s prospects (and its revised valuation) coming from tighter restrictions to its lending business and possibly the asset management arm, as well as the introduction of the e-Yuan eroding its leadership in digital payments
Consequently, we remain cautious on Alibaba Group (BABA US), and we stick with our view that key beneficiaries are smaller FinTechs like Lexinfintech Holdings (LX US) and, in the bank sector, the domestic bank Postal Savings Bank of China (1658 HK)

Risks to our view include lighter touch regulation from PBoC on the large FinTechs including Ant; another risk is Ant Group being able to avoid a meaningful loss of market share in payments and being able to deliver stronger than expected returns from asset management operations to more than offset the restrictions on credit operations


Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

<p>The announcement of 2020 full year results is bringing some certainty to the HSCEI 2021 dividend index points. With <a href="https://www.smartkarma.com/entities/bank-of-communications-co-h" target="_blank" data-smartkarma-citation="entities:659:1" rel="noopener">Bank Of Communications Co H (3328 HK)</a>, <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a> and <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> announcing results (and dividends) today, and <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>, <a href="https://www.smartkarma.com/entities/agricultural-bank-of-china-limited" target="_blank" data-smartkarma-citation="entities:1120:1" rel="noopener">Agricultural Bank Of China (1288 HK)</a> and <a href="https://www.smartkarma.com/entities/bank-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:656:1" rel="noopener">Bank Of China Ltd (H) (3988 HK)</a> announcing on Monday and Tuesday next week, over 85% of the 2021 dividend index points will be known by end of the month.</p><p>With <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a> included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the close of trading on 8 April, potential changes to the index at the June review that will be implemented at the close on 4 June, and capping changes that will be implemented at 8% of the index weight for all stocks at the June review, the dividend ex-date for the stocks (and banks in particular) will play a big role in determining the fair value of the 2021 dividend futures.</p><p>With the SEC pushing forward with the Holding Foreign Companies Accountable Act, US listed Chinese stocks could look to bring forward their plans to Secondary List on the <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>. <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili Inc (9626 HK)</a> lists on Monday and media indicates that other Chinese companies are evaluating listing in Hong Kong. <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> has already filed papers to list in Hong Kong. Then there are companies like <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (1284375D CH)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a> and <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> that could primary list in Hong Kong in the near future. While this will have minimal impact on the 2021 dividends, the impact on the 2022 and later dividend futures would be a lot higher.</p><p>We see little downside from the current market on the HSCEI 2021 dividend futures, but believe that the HSCEI 2021/22 dividend steepener is trading too high. Potential changes to the index constituents should put downward pressure on the 2022 dividends with low dividend yield or zero dividend paying companies joining the index at high index weights, and high dividend paying companies being deleted from the index.</p>

The announcement of 2020 full year results is bringing some certainty to the HSCEI 2021 dividend index points. With Bank Of Communications Co H (3328 HK), ICBC (H) (1398 HK) and China Construction Bank H (939 HK) announcing results (and dividends) today, and Postal Savings Bank of China (1658 HK), Agricultural Bank Of China (1288 HK) and Bank Of China Ltd (H) (3988 HK) announcing on Monday and Tuesday next week, over 85% of the 2021 dividend index points will be known by end of the month.With Baidu (9888 HK) included in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 April, potential changes to the index at the June review that will be implemented at the close on 4 June, and capping changes that will be implemented at 8% of the index weight for all stocks at the June review, the dividend ex-date for the stocks (and banks in particular) will play a big role in determining the fair value of the 2021 dividend futures.With the SEC pushing forward with the Holding Foreign Companies Accountable Act, US listed Chinese stocks could look to bring forward their plans to Secondary List on the HKEX (388 HK). Bilibili Inc (9626 HK) lists on Monday and media indicates that other Chinese companies are evaluating listing in Hong Kong. JD Logistics (JDL HK) has already filed papers to list in Hong Kong. Then there are companies like DiDi Chuxing (1284375D CH), ByteDance (1460967D CH) and Ant Financial Services Group (6688 HK) that could primary list in Hong Kong in the near future. While this will have minimal impact on the 2021 dividends, the impact on the 2022 and later dividend futures would be a lot higher.We see little downside from the current market on the HSCEI 2021 dividend futures, but believe that the HSCEI 2021/22 dividend steepener is trading too high. Potential changes to the index constituents should put downward pressure on the 2022 dividends with low dividend yield or zero dividend paying companies joining the index at high index weights, and high dividend paying companies being deleted from the index.

