Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

After an intriguing 2015 when the economy surprised to the downside by the stock market performed "relatively" well, China is amongst our main concerns for 2016 as the signs pointing to a "sudden stop" continue to grow.

After an intriguing 2015 when the economy surprised to the downside by the stock market performed "relatively" well, China is amongst our main concerns for 2016 as the signs pointing to a "sudden stop" continue to grow.

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

<ul><li>Last year seven banks in China saw deposits contract. The year previous the number was one. </li><li>Deposit flight is one of the first things to look for in a banking crisis.&nbsp;</li><li>Even where deposits are simply being moved out of traditional banks and placed with a government policy bank, it can be a concern.</li><li>As bad loans worsen, banks find it increasingly difficult to pay back depositors, which can mean calling in loans. This only exacerbates financial stress for debtors.</li></ul>Full report below the fold....&nbsp;

Last year seven banks in China saw deposits contract. The year previous the number was one. Deposit flight is one of the first things to look for in a banking crisis.&nbsp;Even where deposits are simply being moved out of traditional banks and placed with a government policy bank, it can be a concern.As bad loans worsen, banks find it increasingly difficult to pay back depositors, which can mean calling in loans. This only exacerbates financial stress for debtors.Full report below the fold....&nbsp;

<ul><li>It is rare for bad loans to rise gradually as they peak.</li><li>In most all cases the rise of NPLs and corresponding credit costs is radical.</li><li>It is not steady and calm, in the throes of an NPL cycle.</li><li>The peak of credit costs can be well over 5x lows, and unlike typical forecasts.</li><li>With the signals being sent from Beijing, it suggests we are on the precipice of a radical rise in banks&rsquo; bad loans and associated credit costs.&nbsp;&nbsp;</li></ul>

It is rare for bad loans to rise gradually as they peak.In most all cases the rise of NPLs and corresponding credit costs is radical.It is not steady and calm, in the throes of an NPL cycle.The peak of credit costs can be well over 5x lows, and unlike typical forecasts.With the signals being sent from Beijing, it suggests we are on the precipice of a radical rise in banks&rsquo; bad loans and associated credit costs.&nbsp;&nbsp;

<ul><li>Banks in Asia tend have five loan categories, where the last three combined are termed non-performing (NPL).</li><li>These categories are substandard, doubtful and loss.</li><li>The first category of loans is called pass, while the second is called special mention.</li><li>It is this latter category that is of interest to us here. These loans are late, but not impaired. They are not timely with payment, but not NPL.</li><li>These loans therefore have a high propensity to roll or migrate into the NPL loan category.</li><li>This is important as for some banks these loans are high compared with total NPLs. For some banks these loans are 2x or 3x higher than NPLs!</li><li>Also NPLs require far higher provisions than pass or special mention loans, and increasingly so, as they deteriorate from one category to another.</li></ul>Full report below the fold....

Banks in Asia tend have five loan categories, where the last three combined are termed non-performing (NPL).These categories are substandard, doubtful and loss.The first category of loans is called pass, while the second is called special mention.It is this latter category that is of interest to us here. These loans are late, but not impaired. They are not timely with payment, but not NPL.These loans therefore have a high propensity to roll or migrate into the NPL loan category.This is important as for some banks these loans are high compared with total NPLs. For some banks these loans are 2x or 3x higher than NPLs!Also NPLs require far higher provisions than pass or special mention loans, and increasingly so, as they deteriorate from one category to another.Full report below the fold....

<ul><li>Beijing canceled the loan:deposit ratio (LDR) cap of 75%.</li><li>It&rsquo;s worried.</li><li>This can be considered to be a similar move as lowering the reserve requirement in the hope that banks have more money to lend, and in turn do so.</li><li>But we believe this is more a sign that deposit flight is a real and present danger.</li><li>From smaller banks to larger banks; from China&rsquo;s banks to elsewhere.</li></ul>

Beijing canceled the loan:deposit ratio (LDR) cap of 75%.It&rsquo;s worried.This can be considered to be a similar move as lowering the reserve requirement in the hope that banks have more money to lend, and in turn do so.But we believe this is more a sign that deposit flight is a real and present danger.From smaller banks to larger banks; from China&rsquo;s banks to elsewhere.

China

CSC Financial Co., Ltd. provides investment management services. The Company offers investment banking, wealth management, and trading and institutional client services. CSC Financial conducts its business in Hong Kong.

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CSC Financial (601066 CH)

A "Sudden Stop" For China in 2016?

After an intriguing 2015 when the economy surprised to the downside by the stock market performed "relatively" well, China is amongst our main...

John-Paul Smith

Deposit Flight at China's Banks

Last year seven banks in China saw deposits contract. The year previous the number was one. Deposit flight is one of the first things to look...

Daniel Tabbush

China's NPL Growth will be Radical

It is rare for bad loans to rise gradually as they peak. In most all cases the rise of NPLs and corresponding credit costs is radical. It is not...

Daniel Tabbush

"Special Mention Loans" across Asia

Banks in Asia tend have five loan categories, where the last three combined are termed non-performing (NPL). These categories are substandard,...

Daniel Tabbush

China Banks' Thin Line

Beijing canceled the loan:deposit ratio (LDR) cap of 75%. It’s worried. This can be considered to be a similar move as lowering the reserve...

Daniel Tabbush

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