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

<p><strong><em>*Trying SPACs On For Size: </em></strong>On March 31, 2021, the Singapore Exchange (SGX.SP) [SGX] issued a Consultation Paper on the Proposed Listing Framework for Special Purpose Acquisition Companies<em> </em>(SPACs). The Consultation Paper is seeking comments on policy/rule proposals to allow SPAC listings on SGX;  </p><p><em><strong>*Blank Check Companies:</strong></em> Special Purpose Acquisition Companies (SPACs) are not new and have historically focused on the Over the Counter (OTC) pink sheet companies. SPACs are essentially known as blank check companies, essentially a shell company which raises a significant amount cash in an IPO; and</p><p><strong><em>*Not A Panacea: </em></strong>SPACs are not the panacea which will resolve SGX’s weakened revenue stream. Keep in mind that the majority of the US-listed SPACs remain below their USD 10 per share offering price and only seven have actually returned capital to investors. As the world heads toward a zero interest rate environment coupled with the giant vortex of skittish liquidity backstopped by central banks, the SPAC frenzy looks to be just the latest in a long line of unintended consequences of risk taking.</p>

*Trying SPACs On For Size: On March 31, 2021, the Singapore Exchange (SGX.SP) [SGX] issued a Consultation Paper on the Proposed Listing Framework for Special Purpose Acquisition Companies (SPACs). The Consultation Paper is seeking comments on policy/rule proposals to allow SPAC listings on SGX;  *Blank Check Companies: Special Purpose Acquisition Companies (SPACs) are not new and have historically focused on the Over the Counter (OTC) pink sheet companies. SPACs are essentially known as blank check companies, essentially a shell company which raises a significant amount cash in an IPO; and*Not A Panacea: SPACs are not the panacea which will resolve SGX’s weakened revenue stream. Keep in mind that the majority of the US-listed SPACs remain below their USD 10 per share offering price and only seven have actually returned capital to investors. As the world heads toward a zero interest rate environment coupled with the giant vortex of skittish liquidity backstopped by central banks, the SPAC frenzy looks to be just the latest in a long line of unintended consequences of risk taking.

Singapore Exchange – Into Merlion’s Mouth

China and US Equity Analyst

Roger Xie

<ul>
<li>HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.</li>
<li>Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. </li>
<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>  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor <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 reiterate HKEx TP HKD 550. </li>
</ul>


HKEx is rising as a global trading venue as secondary-listing Chinese companies are moving to swap their US ADRs to Hong Kong shares. Since Alibaba Group (BABA US) pioneered the secondary listing scheme in Hong Kong in 2018, the share fungibility has opened the door for swapping its US ADR to Hong Kong. We estimated that 20% of outstanding shares of Alibaba have been moved to Hong Kong.
Some top institutional investors, such as Temasek, Baillie Gifford, and Matthews Asia, are among the major shareholders that have swapped stakes in Alibaba Group (BABA US) US ADRs. This has reflected some strategic consideration to  avoid US sanction and delisting of Chinese tech companies. We expect this trend will likely accelerate in the future. For current 13 dual-listing Chinese ADRs, we expect 30% of total trading volume will be shifted to Hong Kong from US in next 2 years. This is a significant jump from around 18% of trading volume at Hong Kong now. Dual-listing Chinese ADRs at Hong Kong will likely accelerate as well. 

HKEX (388 HK)  serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound). Given the acceleration of US ADRs conversion, there is risk to the upside of the Securities ADT forecast. We continue to favor HKEX (388 HK) and reiterate HKEx TP HKD 550. 


Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

Alpha-Centric ESG Research

Kyle Rudden

<p>We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.</p><p>Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.</p><p>The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.</p><p>Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.</p><p>This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.</p><h2>WHAT'S ORIGINAL?</h2><p>Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.</p>

