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

Thematic (Sector/Industry)

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further; and*Clarification Was Necessary: Uncertainties surrounding the definition of local state-owned entity (SOE) with implicit financing support from the government has already led to an aggressive impact on lending. Numerous local infrastructure SOEs have subsidiaries with some form of implicit local government debt support, and without financing Document 15 would have had even more significant consequences. Still over 50% of LGFVs remain affected.

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further; and*Clarification Was Necessary: Uncertainties surrounding the definition of local state-owned entity (SOE) with implicit financing support from the government has already led to an aggressive impact on lending. Numerous local infrastructure SOEs have subsidiaries with some form of implicit local government debt support, and without financing Document 15 would have had even more significant consequences. Still over 50% of LGFVs remain affected.

China Banks – Some Clarity On LGFV Financing

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Ping An A-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</a> are trading at a 2.75% discount versus the H-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>. This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at a discount to the H-shares was in April this year. By mid May, the A-shares traded at a 5% premium to the H-shares before moving lower again.With <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</a> trading at a 2.75% discount to <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> the risk/reward is favourable to setting up a premium expansion trade. The current discount lies at the 82nd percentile over the last 5 years and the discount has been widening as the premium of the overall market continues to increase.Northbound holdings of <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</a> have increased over the last couple of months, while the Southbound shareholding on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> has dropped sharply. This implies that mainland China investors have been selling the A-shares a lot more aggressively than the H-shares.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at a 2.75% discount versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at a discount to the H-shares was in April this year. By mid May, the A-shares traded at a 5% premium to the H-shares before moving lower again.With Ping An Insurance Group Co Of China (601318 CH) trading at a 2.75% discount to Ping An Insurance (H) (2318 HK) the risk/reward is favourable to setting up a premium expansion trade. The current discount lies at the 82nd percentile over the last 5 years and the discount has been widening as the premium of the overall market continues to increase.Northbound holdings of Ping An Insurance Group Co Of China (601318 CH) have increased over the last couple of months, while the Southbound shareholding on Ping An Insurance (H) (2318 HK) has dropped sharply. This implies that mainland China investors have been selling the A-shares a lot more aggressively than the H-shares.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

Ping An A/H: Discount Widens and Diverges from Broader Market

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

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

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. This model, which has been developed and tweaked over the past 24 months (and implemented in its current state for &gt;12 months), has a solid real-world performance track record, which I set out in the detail below. Notable new entrants to the top decile this month include Russian energy plays <a href="https://www.smartkarma.com/entities/gazprom-pjsc-6a7231a9-d5e4-4da4-bf21-aa1b9d50fbf8" target="_blank" data-smartkarma-citation="entities:27578:1" rel="noopener">Gazprom PJSC (GAZP RM)</a> and <a href="https://www.smartkarma.com/entities/lukoil-pjsc" target="_blank" data-smartkarma-citation="entities:24141:1" rel="noopener">Lukoil PJSC (LKOD LI)</a>, Brazilian securities exchange <a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</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>.<table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 74.7344px;">rank</td>
<td style="width: 263.203px;">Name</td>
<td style="width: 185.312px;">Sector</td>
<td style="width: 147.938px;">Location</td>
<td style="text-align: center; width: 74.8125px;">prev.</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">1</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a> </td>
<td style="width: 185.312px;">Information Technology</td>
<td style="width: 147.938px;">Korea (South)</td>
<td style="text-align: center; width: 74.8125px;">3</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">2</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> </td>
<td style="width: 185.312px;">Communication</td>
<td style="width: 147.938px;">China</td>
<td style="text-align: center; width: 74.8125px;">9</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">3</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> </td>
<td style="width: 185.312px;">Energy</td>
<td style="width: 147.938px;">China</td>
<td style="text-align: center; width: 74.8125px;">1</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">4</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/posco" target="_blank" data-smartkarma-citation="entities:208:1" rel="noopener">Posco (005490 KS)</a> </td>
<td style="width: 185.312px;">Materials</td>
<td style="width: 147.938px;">Korea (South)</td>
<td style="text-align: center; width: 74.8125px;">21</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">5</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/kia-motors-corp" target="_blank" data-smartkarma-citation="entities:156:1" rel="noopener">Kia Motors Corp (000270 KS)</a> </td>
<td style="width: 185.312px;">Consumer Discretionary</td>
<td style="width: 147.938px;">Korea (South)</td>
<td style="text-align: center; width: 74.8125px;">4</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">6</td>
<td style="width: 263.203px;">
<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> </td>
<td style="width: 185.312px;">Financials</td>
<td style="width: 147.938px;">China</td>
<td style="text-align: center; width: 74.8125px;">5</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">7</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/gazprom-pjsc-6a7231a9-d5e4-4da4-bf21-aa1b9d50fbf8" target="_blank" data-smartkarma-citation="entities:27578:1" rel="noopener">Gazprom PJSC (GAZP RM)</a> </td>
<td style="width: 185.312px;">Energy</td>
<td style="width: 147.938px;">Russian Federation</td>
<td style="text-align: center; width: 74.8125px;">14</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">8</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/lukoil-pjsc" target="_blank" data-smartkarma-citation="entities:24141:1" rel="noopener">Lukoil PJSC (LKOD LI)</a> </td>
<td style="width: 185.312px;">Energy</td>
<td style="width: 147.938px;">Russian Federation</td>
<td style="text-align: center; width: 74.8125px;">32</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">9</td>
<td style="width: 263.203px;">
<a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</a> </td>
<td style="width: 185.312px;">Financials</td>
<td style="width: 147.938px;">Brazil</td>
<td style="text-align: center; width: 74.8125px;">70</td>
</tr>
<tr>
<td style="text-align: center; width: 74.7344px;">10</td>
<td style="width: 263.203px;">
<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> </td>
<td style="width: 185.312px;">Financials</td>
<td style="width: 147.938px;">China</td>
<td style="text-align: center; width: 74.8125px;">41</td>
</tr>
<tr><td colspan="5" style="text-align: left; width: 746px;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td></tr>
</tbody>
</table>As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. This model, which has been developed and tweaked over the past 24 months (and implemented in its current state for &gt;12 months), has a solid real-world performance track record, which I set out in the detail below. Notable new entrants to the top decile this month include Russian energy plays Gazprom PJSC (GAZP RM) and Lukoil PJSC (LKOD LI), Brazilian securities exchange B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ), and China Construction Bank H (939 HK).









