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

China Merchants Bank H / Equity Bottom-Up

<p><strong><em>*2Q21 Bottom-Line Sees Cracks:</em></strong> China Merchants Bank (3968.HK) [CMB] reported 2Q21 results of CNY 29.1 bn, decreasing CNY 2.9 bn (9.0%) linked quarter, driven by negative operating jaws, a decline net fees and commissions, and higher provisions, tracking weaker credit quality; and </p><p><strong><em>*Credit Wall of Worry Continues To Grow:</em></strong> Net new problem loans continue to accelerate at an Indian bank pace of CNY 20.3 bn or 150.2% annualized versus CNY 18.9 bn or 138.5% at 1Q21. Although CMB’s reserve cover still remains quite robust, the net new NPL ratio trajectory suggests that reserve cover of NPLs will drop to something more in line with a typical mainland Chinese bank.</p>

*2Q21 Bottom-Line Sees Cracks: China Merchants Bank (3968.HK) [CMB] reported 2Q21 results of CNY 29.1 bn, decreasing CNY 2.9 bn (9.0%) linked quarter, driven by negative operating jaws, a decline net fees and commissions, and higher provisions, tracking weaker credit quality; and *Credit Wall of Worry Continues To Grow: Net new problem loans continue to accelerate at an Indian bank pace of CNY 20.3 bn or 150.2% annualized versus CNY 18.9 bn or 138.5% at 1Q21. Although CMB’s reserve cover still remains quite robust, the net new NPL ratio trajectory suggests that reserve cover of NPLs will drop to something more in line with a typical mainland Chinese bank.

China Merchants Bank – Now Negative Operating Jaws

Thematic (Sector/Industry)

<p><strong><em>*Document 15: </em></strong>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</p><p><strong><em>*Clarification Was Necessary: </em></strong><span class="leadin">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.</span> 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.</p>

*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

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>For our next Webinar, we welcome Insight Provider <a href="https://www.smartkarma.com/profiles/stanley-tsai-cfa" target="_blank" data-smartkarma-citation="accounts:1116" rel="noopener">Stanley Tsai, CFA</a>, who will present his views on positioning in China financials for the remainder of 2021 in the face of a slowing economy, renewed concerns over Covid-19, and asset quality challenges.</p><div><div><h3>The webinar will be hosted on Wednesday, 18 August 2021, 17:00 SGT/HKT.</h3></div></div><div><div>
<div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=82322164524" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>
<p>Stanley Tsai has over two decades' experience as a financials specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund.</p>
</div></div>

For our next Webinar, we welcome Insight Provider Stanley Tsai, CFA, who will present his views on positioning in China financials for the remainder of 2021 in the face of a slowing economy, renewed concerns over Covid-19, and asset quality challenges.The webinar will be hosted on Wednesday, 18 August 2021, 17:00 SGT/HKT.
Register for the Webinar here
Stanley Tsai has over two decades' experience as a financials specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund.


Smartkarma Webinar | China Banks: Silver Linings Playbook

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<p>Hong Kong SFC reported aggregate short position as of Jul 30. The aggregate short value for equities decreased by $-810m (-1.2%) WoW and decreased by $3,845m (-5.4%) over the preceding four weeks.</p><p>Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($5,123m, +0.9% WoW), Zhongsheng Group Holdings Limited/881 HK($2,120m, -2.3% WoW), China Merchants Bank Co., Ltd./3968 HK($1,957m, -3.8% WoW), Tencent Holdings Limited/700 HK($1,763m, -0.2% WoW), Anta Sports Products Limited/2020 HK($1,719m, +3.6% WoW).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/222/683/original/Hong_Kong_Market_Short_Position_Value_%28line%29_and_1W_Changes_%28bar%29_%28%24m%292021-08-08+16_12_29.png?1628412015" class="editor-image img-responsive" data-smartkarma-image-id="222683"></figure></section>

Hong Kong SFC reported aggregate short position as of Jul 30. The aggregate short value for equities decreased by $-810m (-1.2%) WoW and decreased by $3,845m (-5.4%) over the preceding four weeks.Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($5,123m, +0.9% WoW), Zhongsheng Group Holdings Limited/881 HK($2,120m, -2.3% WoW), China Merchants Bank Co., Ltd./3968 HK($1,957m, -3.8% WoW), Tencent Holdings Limited/700 HK($1,763m, -0.2% WoW), Anta Sports Products Limited/2020 HK($1,719m, +3.6% WoW).

HK Short Interest: New Oriental Edu Short Cover After Policy Announcement

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p>

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

China

China Construction Bank Corporation provides banking services. The Company offers deposits, loans, fund management, foreign exchange, and other services. China Construction Bank provides its services to individuals, enterprises, and other clients.

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China Construction Bank (601939 CH)

China Merchants Bank – Now Negative Operating Jaws

CHINA MERCHANTS BANK: CMB reported QOQ 2Q21 results decline of 9.0% driven by negative operating jaws, a decline net fees and commissions, and...

Thomas J. Monaco

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

Smartkarma Webinar | China Banks: Silver Linings Playbook

Join us on 18 August, 5pm SGT, as we welcome Stanley Tsai, CFA, who will present his views on positioning in China financials in the face of a...

Smartkarma Research

HK Short Interest: New Oriental Edu Short Cover After Policy Announcement

We highlight the change in short interest in the last Hong Kong SFC short aggregate report for Alibaba (9988 HK), CCB (939 HK), JD.com (9618 HK),...

Ke Yan, CFA, FRM

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

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