We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.WHAT'S ORIGINAL?Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div data-v-5f5d3c10="">
<p>On the 4 February this year, Hong Kong's Chief Executive Carrie Lam mentioned during the Legislative Council (LegCo) Q&amp;A session, that in order to deal with doxing issues, various government departments will review the legal requirements and administrative arrangements for the Companies Registry search, and make adjustments or even amendments as necessary.</p>
<p>Late last night, the government <a href="https://www.info.gov.hk/gia/general/202103/31/P2021033100993.htm" target="_blank" rel="noopener">released</a> a press statement concerning the implementation of the inspection arrangements for the registry.</p>
<blockquote>
<p>Upon the implementation of the new inspection regime, all searchers (including the media) will continue to be able to access the information of directors on the Companies Register, including their personal correspondence addresses (in place of the current residential addresses) and partial identification numbers (IDN) (the alphabet(s) and three digits in the case of Hong Kong identity card). The availability of other information currently available for inspection on the register will not be in any way hindered. Such information, together with the name of a director, should be sufficient to enable searchers to ascertain the identity of the director concerned.</p>
</blockquote>
<p>The government will consult the LegCo Panel on Financial Affairs on the April 9 to implement the regime by phases. The proposed amendments will go through a negative vetting procedure in the legislature - that is, it will come into effect the day it is gazetted unless amended by LegCo.</p>
<p>In the words of activist investor David Webb:</p>
<blockquote>
<p>I don’t think the public needs to know where a director sleeps at night – that is a matter of personal security. But they do need to know exactly who the director is..... Sunshine is the best disinfectant.</p>
</blockquote>
<p>Below the fold, an overview of events leading to this latest development.</p>
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On the 4 February this year, Hong Kong's Chief Executive Carrie Lam mentioned during the Legislative Council (LegCo) Q&amp;A session, that in order to deal with doxing issues, various government departments will review the legal requirements and administrative arrangements for the Companies Registry search, and make adjustments or even amendments as necessary.
Late last night, the government released a press statement concerning the implementation of the inspection arrangements for the registry.

Upon the implementation of the new inspection regime, all searchers (including the media) will continue to be able to access the information of directors on the Companies Register, including their personal correspondence addresses (in place of the current residential addresses) and partial identification numbers (IDN) (the alphabet(s) and three digits in the case of Hong Kong identity card). The availability of other information currently available for inspection on the register will not be in any way hindered. Such information, together with the name of a director, should be sufficient to enable searchers to ascertain the identity of the director concerned.

The government will consult the LegCo Panel on Financial Affairs on the April 9 to implement the regime by phases. The proposed amendments will go through a negative vetting procedure in the legislature - that is, it will come into effect the day it is gazetted unless amended by LegCo.
In the words of activist investor David Webb:

I don’t think the public needs to know where a director sleeps at night – that is a matter of personal security. But they do need to know exactly who the director is..... Sunshine is the best disinfectant.

Below the fold, an overview of events leading to this latest development.

























<p><strong><em>*Mainland Chinese Stock Exchange Powerhouse:</em></strong> According to Reuters, mainland China is contemplating the establishment of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center; and  </p><p><strong><em>*Here Comes The Pain Trade: </em></strong>If mainland China is successful this time around (and we think that they will be), it is probably pretty fair to say that the HKEX/mainland China growth story will have come to an abrupt end. In terms of where we are with valuation, HKEX’s P/E has exploded in the face of weaker volumes on the expectation of future US ADR listings. The increase in the stamp duty to cover Hong Kong’s tax shortfall only adds to the misery that HKEX may encounter.</p>

*Mainland Chinese Stock Exchange Powerhouse: According to Reuters, mainland China is contemplating the establishment of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center; and  *Here Comes The Pain Trade: If mainland China is successful this time around (and we think that they will be), it is probably pretty fair to say that the HKEX/mainland China growth story will have come to an abrupt end. In terms of where we are with valuation, HKEX’s P/E has exploded in the face of weaker volumes on the expectation of future US ADR listings. The increase in the stamp duty to cover Hong Kong’s tax shortfall only adds to the misery that HKEX may encounter.

Hong Kong Exchanges & Clearing – Building The HKEX Coffin

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)

Singapore Exchange – Into Merlion’s Mouth

SINGAPORE EXCHANGE: SGX issued a Consultation Paper on SPACs seeking comments on policy proposals to allow SPAC IPOs. SPACs are not the panacea...

Thomas J. Monaco

Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

We expect 30% of total dual-list China ADR trading volume will be shifted to Hong Kong from US in next 2 years, a significant jump from current...

Roger Xie

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

Index rebalancing and reconstitution often creates a window of abnormal returns (and opportunity). For broad market indices, these effects are well...

Kyle Rudden

Sunshine Is The Best Disinfectant

I don’t think the public needs to know where a director sleeps at night. But they do need to know exactly who the director is..... Sunshine is the...

David Blennerhassett

Hong Kong Exchanges & Clearing – Building The HKEX Coffin

HONG KONG EXCHANGES & CLEARING: Mainland China is contemplating a new stock exchange to attract overseas firms. If mainland China is successful,...

Thomas J. Monaco

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