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

Alibaba Group Holding  / Equity Bottom-Up

*The Hits Just Keep On Coming: Various media outlets have reported that Alibaba Holdings (BABA.US) [BABA] is planning to spend CNY 100 bn (USD 15.4 bn or nearly 2/3 of 2020 earnings) through 2025 in order to support the government's "common prosperity" initiatives – implying another significant earnings hit; and
*FHC Challenges Ahead As Well: BABA’s Ant Group subsidiary is also reorganizing as a financial holding company, and will now be regulated more along the lines of a commercial bank by the China Bank and Insurance Regulatory Commission (CBIRC). As a result, Ant Financial needs to adhere to minimum CAR capital requirements, and follow other bank regulatory guidelines.

*The Hits Just Keep On Coming: Various media outlets have reported that Alibaba Holdings (BABA.US) [BABA] is planning to spend CNY 100 bn (USD 15.4 bn or nearly 2/3 of 2020 earnings) through 2025 in order to support the government's "common prosperity" initiatives – implying another significant earnings hit; and
*FHC Challenges Ahead As Well: BABA’s Ant Group subsidiary is also reorganizing as a financial holding company, and will now be regulated more along the lines of a commercial bank by the China Bank and Insurance Regulatory Commission (CBIRC). As a result, Ant Financial needs to adhere to minimum CAR capital requirements, and follow other bank regulatory guidelines.

*Creation of New Beijing Exchange: The establishment of a new Beijing Exchange will support small-to-medium sized enterprises (SME) exchange listings. The Beijing Exchange will only manage the highest-quality SMEs, with investment being made very accessible to small retail investors (minimum CNY 1 mn in liquid assets) – virtually ensuring success of the new Beijing Exchange; and
*HKEx Continues To Be Hollowed Out: Coupled with mainland China’s establishment of a new stock exchange to attract overseas-listed firms, mainland China continues to reinforce the notion that Shanghai will become the pre-eminent global financial center in Asia - limiting Hong Kong Exchanges &amp; Clearing’s (388.HK) [HKEx] ability to attract up and coming mainland Chinese IPOs over longer-term. In other words, if HKEx's mainland China story goes away so should HKEX’s exorbitant valuation.

*Creation of New Beijing Exchange: The establishment of a new Beijing Exchange will support small-to-medium sized enterprises (SME) exchange listings. The Beijing Exchange will only manage the highest-quality SMEs, with investment being made very accessible to small retail investors (minimum CNY 1 mn in liquid assets) – virtually ensuring success of the new Beijing Exchange; and
*HKEx Continues To Be Hollowed Out: Coupled with mainland China’s establishment of a new stock exchange to attract overseas-listed firms, mainland China continues to reinforce the notion that Shanghai will become the pre-eminent global financial center in Asia - limiting Hong Kong Exchanges &amp; Clearing’s (388.HK) [HKEx] ability to attract up and coming mainland Chinese IPOs over longer-term. In other words, if HKEx's mainland China story goes away so should HKEX’s exorbitant valuation.

Hong Kong Exchanges & Clearing – China Plays Long Game With HKEx

*Regulatory Onslaught Continues: The China Banking and Insurance Regulatory Commission (CBIRC) announced that it is investigating Ping An Insurance’ (2318.HK) [Ping An] property investments. Regulatory scrutiny of Ping An is occurring against the backdrop of the country’s skyrocketing real estate market and excessive leverage to the sector. This is on top of the CBIRC’s roll out of the internet insurance revision plan, which aims to scrutinize mainland China’s insurance technology platforms to which Ping An too has exposure; and*Improving Overall Fundamentals: Ping An’s reported 1H21 results of CNY 58.0 bn, declined CNY 16.4 bn (22.0%) HOH related to the above real estate risk. Excluding the real estate write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0% on the back of insurance fundamental improvement nearly across the board.