HSCEI Dividend Futures: June Index Review, Bank Divs, HFCAA - Sell the 2021/22 Steepener

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

China Merchants Bank H / Equity Bottom-Up

<p><strong><em>*Weak 4Q20 Bottom-Line:</em></strong> China Merchants Bank (3968.HK) [CMB] pre-announced a poor set of 4Q20 results. On March 19, 2020, the finals were disclosed and the results were even uglier than anticipated. While its true that net profit declined CNY 6.1 bn (22.7%) on a linked quarter basis to CNY 20.9 bn –despite having its tax rate decline 790 bp to 15.6% over the period, core operating results came in at just CNY 13.9 bn – declining CNY 9.3 bn or 40.0% linked quarter;  and </p><p><strong><em>*Best Retail Franchise Hitting Credit Wall:</em></strong> While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. More worrisome is the net new NPL increase of CNY 14.8 bn, representing an annualized increase in net new NPLs of 104.7%. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 213% - suggesting even the mighty are falling. </p>

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] pre-announced a poor set of 4Q20 results. On March 19, 2020, the finals were disclosed and the results were even uglier than anticipated. While its true that net profit declined CNY 6.1 bn (22.7%) on a linked quarter basis to CNY 20.9 bn –despite having its tax rate decline 790 bp to 15.6% over the period, core operating results came in at just CNY 13.9 bn – declining CNY 9.3 bn or 40.0% linked quarter;  and *Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. More worrisome is the net new NPL increase of CNY 14.8 bn, representing an annualized increase in net new NPLs of 104.7%. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 213% - suggesting even the mighty are falling. 

