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

*Poor Result: Singapore Exchange (SGX.SP) [SGX] reported a weak FY 2H21 result, declining SGD 35.0 mn (14.6%) on an HOH basis. Higher than expected costs was the primary culprit for the overall disappointing result, increasing SGD 28.7 mn (11.6%) HOH pushing the expense to revenue ratio 410 bp higher to 51.8%. Cost pressures will not end, as SGX gave guidance that costs are due to increase between 9%-11%, as revenue begins to contract; and*Peripatetic: Recently, SGX announced its acquisition of MaxxTrader, its third acquisition after BidFX and Scientific Beta in 2020. Management is also considering getting involved Special Purpose Acquisition Companies (SPACs). Significant strategic alternatives are needed at SGX, if it is to avoid being hollowed out by the Hong Kong Exchanges &amp; Clearing (388.HK).

*Poor Result: Singapore Exchange (SGX.SP) [SGX] reported a weak FY 2H21 result, declining SGD 35.0 mn (14.6%) on an HOH basis. Higher than expected costs was the primary culprit for the overall disappointing result, increasing SGD 28.7 mn (11.6%) HOH pushing the expense to revenue ratio 410 bp higher to 51.8%. Cost pressures will not end, as SGX gave guidance that costs are due to increase between 9%-11%, as revenue begins to contract; and*Peripatetic: Recently, SGX announced its acquisition of MaxxTrader, its third acquisition after BidFX and Scientific Beta in 2020. Management is also considering getting involved Special Purpose Acquisition Companies (SPACs). Significant strategic alternatives are needed at SGX, if it is to avoid being hollowed out by the Hong Kong Exchanges &amp; Clearing (388.HK).

Singapore Exchange – Completely Distracted

China and US Equity Analyst

Roger Xie

Cross Asset Strategy

<ul>
<li>China’s tech sector has been in the spotlight in recent days. Beijing has released a series of rules aiming to remake private education and tech sectors. to curb cost pressure and better serve ordinary people.  we believe the magnitude of policy change on private education sector is unprecedent, which could surprise investors. This negative sentiments further spurs the fear of  anti-trust and unfair competition scrutiny on China Internet sector. It has led to capital flight from China tech sector. <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> has declined 40% from its high in February this year.</li>
<li>In the newly released policy, the State Council banned foreign capital from investing in education institutions through any approach, including VIE (Variable Interest Entity) structure. This has led to investor concerns whether the ban on foreign investments through VIE will be extended to other sectors. VIE is considered to be the foundation of offshore China ADR listing structure. Our assessment shows that the VIE structure will remain to stay, but the new oversea listings could face more scrutiny from regulators. The paradigm shift could fundamentally benefit <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> as the preferred listing venue for offshore China ADR. And the dual-listing status for many China tech giants will remain. </li>
<li>China central bank lowered bank reserve requirement ratio early this month and free up US$154bn from the system. The benchmark 10-year treasury  yield hovered around 2.9%  past few weeks indicating plenty of liquidity. Investors have been speculating that LPR (Loan Prime Rate) might be cut further to stimulate the growth. We believe structural monetary policy operations will continue. Likely, more support will be provided toward green energy, innovations and industry upgrade, but it might remain tightening for property and overcapacity sectors. The upcoming Politburo Meeting in end of July could give more hints about monetary policy stance. More than 40% of China A-share companies have released their 1H earning preview, which delivered 120% year-over-year growth (due to low base by pandemic in 2020). We remain sanguine on China equity market outlook in 2H 2021, but would recommend more clarity on policy for China tech giants.</li>
</ul>


