China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> June ADT (Average Daily Turnover) has been cooled off from recent high growth, delivering 16% year-over-year growth in the month. This is partially due to the high base from last year and the renewed worry about Beijing's crackdown of big tech in China. For the 1st half in 2021, HKEx ADT has grown an amazing 60% year-over-year. But the volume on derivative market is more muted than investors expect. We expect HKEx will deliver an in-line interim  result on upcoming August 11th.</li>
<li>On the IPO market, HKEx has completed 14 IPO deals in Q2 2021 and raised HK$ 76 billion. The new economy companies have accounted more than 70% of the IPO deals. The significant ones include <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a> , <a href="https://www.smartkarma.com/entities/nayuki-holdings" target="_blank" data-smartkarma-citation="entities:32149:1" rel="noopener">Nayuki Holdings (2150 HK)</a> , <a href="https://www.smartkarma.com/entities/linklogis" target="_blank" data-smartkarma-citation="entities:31126:1" rel="noopener">Linklogis (9959 HK) </a> and Trip.com (9961 HK). We are the believer that HKEx will play a key role on offshore China listings. Ongoing regulatory uncertainty is likely to accelerate the Chinese ADS' to diversify their listing risk and to benefit HKEx as a preferred offshore listing venue. </li>
<li>On the technology front, HKEx has introduced the new digital platform FINI ( Fast Interface for New Issuance) to speed up the IPO process. The new initiative will shorten the time-consuming paper subscriptions and cut IPO process from pricing to listing from T+5 to T+2. This will improve efficiency of pricing and capital usage. And FINI will likely be rolled out in Q4 2022. We remain bullish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> and have TP HKD 550. </li>
</ul>



HKEX (388 HK) June ADT (Average Daily Turnover) has been cooled off from recent high growth, delivering 16% year-over-year growth in the month. This is partially due to the high base from last year and the renewed worry about Beijing's crackdown of big tech in China. For the 1st half in 2021, HKEx ADT has grown an amazing 60% year-over-year. But the volume on derivative market is more muted than investors expect. We expect HKEx will deliver an in-line interim  result on upcoming August 11th.
On the IPO market, HKEx has completed 14 IPO deals in Q2 2021 and raised HK$ 76 billion. The new economy companies have accounted more than 70% of the IPO deals. The significant ones include JD Logistics (2618 HK) , Nayuki Holdings (2150 HK) , Linklogis (9959 HK)  and Trip.com (9961 HK). We are the believer that HKEx will play a key role on offshore China listings. Ongoing regulatory uncertainty is likely to accelerate the Chinese ADS' to diversify their listing risk and to benefit HKEx as a preferred offshore listing venue. 
On the technology front, HKEx has introduced the new digital platform FINI ( Fast Interface for New Issuance) to speed up the IPO process. The new initiative will shorten the time-consuming paper subscriptions and cut IPO process from pricing to listing from T+5 to T+2. This will improve efficiency of pricing and capital usage. And FINI will likely be rolled out in Q4 2022. We remain bullish on HKEX (388 HK) and have TP HKD 550. 


HKEx(388.HK): Expect Slower Q2 Trading Volume, HKEx to Benefit As Offshore Venue for China Listings

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance, replacing <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>.With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to <a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> and there will be arb opportunities which could result in conversion from the ADS to the HK listing.The inclusion of Xpeng (9868 HK) in the index will push the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.

Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance, replacing Evergrande Real Estate Group (3333 HK).With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to Xpeng (XPEV US) and there will be arb opportunities which could result in conversion from the ADS to the HK listing.The inclusion of Xpeng (9868 HK) in the index will push the Hang Seng China Enterprises Index (HSCEI INDEX) 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

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

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center. 

Hong Kong Exchanges & Clearing – Take It When You Can Get It

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

The bloodbath in Hong Kong and H-shares in the first week of July 2021 was mainly caused by the perceived worsening corporate governance to invest in Chinese companies as the Chinese regulator has gone more draconian on the new listing of the Chinese companies, especially for tech companies.  This will inevitably put downward pressure on the share prices of the tech companies but it will increase trading volume in the HK exchange, on the short term basis at least. In the long term, <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> may be the only Exchange approved by the Chinese government for Chinese companies to raise money from foreign investors. Maintain Buy.