China Merchants Bank – Pulling On All Levers

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<div>
<p>Spreads narrowed sharply this week with 68 of 100 liquid spreads narrowing, 32 widening. The big winner on the week was Consumer narrowing 2.46% as every spread in the space narrowed despite five of six stocks falling in Hs (i.e. As fell even more). </p>
<p>The <a href="https://www.smartkarma.com/entities/shandong-chenming-paper-h" target="_blank" data-smartkarma-citation="entities:13775:1" rel="noopener">Shandong Chenming Paper H (1812 HK)</a> situation intruded on the H/S spreads this week as the decision to convert the B shares to Hs (described by <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> in <a href="https://www.smartkarma.com/insights/shandong-chenming-paper-1812-hk-the-h-b-convergence-trade" target="_blank" data-smartkarma-citation="insights:49247" rel="noopener">Shandong Chenming Paper (1812 HK): The H/B Convergence Trade</a> mid-week) caused ructions in the H/A spread.</p>
<p>But overall, it was a decent week. Only two sectors saw spreads widen (Energy and Utilities), both accompanied by net southbound selling in the week to Wednesday (the last day to which we have granular name-by-name data).</p>
<table class="table table-striped"><tbody>
<tr>
<td><p>Sector</p></td>
<td style="text-align: right;"><p>Last Week</p></td>
<td style="text-align: right;"><p>Previous Week</p></td>
<td style="text-align: right;"><p>3wks Ago</p></td>
<td style="text-align: right;"><p>4wks Ago</p></td>
</tr>
<tr>
<td><p>Consumer</p></td>
<td style="text-align: right;"><p>+ 2.46%</p></td>
<td style="text-align: right;"><p>+ 0.74%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>-  1.65%</p></td>
</tr>
<tr>
<td><p>Energy</p></td>
<td style="text-align: right;"><p>-  0.39%</p></td>
<td style="text-align: right;"><p>-  0.56%</p></td>
<td style="text-align: right;"><p>-  0.36%</p></td>
<td style="text-align: right;"><p>+ 0.67%</p></td>
</tr>
<tr>
<td><p>Financials &amp; Real Estate</p></td>
<td style="text-align: right;"><p>+ 0.92%</p></td>
<td style="text-align: right;"><p>+ 0.53%</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>-  1.12%</p></td>
</tr>
<tr>
<td><p>Health Care &amp; Info Tech</p></td>
<td style="text-align: right;"><p>+ 1.50%</p></td>
<td style="text-align: right;"><p>+ 2.29%</p></td>
<td style="text-align: right;"><p>-  0.54%</p></td>
<td style="text-align: right;"><p>-  2.86%</p></td>
</tr>
<tr>
<td><p>Industrials</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>+ 0.15%</p></td>
<td style="text-align: right;"><p>-  0.42%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
</tr>
<tr>
<td><p>Materials</p></td>
<td style="text-align: right;"><p>+ 1.42%</p></td>
<td style="text-align: right;"><p>+ 0.61%</p></td>
<td style="text-align: right;"><p>-  0.33%</p></td>
<td style="text-align: right;"><p>-  0.84%</p></td>
</tr>
<tr>
<td><p>Utilities</p></td>
<td style="text-align: right;"><p>-  0.91%</p></td>
<td style="text-align: right;"><p>-  0.87%</p></td>
<td style="text-align: right;"><p>-  1.25%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
</tr>
<tr>
<td><p><strong>Sector Average</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.88%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.41%</strong></p></td>
<td style="text-align: right;"><p><strong>-  0.26%</strong></p></td>
<td style="text-align: right;"><p><strong>-  1.02%</strong></p></td>
</tr>
<tr>
<td><p><strong>All Market Average</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.96%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.59%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.05%</strong></p></td>
<td style="text-align: right;"><p><strong>-  1.22%</strong></p></td>
</tr>
</tbody></table>
</div><div><div></div></div><p><span>10-day cross-market spread volatility continues to fall. This past week ended at 20% down from 23% in the ten days to 12 March. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still under 20%.</span></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/770/original/Screenshot+2021-03-20+at+8.25.25+PM.png?1616243179" class="editor-image img-responsive" data-smartkarma-image-id="195770"></figure></section><div><div>
<hr>
<h3>The H/A Spread Market</h3>
</div></div><div><p>The past week has seen H-shares come off, but spreads narrow as Hs outperformed their As pretty dramatically. Interestingly, the narrower the spread, to start with, the better the performance on the week. Ideally, spread players want to see that red line sloping downward from upper left to lower right because even a big spread movement for a 70% discount stock means very large performance is needed to catch up. </p></div><div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/724/original/Screenshot+2021-03-20+at+5.41.02+PM.png?1616233277" class="editor-image img-responsive" data-smartkarma-image-id="195724"></figure></section></div><div>
<p>The average discount has started tightening again and we are at 38% which is where the spread rebounded to un Q2 of 2020 after widening in the Covid-crash. </p>
<p>In 2019, spreads spent a fairly long time in the 34-36% average. </p>
</div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/728/original/Screenshot+2021-03-20+at+5.44.03+PM.png?1616233457" class="editor-image img-responsive" data-smartkarma-image-id="195728"></figure></section></section><hr><div><div><h2>Last Week's Recommendations</h2></div></div><div><ul style="list-style-type: disc;">
<li>There were 81 recommendations last week.</li>
<li>Positive alpha returned. There were 49 long spreads and 32 short spreads which gained on average 27bp against the delta-neutral gain of 0.20%, indicating spread alpha of 7bp on the week. This is back to a good trend after a horrible week the week before.</li>
<li>There are <em>nearly</em> 80 recommendations this week (turnover remains low).  </li>
</ul></div><hr><div><div><h2>Consumer Sector</h2></div></div><div>
<p>The first sector discussed is Consumer. It was a complex week there. </p>
<ul>
<li>Five out of six H-shares were down on the week. <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a> was up 10.6%.</li>
<li>All six spreads narrowed with the average H-share outperformance of A at 2.46%. It was a strong week for every spread in the group. </li>
<li>Normally when this happens, there is significant net selling by Southbound. This week saw net buying of HK$270mm to Wednesday, halting four straight weeks prior of net selling. </li>
</ul>
</div><div></div><div><div><div class="content-highlight">
<p>Last week, I recommended keeping the shorts (<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a>) and the long in <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> and adding a long on <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> H vs A.</p>
<p>Those trades lost an average of 0.51% last week in spread terms after losing 29bp the week before, and 16bp the week before that. Despite three losing weeks in a row, positioning in the sector is still up 262bp in four weeks. </p>
<p>This week's trade recommendations are below the fold.</p>
</div></div></div><div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/729/original/Screenshot+2021-03-20+at+5.44.45+PM.png?1616233498" class="editor-image img-responsive" data-smartkarma-image-id="195729"></figure></section></div><div><section>For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section></div>


Spreads narrowed sharply this week with 68 of 100 liquid spreads narrowing, 32 widening. The big winner on the week was Consumer narrowing 2.46% as every spread in the space narrowed despite five of six stocks falling in Hs (i.e. As fell even more). 
The Shandong Chenming Paper H (1812 HK) situation intruded on the H/S spreads this week as the decision to convert the B shares to Hs (described by David Blennerhassett in Shandong Chenming Paper (1812 HK): The H/B Convergence Trade mid-week) caused ructions in the H/A spread.
But overall, it was a decent week. Only two sectors saw spreads widen (Energy and Utilities), both accompanied by net southbound selling in the week to Wednesday (the last day to which we have granular name-by-name data).