*Regulatory Onslaught Continues: The China Banking and Insurance Regulatory Commission (CBIRC) announced that it is investigating Ping An Insurance’ (2318.HK) [Ping An] property investments. Regulatory scrutiny of Ping An is occurring against the backdrop of the country’s skyrocketing real estate market and excessive leverage to the sector. This is on top of the CBIRC’s roll out of the internet insurance revision plan, which aims to scrutinize mainland China’s insurance technology platforms to which Ping An too has exposure; and*Improving Overall Fundamentals: Ping An’s reported 1H21 results of CNY 58.0 bn, declined CNY 16.4 bn (22.0%) HOH related to the above real estate risk. Excluding the real estate write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0% on the back of insurance fundamental improvement nearly across the board.

*Weaker Quarter: Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 2Q21 bottom-line results of CNY 77.7 bn, decreasing CNY 8.0 bn or 9.3% linked quarter. The linked quarter weakness, in our view, can be attributed to negative operating jaws as costs increased CNY 9.4 bn (14.8%) and revenues declined CNY 589 mn (0.3%); and*Credit Risk Continues to Rise: The level of net new NPLs increased 46.4% on annualized basis and remains elevated. When one considers the break-down in credit quality, reserves would appear to be light – in the neighborhood of CNY 86.1 bn, amounting to about one quarter of pre-tax results at ICBC.

*Weaker Quarter: Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 2Q21 bottom-line results of CNY 77.7 bn, decreasing CNY 8.0 bn or 9.3% linked quarter. The linked quarter weakness, in our view, can be attributed to negative operating jaws as costs increased CNY 9.4 bn (14.8%) and revenues declined CNY 589 mn (0.3%); and*Credit Risk Continues to Rise: The level of net new NPLs increased 46.4% on annualized basis and remains elevated. When one considers the break-down in credit quality, reserves would appear to be light – in the neighborhood of CNY 86.1 bn, amounting to about one quarter of pre-tax results at ICBC.   

Industrial and Commercial Bank of China – Negative Jaws Pressure Results

ZhongAn Online P&C Insurance C / Equity Bottom-Up

*First Half Profits: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported positive 1H21 bottom-line results of CNY 604.1 mn, an increase of CNY 840.2 mn over losses of CNY 236.1 mn in 2H20. Results were primarily driven by P&amp;C, which delivered profits of CNY 1.0 bn - tracking the improvement in underwriting profits (combined ratio of 99.4%) and investment performance (up 43.2% HOH); and *Heavy Handed Government: Increased scrutiny of the online insurance segment by the China Banking and Insurance Regulatory Commission’s (CBIRC) intimates the near wipeout of this current generation of online insurers. This regulatory onslaught is stifling innovation and likely will push business returns to well below the cost of equity.

*First Half Profits: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported positive 1H21 bottom-line results of CNY 604.1 mn, an increase of CNY 840.2 mn over losses of CNY 236.1 mn in 2H20. Results were primarily driven by P&amp;C, which delivered profits of CNY 1.0 bn - tracking the improvement in underwriting profits (combined ratio of 99.4%) and investment performance (up 43.2% HOH); and *Heavy Handed Government: Increased scrutiny of the online insurance segment by the China Banking and Insurance Regulatory Commission’s (CBIRC) intimates the near wipeout of this current generation of online insurers. This regulatory onslaught is stifling innovation and likely will push business returns to well below the cost of equity.

ZhongAn Online P&C Insurance – Loss Ratio Improvement

Hong Kong

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (HKD) (2822 HK)

Alibaba Group Holdings - Penance

ALIBABA: BABA is apparently launching a plan to spend CNY 100 bn (nearly 2/3 of 2020 earnings) by 2025 to the "common prosperity" – implying a...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – China Plays Long Game With HKEx

HKEX: The establishment of a new Beijing Exchange will support SME exchange listings. Coupled with establishment of a new exchange, HKEx continues...

Thomas J. Monaco

Ping An Insurance - Ugggh

PING AN INSURANCE: The CBIRC is investigating Ping An's property investments against the backdrop of the country’s skyrocketing real estate market...

Thomas J. Monaco

Industrial and Commercial Bank of China – Negative Jaws Pressure Results

ICBC: ICBC reported a QOQ 2Q21 bottom-line decline of 9.3% due to negative operating jaws. The level of net new NPLs increased 46.4% annualized...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Loss Ratio Improvement

ZHONGAN ONLINE: ZhongAn reported a positive 1H21 bottom-line result, driven by improving P&C underwriting profits and investments. However,...

Thomas J. Monaco