Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<ul>
<li>An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.</li>
<li>The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.</li>
<li>Developed over the past 3 years, and implemented in its current state for 20 months, the model has a solid real-world alpha-generating performance track record, set out in detail below.</li>
</ul>


An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.
The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.
Developed over the past 3 years, and implemented in its current state for 20 months, the model has a solid real-world alpha-generating performance track record, set out in detail below.


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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<ul>
<li>The December rebalance of the HSI, HSCEI and HSTECH indices will use today's closing prices to cap the index constituents at 8%. This will lead to large flows.</li>
<li>The largest passive outflows as a result of capping will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> due to their weight exceeding 8% in all three indices.</li>
<li>There are large funding outflows (in terms of days of ADV to trade) on quite a few Hong Kong property stocks as well as stocks from the financials sector.</li>
</ul>


The December rebalance of the HSI, HSCEI and HSTECH indices will use today's closing prices to cap the index constituents at 8%. This will lead to large flows.
The largest passive outflows as a result of capping will be on Meituan (3690 HK) and Tencent (700 HK) due to their weight exceeding 8% in all three indices.
There are large funding outflows (in terms of days of ADV to trade) on quite a few Hong Kong property stocks as well as stocks from the financials sector.


HSI, HSCEI, HSTECH: December Rebalance Flows Post Capping

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

Equity Bottom-Up

*Kaisa Defaults: On November 4, 2021, Kaisa Group Holdings (1638.HK) [Kaisa], which provided a guarantee on a wealth management product (WMP), disclosed that it had missed a payment - citing that “it is facing unprecedented liquidity pressure due to a challenging property market and rating downgrades”.  While the 25th largest developer by home sales in mainland China may not appear to be significant, Kaisa does have the second largest level of short-term debt due (USD 3.2 bn) after China Evergrande Group (3333.HK) [Evergrande] without any meaningful plan for repayment; and*We Await Evergrande’s Next Payments: We await official word on whether Evergrande’s Scenery Journey met its coupon payment of USD 82.5 mn due November 6, 2021, and we look toward the 30-day grace period expiry on a third set of bond interest payments of USD 148 mn due November 10, 2021.

*Kaisa Defaults: On November 4, 2021, Kaisa Group Holdings (1638.HK) [Kaisa], which provided a guarantee on a wealth management product (WMP), disclosed that it had missed a payment - citing that “it is facing unprecedented liquidity pressure due to a challenging property market and rating downgrades”.  While the 25th largest developer by home sales in mainland China may not appear to be significant, Kaisa does have the second largest level of short-term debt due (USD 3.2 bn) after China Evergrande Group (3333.HK) [Evergrande] without any meaningful plan for repayment; and*We Await Evergrande’s Next Payments: We await official word on whether Evergrande’s Scenery Journey met its coupon payment of USD 82.5 mn due November 6, 2021, and we look toward the 30-day grace period expiry on a third set of bond interest payments of USD 148 mn due November 10, 2021.   

Postal Savings Bank of China C / Equity Bottom-Up

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

Postal Savings Bank of China – Reserve Reversals Expected

China Merchants Bank H / Equity Bottom-Up

*3Q21 Bottom-Line Is Not What It Appears: China Merchants Bank (3968.HK) [CMB] reported 3Q21 bottom-line results of CNY 32.7 bn, increasing CNY 3.3 bn (11.3%) linked quarter. However, when we exclude gains and the unreasonable drop in loss provisions, we find that CMB's adjusted core operating result looks something closer to CNY 12.6 bn - declining CNY 8.8 bn or 41.2% over the same period; and*Credit Has Fallen Off Of A Cliff: Unfortunately for CMB, net new problem loans continue to accelerate at Indian bank pace of CNY 23.5 bn or 172.3% annualized. Provided that the accelerated net new NPL trajectory remains, we foresee a significant decline in NPL cover into the 150% territory from nearly 450% – which is lower than the average mainland Chinese bank.

*3Q21 Bottom-Line Is Not What It Appears: China Merchants Bank (3968.HK) [CMB] reported 3Q21 bottom-line results of CNY 32.7 bn, increasing CNY 3.3 bn (11.3%) linked quarter. However, when we exclude gains and the unreasonable drop in loss provisions, we find that CMB's adjusted core operating result looks something closer to CNY 12.6 bn - declining CNY 8.8 bn or 41.2% over the same period; and*Credit Has Fallen Off Of A Cliff: Unfortunately for CMB, net new problem loans continue to accelerate at Indian bank pace of CNY 23.5 bn or 172.3% annualized. Provided that the accelerated net new NPL trajectory remains, we foresee a significant decline in NPL cover into the 150% territory from nearly 450% – which is lower than the average mainland Chinese bank. 

China Merchants Bank – An Optical Illusion

China

Bank of China Ltd provides a complete range of banking and other financial services to individual and corporation customers worldwide.  The bank's services include retail banking, Great Wall credit card and debit card services, consumer credit, foreign currency transaction, corporate banking, settlement and clearing,investment banking, and fund management businesses.

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Bank Of China Ltd (H) (3988 HK)

Screening for GEMs: January 2022

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

HSI, HSCEI, HSTECH: December Rebalance Flows Post Capping

The Dec rebalance of the HK indices will use today's closing prices to cap the stocks at 8%. Meituan and Tencent will see large outflows due to...

Brian Freitas

China Evergrande Group – Kaisa Rolled

EVERGRANDE: Kaisa missed a bond payment, and has the second largest level of short-term debt due. We await official word Evergrande’s Scenery...

Thomas J. Monaco

Postal Savings Bank of China – Reserve Reversals Expected

POSTAL SAVINGS BANK: PSB's QOQ 3Q21 increased 18.6%, due largely to credit leverage and net interest income improvement. PSB’s reserves appear...

Thomas J. Monaco

China Merchants Bank – An Optical Illusion

CHINA MERCHANTS BANK: CMB's QOQ 3Q21 adjusted core operating result declined 41.2%, by our calculation. Net new problem loans continue to...

Thomas J. Monaco

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