The bloodbath in Hong Kong and H-shares in the first week of July 2021 was mainly caused by the perceived worsening corporate governance to invest in Chinese companies as the Chinese regulator has gone more draconian on the new listing of the Chinese companies, especially for tech companies.  This will inevitably put downward pressure on the share prices of the tech companies but it will increase trading volume in the HK exchange, on the short term basis at least. In the long term, HKEX (388 HK) may be the only Exchange approved by the Chinese government for Chinese companies to raise money from foreign investors. Maintain Buy. 

HK Exchange (388): Beneficiary of HK Tech Crack Down

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

Alibaba Group Holding  / Equity Capital Markets

<div>
In our previous notes <a href="https://www.smartkarma.com/insights/china-adrs-kanzhun-full-truck-and-didi-regulators-sending-a-message" target="_blank" rel="noopener">China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message </a>and <a href="https://www.smartkarma.com/insights/china-adrs-now-the-message-is-loud-and-getting-clearer" target="_blank" rel="noopener">China ADRs - Now the Message Is Loud and Getting Clearer, </a>we spoke about the recent crackdown on the three US listed firms along with the general crackdown on overseas listings for Chinese companies. 
The Cyberspace Administration of China (CAC) came out with draft cyber security review measures. 
</div><div>We have looked at the ADRs in the past, in our previous notes:</div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move</a>, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone, </a> we spoke about the new SEC notice and its implications. </li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-a-new-act-aims-to-put-an-end-to-china-adr-ipos" target="_blank" rel="noopener">China ADRs - A New Act Aims to Put an End to China ADR IPOs</a>, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies.</li>
</ul></div>


In our previous notes China ADRs - Kanzhun, Full Truck and Didi - Regulators Sending a Message and China ADRs - Now the Message Is Loud and Getting Clearer, we spoke about the recent crackdown on the three US listed firms along with the general crackdown on overseas listings for Chinese companies. 
The Cyberspace Administration of China (CAC) came out with draft cyber security review measures. 
We have looked at the ADRs in the past, in our previous notes:

China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline Looks Rich, Have Three Years to Move, published in Feb 2021 we looked at the ADR pipeline and spoke about the updates from the Holding Foreign Companies Accountable Act becoming law and the updates at Hong Kong end as well. 
In China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone,  we spoke about the new SEC notice and its implications. 
In China ADRs - A New Act Aims to Put an End to China ADR IPOs, we spoke about the No IPOs for Unaccountable Actors Act, which aims to prohibit IPO on U.S. exchanges for Chinese companies.


China ADRs - Draft Cyber Security Review Measures - ADRs Listing Likely Shut, HK Might Face Delay

Hong Kong

Hong Kong Exchanges & Clearing Limited owns and operates the stock exchange, futures exchange, and their related clearing houses in Hong Kong.  The Company provides the trading platforms for a range of cash and derivatives products and the facilities for processing trades.

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HKEX (388 HK)

HKEx(388.HK): Expect Slower Q2 Trading Volume, HKEx to Benefit As Offshore Venue for China Listings

For the 1st half in 2021, HKEx ADT has grown an amazing 60% year-over-year. But the volume on derivative market is more muted. We expect HKEx will...

Roger Xie

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

Xpeng (9868 HK) could be added to the HSCEI in December. Limited liquidity in HK could create arb opportunities with XPEV US. Xpeng index inclusion...

Brian Freitas

Hong Kong Exchanges & Clearing – Take It When You Can Get It

HONG HONG EXCHANGES & CLEARING: Mainland China is planning to exempt listings on HKEX from seeking CAC approval, as Mainland IPOs are subject to...

Thomas J. Monaco

HK Exchange (388): Beneficiary of HK Tech Crack Down

HKEX (388 HK) may be the only Exchange approved by the Chinese government for Chinese companies to raise money from foreign investors. Maintain Buy

Henry Soediarko

China ADRs - Draft Cyber Security Review Measures - ADRs Listing Likely Shut, HK Might Face Delay

In our previous notes we spoke about the recent crackdown on the three US listed firms. The Cyberspace Administration of China (CAC) recently came...

Sumeet Singh

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