Sector
Last Week
Previous Week
3wks Ago
4wks Ago


Consumer
+ 2.46%
+ 0.74%
-  0.14%
-  1.65%


Energy
-  0.39%
-  0.56%
-  0.36%
+ 0.67%


Financials &amp; Real Estate
+ 0.92%
+ 0.53%
+ 1.19%
-  1.12%


Health Care &amp; Info Tech
+ 1.50%
+ 2.29%
-  0.54%
-  2.86%


Industrials
+ 1.19%
+ 0.15%
-  0.42%
-  1.20%


Materials
+ 1.42%
+ 0.61%
-  0.33%
-  0.84%


Utilities
-  0.91%
-  0.87%
-  1.25%
-  0.14%


Sector Average
+ 0.88%
+ 0.41%
-  0.26%
-  1.02%


All Market Average
+ 0.96%
+ 0.59%
+ 0.05%
-  1.22%


10-day cross-market spread volatility continues to fall. This past week ended at 20% down from 23% in the ten days to 12 March. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still under 20%.

The H/A Spread Market
The past week has seen H-shares come off, but spreads narrow as Hs outperformed their As pretty dramatically. Interestingly, the narrower the spread, to start with, the better the performance on the week. Ideally, spread players want to see that red line sloping downward from upper left to lower right because even a big spread movement for a 70% discount stock means very large performance is needed to catch up. 
The average discount has started tightening again and we are at 38% which is where the spread rebounded to un Q2 of 2020 after widening in the Covid-crash. 
In 2019, spreads spent a fairly long time in the 34-36% average. 
Last Week's Recommendations
There were 81 recommendations last week.
Positive alpha returned. There were 49 long spreads and 32 short spreads which gained on average 27bp against the delta-neutral gain of 0.20%, indicating spread alpha of 7bp on the week. This is back to a good trend after a horrible week the week before.
There are nearly 80 recommendations this week (turnover remains low).  
Consumer Sector
The first sector discussed is Consumer. It was a complex week there. 

Five out of six H-shares were down on the week. Tsingtao Brewery Co Ltd H (168 HK) was up 10.6%.
All six spreads narrowed with the average H-share outperformance of A at 2.46%. It was a strong week for every spread in the group. 
Normally when this happens, there is significant net selling by Southbound. This week saw net buying of HK$270mm to Wednesday, halting four straight weeks prior of net selling. 


Last week, I recommended keeping the shorts (BYD (1211 HK) and Fuyao Glass Industry Group (3606 HK)) and the long in Guangzhou Automobile Group (2238 HK) and adding a long on Hisense Home Appliances Group Co., Ltd. H (921 HK) H vs A.
Those trades lost an average of 0.51% last week in spread terms after losing 29bp the week before, and 16bp the week before that. Despite three losing weeks in a row, positioning in the sector is still up 262bp in four weeks. 
This week's trade recommendations are below the fold.
For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.

