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

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well. 

AIA Group – 4Q Results Likely To Remain Very Challenging

*Swimmingly Down Under: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay] reported FY 1H21 operating results. Although operating losses expectedly persist (AUD 79.2 mn vs. AUD 8.2 mn in 2H20), the numbers overall exhibited significant improvement: Financially, we see a light at the end of the tunnel for Afterpay on two fronts: a) receivables impairment increased AUD 25.4 mn (54.5%) HOH. As the global market recover post-vaccine, we’d expect impairments to decline; and b) fair value losses increased AUD 63.7 mn (58.6x). Simply excluding the fair value challenge, After pay would have operated at break-even;  and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment of nearly 322% over the past nine  months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*Swimmingly Down Under: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay] reported FY 1H21 operating results. Although operating losses expectedly persist (AUD 79.2 mn vs. AUD 8.2 mn in 2H20), the numbers overall exhibited significant improvement: Financially, we see a light at the end of the tunnel for Afterpay on two fronts: a) receivables impairment increased AUD 25.4 mn (54.5%) HOH. As the global market recover post-vaccine, we’d expect impairments to decline; and b) fair value losses increased AUD 63.7 mn (58.6x). Simply excluding the fair value challenge, After pay would have operated at break-even;  and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment of nearly 322% over the past nine  months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways. 

Thematic (Sector/Industry)

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

Federal Reserve Board – Doing The Twist

*Autohome’s Hong Kong Secondary: Autohome Inc. (ATHM. US) [Autohome], a leading online destination for automobile consumers, announced the launch an offering of 27.3 mn shares (including 10.1 mn shares to be sold by Ping An Insurance (2318.HK) [Ping An]) on the Hong Kong Exchange (388.HK) [HKEX]. In this four share for one ADR deal, Ping An -  as Autohome’s largest shareholder with  49.0% of total shares – stands to crystallize a gain of HKD 7.0 bn or USD 893 mn based off its initial acquisition price per share of USD 29.55 from Telstra (TLS.AU); and  *Telegraphing Poor Insurance Going Forward: Fundamentals at Ping An’s traditional financial companies are expected to remain challenged for the longer-term. Offloading bits and pieces of their technology investments to offset its poor results should really come as no surprise. Given both the low rate and low growth environment which are major negatives for both P&amp;C and life, we question how some of the other major insurers in mainland China will remain in the black.

*Autohome’s Hong Kong Secondary: Autohome Inc. (ATHM. US) [Autohome], a leading online destination for automobile consumers, announced the launch an offering of 27.3 mn shares (including 10.1 mn shares to be sold by Ping An Insurance (2318.HK) [Ping An]) on the Hong Kong Exchange (388.HK) [HKEX]. In this four share for one ADR deal, Ping An -  as Autohome’s largest shareholder with  49.0% of total shares – stands to crystallize a gain of HKD 7.0 bn or USD 893 mn based off its initial acquisition price per share of USD 29.55 from Telstra (TLS.AU); and  *Telegraphing Poor Insurance Going Forward: Fundamentals at Ping An’s traditional financial companies are expected to remain challenged for the longer-term. Offloading bits and pieces of their technology investments to offset its poor results should really come as no surprise. Given both the low rate and low growth environment which are major negatives for both P&amp;C and life, we question how some of the other major insurers in mainland China will remain in the black.  

Ping An Insurance – Autohome’s Turn To Offset Bad Insurance Fundamentals

*Poor Set Of Results, Which Should Have Been Worse: Standard Chartered Plc (STAN.LN/2888.HK) [STAN] reported 2H20 losses of USD 315 mn, declining USD 1.4 bn (122.5%) HOH as it struggled across the board. Negative operating jaws for STAN are troublesome to say the least, as HOH we note that STAN’s revenues declined USD 1.4 bn (16.0%) whilst expenses increased USD 1.0 bn (20.4%); and*Credit Challenges Are Top Of Mind As Well: STAN had a HOH increase in unmarkable Level 3 assets of (20.1%), and level of net new NPLs during 2H20 amounted to USD 1.0 bn – increasing 23.8% on an annualized basis. By our analysis, STAN should not have cut provisions and instead should have ‘manned-up’and taken an addition USD 4.8 bn in provisions. This is prior to any risk assessment for its increasing level of Level 3 assets. The shortfall represents 10% of stated equity, which begs the question of why it’s paying dividends and buying back shares in this condition.

*Poor Set Of Results, Which Should Have Been Worse: Standard Chartered Plc (STAN.LN/2888.HK) [STAN] reported 2H20 losses of USD 315 mn, declining USD 1.4 bn (122.5%) HOH as it struggled across the board. Negative operating jaws for STAN are troublesome to say the least, as HOH we note that STAN’s revenues declined USD 1.4 bn (16.0%) whilst expenses increased USD 1.0 bn (20.4%); and*Credit Challenges Are Top Of Mind As Well: STAN had a HOH increase in unmarkable Level 3 assets of (20.1%), and level of net new NPLs during 2H20 amounted to USD 1.0 bn – increasing 23.8% on an annualized basis. By our analysis, STAN should not have cut provisions and instead should have ‘manned-up’and taken an addition USD 4.8 bn in provisions. This is prior to any risk assessment for its increasing level of Level 3 assets. The shortfall represents 10% of stated equity, which begs the question of why it’s paying dividends and buying back shares in this condition.     

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)

AIA Group – 4Q Results Likely To Remain Very Challenging

AIA GROUP: Pre-market on March 12th, AIA is to release 4Q20/full year results. AIA’s overall VONB is expected to decline 33% YOY- due largely to...

Thomas J. Monaco

Tencent Holdings – Money to Burn

TENCENT HOLDINGS: Tencent's Afterpay expectedly reported FY 1H21 operating losses, but the numbers overall exhibited significant improvement as it...

Thomas J. Monaco

Federal Reserve Board – Doing The Twist

FEDERAL RESERVE BOARD: There are expectations of FRB interest rate policy tweaks as soon as its next meeting. If the FRB flattens the curve,...

Thomas J. Monaco

Ping An Insurance – Autohome’s Turn To Offset Bad Insurance Fundamentals

PING AN INSURANCE: Autohome announced the launch a secondary offering of 27.3 mn shares on the HKEX. Ping An stands to crystallize USD 893 mn based...

Thomas J. Monaco

Standard Chartered - What A Mess

STANDARD CHARTERED: STAN reported 2H20 losses of USD 315 mn, declining 122.5% HOH as it struggled across the board. Negative operating jaws for...

Thomas J. Monaco