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

Postal Savings Bank of China C / Equity Bottom-Up

<p><strong><em>*Excess Provisioning Eats Away At 4Q20 </em></strong><strong><em>Results: </em></strong>Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and </p><p><strong>* <em>Credit Quality Risk Peaking: </em></strong>HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.</p>

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

Postal Savings Bank of China – Excess Provisioning

<p><strong><em>*Don’t Be Misled By Better Numbers: </em></strong>Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 4Q20 results of CNY 87.2 bn, increasing CNY 7.3 bn or 9.2% linked quarter. The linked quarter improvement, in our view, can solely be attributed to an unjustified and massive linked quarter reduction in loss provisions of CNY 31.3 bn (57.7%).  In addition, 4Q20 results can be highlighted by ICBC’s negative operating jaws; and </p><p><strong><em>*Credit Risk Rising: </em></strong>As ICBC is the benchmark name to which all mainland Chinese banks are measured, an increase of such magnitude is more than alarming – and intimates mainland Chinese bank credit risk is moving in oppositive directions to their counterparts in India. When one considers the current break in credit quality reserves would appear to be incredibly light – in the neighborhood of CNY 410 bn which amounts to over a year of pre-tax results at ICBC.   </p>

*Don’t Be Misled By Better Numbers: Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 4Q20 results of CNY 87.2 bn, increasing CNY 7.3 bn or 9.2% linked quarter. The linked quarter improvement, in our view, can solely be attributed to an unjustified and massive linked quarter reduction in loss provisions of CNY 31.3 bn (57.7%).  In addition, 4Q20 results can be highlighted by ICBC’s negative operating jaws; and *Credit Risk Rising: As ICBC is the benchmark name to which all mainland Chinese banks are measured, an increase of such magnitude is more than alarming – and intimates mainland Chinese bank credit risk is moving in oppositive directions to their counterparts in India. When one considers the current break in credit quality reserves would appear to be incredibly light – in the neighborhood of CNY 410 bn which amounts to over a year of pre-tax results at ICBC.   

Industrial and Commercial Bank of China – Troubling Result

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

China Everbright Bank Company Limited provides banking services. The Company offers deposits, loans, domestic settlement, currency trading, and other services. China Everbright Bank provides its services to individuals, enterprises, and other clients.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

China Everbright Bank Co A (601818 CH)

Postal Savings Bank of China – Excess Provisioning

POSTAL SAVINGS BANK: PSB reported a 40.8% decline in QOQ results, as loss provisioning was too high relative to risk is peaking; and an operating...

Thomas J. Monaco

Industrial and Commercial Bank of China – Troubling Result

ICBC: ICBC reported a 9.2% QOQ increase in 4Q20 results, which is solely attributed to an unjustified and massive linked quarter reduction in loss...

Thomas J. Monaco

China Merchants Bank – Pulling On All Levers

CHINA MERCHANTS BANK: CMB's core operating results came in at just CNY 13.9 bn – declining 40.0% linked quarter. Negative operating jaws, and net...

Thomas J. Monaco

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

Spread momentum continues unabated. Of note, CanSino's vaccine approval is getting no friends as the stock is down nearly 25% in 2 weeks and 29% in...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Postal Savings Bank of China – Excess Provisioning

POSTAL SAVINGS BANK: PSB reported a 40.8% decline in QOQ results, as loss provisioning was too high relative to risk is peaking; and an operating...

Thomas J. Monaco

Industrial and Commercial Bank of China – Troubling Result

ICBC: ICBC reported a 9.2% QOQ increase in 4Q20 results, which is solely attributed to an unjustified and massive linked quarter reduction in loss...

Thomas J. Monaco

China Merchants Bank – Pulling On All Levers

CHINA MERCHANTS BANK: CMB's core operating results came in at just CNY 13.9 bn – declining 40.0% linked quarter. Negative operating jaws, and net...

Thomas J. Monaco

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

The move in H/A spreads was 96bp this week. The strength in spreads masks some A-share weakness in the big and liquid names. Quiddity long/short...

Travis Lundy

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

Spread momentum continues unabated. Of note, CanSino's vaccine approval is getting no friends as the stock is down nearly 25% in 2 weeks and 29% in...

Travis Lundy