Quiddity Weekly H/A: Consumer Strong, Spreads Narrowing Masks A-Share Weakness

<div><p>Spreads generally narrowed this week with 63 of 100 liquid spreads narrowing, 37 widening. The big winner on the week was Health Care and Tech narrowing 2.3%. One tech name <a href="https://www.smartkarma.com/entities/flat-glass-group-ltd" target="_blank" data-smartkarma-citation="entities:1108:1" rel="noopener">Flat Glass (6865 HK)</a> moved 10+% while several healthcare names saw spreads narrow 3-7% each, all happening in a somewhat lackluster week for outright performance. Overall, five of seven sectors represented saw spreads narrow.</p></div><div><table class="table table-striped"><tbody>
<tr>
<td><p>Sector</p></td>
<td style="text-align: right;"><p>Last Week</p></td>
<td style="text-align: right;"><p>Previous Week</p></td>
<td style="text-align: right;"><p>3wks Ago</p></td>
<td style="text-align: right;"><p>4wks Ago</p></td>
</tr>
<tr>
<td><p>Consumer</p></td>
<td style="text-align: right;"><p>+ 0.74%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>-  1.65%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
</tr>
<tr>
<td><p>Energy</p></td>
<td style="text-align: right;"><p>-  0.56%</p></td>
<td style="text-align: right;"><p>-  0.36%</p></td>
<td style="text-align: right;"><p>+ 0.67%</p></td>
<td style="text-align: right;"><p>+ 1.43%</p></td>
</tr>
<tr>
<td><p>Financials &amp; Real Estate</p></td>
<td style="text-align: right;"><p>+ 0.53%</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>-  1.12%</p></td>
<td style="text-align: right;"><p>+ 0.10%</p></td>
</tr>
<tr>
<td><p>Health Care &amp; Info Tech</p></td>
<td style="text-align: right;"><p>+ 2.29%</p></td>
<td style="text-align: right;"><p>-  0.54%</p></td>
<td style="text-align: right;"><p>-  2.86%</p></td>
<td style="text-align: right;"><p>+ 1.45%</p></td>
</tr>
<tr>
<td><p>Industrials</p></td>
<td style="text-align: right;"><p>+ 0.15%</p></td>
<td style="text-align: right;"><p>-  0.42%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
<td style="text-align: right;"><p>+ 0.26%</p></td>
</tr>
<tr>
<td><p>Materials</p></td>
<td style="text-align: right;"><p>+ 0.61%</p></td>
<td style="text-align: right;"><p>-  0.33%</p></td>
<td style="text-align: right;"><p>-  0.84%</p></td>
<td style="text-align: right;"><p>+ 3.08%</p></td>
</tr>
<tr>
<td><p>Utilities</p></td>
<td style="text-align: right;"><p>-  0.87%</p></td>
<td style="text-align: right;"><p>-  1.25%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>+ 0.99%</p></td>
</tr>
<tr>
<td><p>Sector Average</p></td>
<td style="text-align: right;"><p>+ 0.41%</p></td>
<td style="text-align: right;"><p>-  0.26%</p></td>
<td style="text-align: right;"><p>-  1.02%</p></td>
<td style="text-align: right;"><p>+ 0.87%</p></td>
</tr>
<tr>
<td><p>All Market Average</p></td>
<td style="text-align: right;"><p>+ 0.59%</p></td>
<td style="text-align: right;"><p>+ 0.05%</p></td>
<td style="text-align: right;"><p>-  1.22%</p></td>
<td style="text-align: right;"><p>+ 0.76%</p></td>
</tr>
</tbody></table></div><div><div></div></div><p>10-day cross-market spread volatility continues to be somewhat high at 23% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still just under 20%.</p><div><div>
<hr>
<h3>The H/A Spread Market</h3>
</div></div><div><p>The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. </p></div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/200/original/Screenshot+2021-03-14+at+9.05.58+AM.png?1615683976" class="editor-image img-responsive" data-smartkarma-image-id="194200"></figure><p></p></section></section><p>The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% plus or minus a small bit for the past eight weeks or so (despite that illiquidity-bump around LNY). This week we narrowed just inside 40%.</p><section><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/201/original/Screenshot+2021-03-14+at+9.08.22+AM.png?1615684116" class="editor-image img-responsive" data-smartkarma-image-id="194201"></figure></section><p></p></section></section><hr><div><div><h2>Last Week's Recommendations</h2></div></div><div><ul style="list-style-type: disc;">
<li>There were 80 recommendations last week.</li>
<li>This is the second week of negative alpha for the portfolio strategy in as many weeks. The average trade loss 22bp and only 31 of 80 trades recommended was up on the week. Shorts were particularly to blame as spread compression among the names in the 10-25% discount range was much wider than in the 35-60% discount range.</li>
<li>There are <em>nearly</em> 80 recommendations this week (turnover remains low).  </li>
</ul></div><hr><div><div><h2>Consumer Sector</h2></div></div><div><p>The first sector discussed is Consumer, where most H-shares fell on the week. Shares averaged down 1.4% this past week after gaining 0.6% the week before. The two gainers from the prior week both fell this week.</p></div><div><ul style="list-style-type: disc;">
<li>Spreads were less tame, but momentum continues to be strong.</li>
<li>
<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> ended the week down 2% despite good production numbers out at the end of the week prior. BYD is down 28% in four weeks. </li>
<li>
<a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> continued to fall and the spread continued to widen. It is now 13% wider over 4 weeks, but is still the second-narrowest spread in the sector at 21% vs the average spread in the sector at -30%.</li>
<li>Southbound was a net seller of nearly HK$611mm after selling nearly that amount the prior week and HK$2bn in the two weeks before that. <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> saw continued net buying by southbound, which added about 60bp of H-share float ownership on the week through Wednesday.</li>
</ul></div><div><div><div class="content-highlight">
<p>Last week, I recommended staying short <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> H vs A, unwinding the <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> short, and replacing the <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> long with <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a>. </p>
<p>Those trades lost an average of 0.29% last week in spread terms after losing 16bp the week before, but gaining 3.58% the week before that. </p>
</div></div></div><div>
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/249/original/Screenshot+2021-03-14+at+11.50.08+AM.png?1615693825" class="editor-image img-responsive" data-smartkarma-image-id="194249"></figure><p></p></section></section><section class="figure">For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section>
</div>

