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

*Shenjing Fell Apart Before Evergrande Heated Up: Even prior to the China Evergrande Group (3333.HK) debacle, Shenjing Bank was (2066.HK) [Shenjing] struggling: 1) core operating earnings (excluding gains) were a negative CNY 1.1 tn at 1H21, by our calculation; and 2) short-term liquidity deteriorated at an unprecedented pace. With Evergrande’s risk, we calculate Shenjing’s NPLs are now closer to a whopping 24.4% - and solvency is called into question; and  *Evergrande’s Smartest Move Ever: The rest of the financial system figured out that Shenjing was an accident waiting to happen, with the interbank market cutting their risk. Despite this, Shengjing Finance Holdings (SFH) purchased Evergrande’s 19.93% stake – becoming the bank’s largest shareholder. For USD 1.55 bn, SFH has now absolved Evergrande of being a liquidity and capital backstop. Well done!

*Shenjing Fell Apart Before Evergrande Heated Up: Even prior to the China Evergrande Group (3333.HK) debacle, Shenjing Bank was (2066.HK) [Shenjing] struggling: 1) core operating earnings (excluding gains) were a negative CNY 1.1 tn at 1H21, by our calculation; and 2) short-term liquidity deteriorated at an unprecedented pace. With Evergrande’s risk, we calculate Shenjing’s NPLs are now closer to a whopping 24.4% - and solvency is called into question; and  *Evergrande’s Smartest Move Ever: The rest of the financial system figured out that Shenjing was an accident waiting to happen, with the interbank market cutting their risk. Despite this, Shengjing Finance Holdings (SFH) purchased Evergrande’s 19.93% stake – becoming the bank’s largest shareholder. For USD 1.55 bn, SFH has now absolved Evergrande of being a liquidity and capital backstop. Well done! 

China Evergrande Group – Shoes Dropping At Shenjing

*Worries In Both Hong Kong and Mainland China: The Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 1H22, albeit slightly improving from a negative 1.8% in FY 2H21 to a barely positive low single digits. Not surprisingly, this weakness would appear to be with us for an extended period - especially given the continued border closures amid the COVID-19 disruption.  The mainland Chinese expansion remains worrisome, given the likely carry-on impact of stress seen in the broader mainland Chinese property market and its lenders; and*Poor Capital Management Becoming A Big Problem: Link REIT (823.HK) [Link] management also appears hell-bent on destroying shareholder value with deals which make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offer significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling.

*Worries In Both Hong Kong and Mainland China: The Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 1H22, albeit slightly improving from a negative 1.8% in FY 2H21 to a barely positive low single digits. Not surprisingly, this weakness would appear to be with us for an extended period - especially given the continued border closures amid the COVID-19 disruption.  The mainland Chinese expansion remains worrisome, given the likely carry-on impact of stress seen in the broader mainland Chinese property market and its lenders; and*Poor Capital Management Becoming A Big Problem: Link REIT (823.HK) [Link] management also appears hell-bent on destroying shareholder value with deals which make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offer significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Japan Post, Chinese Estates, NIPPO Corp, Hopson/Evergrande, PICC

Chief Economist

Diana Choyleva

Enodo Economics

Enodo Economics is an independent macroeconomic forecasting company that untangles complexity, challenges the consensus, and makes sense of the future. Our focus is on China – one of the most misunderstood economies in the world, but one of the most important to figure out.  Enodo’s chief economist, Diana Choyleva, has been analysing China for almost 20 years, while Enodo’s team boasts a combined 140 years’ experience covering China’s economy, politics and markets. 

Macroeconomics

<h2>China News That Matters</h2><ul>
<li>Sobering news from Rice Wine Town to London Town</li>
<li>Smother you with love and live fire</li>
<li>Zurich proves less frosty than Alaska </li>
<li>Investigate suspects, nullify all threats</li>
</ul><div class="content-remarks"><ul style="list-style-type: none;"><li><div>In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div></li></ul></div>

China News That Matters
Sobering news from Rice Wine Town to London Town
Smother you with love and live fire
Zurich proves less frosty than Alaska 
Investigate suspects, nullify all threats
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the tables below, we provided a list of 10 stocks that could get included and 10 stocks that could get excluded in the next round of KOSDAQ150 rebalance.In the past one month, the 10 stocks for inclusion are down 5.7% on average, outperforming KOSDAQ which is down 12.4% in this period. In the past one month, the 10 stocks for exclusion are down 21.5% on average, underperforming KOSDAQ in the same period. The strategy here is to buy a basket of the stocks which could get included in the KOSDAQ150 index rebalance and combine this with bottom-up due diligence of each of these 10 companies to better understand their fundamentals. The same holds true for the companies that could potentially be excluded. The strategy would be to increase the weights of companies that could potentially get included in the KOSDAQ150 rebalance in the upcoming November announcement and reduce the weights of the bottom 5-7% market cap companies in KOSDAQ150 index.

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the tables below, we provided a list of 10 stocks that could get included and 10 stocks that could get excluded in the next round of KOSDAQ150 rebalance.In the past one month, the 10 stocks for inclusion are down 5.7% on average, outperforming KOSDAQ which is down 12.4% in this period. In the past one month, the 10 stocks for exclusion are down 21.5% on average, underperforming KOSDAQ in the same period. The strategy here is to buy a basket of the stocks which could get included in the KOSDAQ150 index rebalance and combine this with bottom-up due diligence of each of these 10 companies to better understand their fundamentals. The same holds true for the companies that could potentially be excluded. The strategy would be to increase the weights of companies that could potentially get included in the KOSDAQ150 rebalance in the upcoming November announcement and reduce the weights of the bottom 5-7% market cap companies in KOSDAQ150 index. 

A Trading Strategy for the Upcoming KOSDAQ150 Rebalance in December

China

China Evergrande Group is an integrated residential property developer. The Company, through its subsidiaries, operates in property development, investment, management, finance, internet, health, culture, and tourism markets.

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Evergrande (3333 HK)

China Evergrande Group – Shoes Dropping At Shenjing

EVERGRANDE: Before the Evergrande debacle, Shenjing posted core operating losses and liquidity stress. Despite this, Shengjing Finance absolved...

Thomas J. Monaco

Link REIT – Looking For Handouts

LINK REIT: The Hong Kong's rental reversion rate remained challenged in FY 1H22 at positive single digits. Mainland expansion likely will be...

Thomas J. Monaco

Last Week in Event SPACE: Japan Post, Chinese Estates, NIPPO Corp, Hopson/Evergrande, PICC

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Evergrande/ Taiwan/ US-China/ Politics

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

A Trading Strategy for the Upcoming KOSDAQ150 Rebalance in December

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the past one month, the 10 stocks...

Douglas Kim

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