rank
Name
Sector
Location
prev.


1

SK Hynix (000660 KS) 
Information Technology
Korea (South)
3


2

China Mobile (941 HK) 
Communication
China
9


3

CNOOC Ltd (883 HK) 
Energy
China
1


4

Posco (005490 KS) 
Materials
Korea (South)
21


5

Kia Motors Corp (000270 KS) 
Consumer Discretionary
Korea (South)
4


6

Bank Of China Ltd (H) (3988 HK) 
Financials
China
5


7

Gazprom PJSC (GAZP RM) 
Energy
Russian Federation
14


8

Lukoil PJSC (LKOD LI) 
Energy
Russian Federation
32


9

B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ) 
Financials
Brazil
70


10

China Construction Bank H (939 HK) 
Financials
China
41

Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas

As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

Founder of Antler Capital

Stanley Tsai, CFA

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
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<a href="https://www.smartkarma.com/insights/glut-and-famine-we-might-see-snow-in-china-this-summer" target="_blank" data-smartkarma-citation="insights:52840" rel="noopener">Glut and Famine: We Might See Snow in China This Summer</a> 
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<a href="https://www.smartkarma.com/insights/boc-aviation-2588-hk-the-stars-don-t-look-bigger-but-they-do-look-brighter" target="_blank" data-smartkarma-citation="insights:52283" rel="noopener">BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter</a>

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

China

Bank of China Limited provides banking services. The Company offers deposits, loans, foreign currency transaction, fund settlement, and other services. Bank of China provides its services to individuals, enterprises, and other clients.

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Bank of China (601988 CH)

China Banks – Some Clarity On LGFV Financing

CHINA BANKS: Recently the CBIRC issued guidance to both banks and insurers on implicit debt of LGFV via Document 15. Clarification was needed given...

Thomas J. Monaco

Ping An A/H: Discount Widens and Diverges from Broader Market

The Ping An A/H spread is trading at a discount and has diverged from the spread on the overall market. Set up for a premium expansion trade that...

Brian Freitas

China Banks – Screws Tighten On LGFVs

CHINA BANKS: Recently the CBIRC issued guidance on implicit LGFV debt via Document 15 – further tightening the screws on mainland China's financial...

Thomas J. Monaco

Screening for GEMs: July 2021

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

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

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