Spreads generally narrowed this week with 63 of 100 liquid spreads narrowing, 37 widening. The big winner on the week was Health Care and Tech narrowing 2.3%. One tech name Flat Glass (6865 HK) moved 10+% while several healthcare names saw spreads narrow 3-7% each, all happening in a somewhat lackluster week for outright performance. Overall, five of seven sectors represented saw spreads narrow.

Sector
Last Week
Previous Week
3wks Ago
4wks Ago


Consumer
+ 0.74%
-  0.14%
-  1.65%
-  1.20%


Energy
-  0.56%
-  0.36%
+ 0.67%
+ 1.43%


Financials &amp; Real Estate
+ 0.53%
+ 1.19%
-  1.12%
+ 0.10%


Health Care &amp; Info Tech
+ 2.29%
-  0.54%
-  2.86%
+ 1.45%


Industrials
+ 0.15%
-  0.42%
-  1.20%
+ 0.26%


Materials
+ 0.61%
-  0.33%
-  0.84%
+ 3.08%


Utilities
-  0.87%
-  1.25%
-  0.14%
+ 0.99%


Sector Average
+ 0.41%
-  0.26%
-  1.02%
+ 0.87%


All Market Average
+ 0.59%
+ 0.05%
-  1.22%
+ 0.76%

10-day cross-market spread volatility continues to be somewhat high at 23% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still just under 20%.

The H/A Spread Market
The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% plus or minus a small bit for the past eight weeks or so (despite that illiquidity-bump around LNY). This week we narrowed just inside 40%.Last Week's Recommendations
There were 80 recommendations last week.
This is the second week of negative alpha for the portfolio strategy in as many weeks. The average trade loss 22bp and only 31 of 80 trades recommended was up on the week. Shorts were particularly to blame as spread compression among the names in the 10-25% discount range was much wider than in the 35-60% discount range.
There are nearly 80 recommendations this week (turnover remains low).  
Consumer SectorThe first sector discussed is Consumer, where most H-shares fell on the week. Shares averaged down 1.4% this past week after gaining 0.6% the week before. The two gainers from the prior week both fell this week.
Spreads were less tame, but momentum continues to be strong.

BYD (1211 HK) ended the week down 2% despite good production numbers out at the end of the week prior. BYD is down 28% in four weeks. 

Fuyao Glass Industry Group (3606 HK) continued to fall and the spread continued to widen. It is now 13% wider over 4 weeks, but is still the second-narrowest spread in the sector at 21% vs the average spread in the sector at -30%.
Southbound was a net seller of nearly HK$611mm after selling nearly that amount the prior week and HK$2bn in the two weeks before that. Great Wall Motor (2333 HK) saw continued net buying by southbound, which added about 60bp of H-share float ownership on the week through Wednesday.

Last week, I recommended staying short BYD (1211 HK), and Fuyao Glass Industry Group (3606 HK) H vs A, unwinding the Hisense Home Appliances Group Co., Ltd. H (921 HK) short, and replacing the Great Wall Motor (2333 HK) long with Guangzhou Automobile Group (2238 HK). 
Those trades lost an average of 0.29% last week in spread terms after losing 16bp the week before, but gaining 3.58% the week before that. 

For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.


Quiddity Weekly H/A: Energy Up, Spreads Wider, Pharmas Down Spreads Narrower

China

Postal Savings Bank of China Co., Ltd. provides banking services. The Company offers deposits, loans, fund settlement, and other services. Postal Savings Bank of China provides its services to individuals, enterprises, and other clients.

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Postal Savings Bank of China C (1658 HK)

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