China’s tech sector has been in the spotlight in recent days. Beijing has released a series of rules aiming to remake private education and tech sectors. to curb cost pressure and better serve ordinary people.  we believe the magnitude of policy change on private education sector is unprecedent, which could surprise investors. This negative sentiments further spurs the fear of  anti-trust and unfair competition scrutiny on China Internet sector. It has led to capital flight from China tech sector. Hang Seng Tech Index (HSTECH INDEX) has declined 40% from its high in February this year.
In the newly released policy, the State Council banned foreign capital from investing in education institutions through any approach, including VIE (Variable Interest Entity) structure. This has led to investor concerns whether the ban on foreign investments through VIE will be extended to other sectors. VIE is considered to be the foundation of offshore China ADR listing structure. Our assessment shows that the VIE structure will remain to stay, but the new oversea listings could face more scrutiny from regulators. The paradigm shift could fundamentally benefit HKEX (388 HK) as the preferred listing venue for offshore China ADR. And the dual-listing status for many China tech giants will remain. 
China central bank lowered bank reserve requirement ratio early this month and free up US$154bn from the system. The benchmark 10-year treasury  yield hovered around 2.9%  past few weeks indicating plenty of liquidity. Investors have been speculating that LPR (Loan Prime Rate) might be cut further to stimulate the growth. We believe structural monetary policy operations will continue. Likely, more support will be provided toward green energy, innovations and industry upgrade, but it might remain tightening for property and overcapacity sectors. The upcoming Politburo Meeting in end of July could give more hints about monetary policy stance. More than 40% of China A-share companies have released their 1H earning preview, which delivered 120% year-over-year growth (due to low base by pandemic in 2020). We remain sanguine on China equity market outlook in 2H 2021, but would recommend more clarity on policy for China tech giants.


China Equity Strategy: Tug of War, Policy Uncertainty and Plenty Liquidity

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> has got approval from the <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> for a dual primary listing. Media reports indicate that the company could raise between US$1bn-2bn in the offering. Based on the <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> timeline, Li Auto could list around 6-9 August.<a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> / <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> raised US$1.8bn via a dual primary listing earlier this month and <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> is following closely behind. Maybe <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> comes next.We expect <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> to get Fast Entry to the Hang Seng Composite Index (HSCI) though, as a WVR security, the stock will only be eligible for Stock Connect once it has completed 6 months of listing plus 20 trading days.Li Auto could also be included 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 review. This will lead to a further drop in the HSCEI 2022 dividend futures since we do not expect <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> to pay dividends in the near future, while the potential deletion is a higher dividend yielding stock.

Li Auto Inc. (LI US) has got approval from the HKEX (388 HK) for a dual primary listing. Media reports indicate that the company could raise between US$1bn-2bn in the offering. Based on the XPeng (9868 HK) timeline, Li Auto could list around 6-9 August.Xpeng (XPEV US) / XPeng (9868 HK) raised US$1.8bn via a dual primary listing earlier this month and Li Auto Inc. (LI US) is following closely behind. Maybe NIO Inc (NIO US) comes next.We expect Li Auto Inc. (LI US) to get Fast Entry to the Hang Seng Composite Index (HSCI) though, as a WVR security, the stock will only be eligible for Stock Connect once it has completed 6 months of listing plus 20 trading days.Li Auto could also be included in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December review. This will lead to a further drop in the HSCEI 2022 dividend futures since we do not expect Li Auto Inc. (LI US) to pay dividends in the near future, while the potential deletion is a higher dividend yielding stock.

Li Auto (LI US) Dual Primary Listing: HSCI Fast Entry; HSCEI Dec Inclusion & Div Futures Lower

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Wuxi Biologics (Cayman) Inc. (2269 HK), Hong Kong Exchanges And Clearing Limited (388 HK), China Mobile Limited (941 HK), as well as outflows from Tencent Holdings Limited (700 HK), Meituan (3690 HK), Weimob Inc. (2013 HK).

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Wuxi Biologics (Cayman) Inc. (2269 HK), Hong Kong Exchanges And Clearing Limited (388 HK), China Mobile Limited (941 HK), as well as outflows from Tencent Holdings Limited (700 HK), Meituan (3690 HK), Weimob Inc. (2013 HK).

Hong Kong Connect Flows: $1bn Outflow from Tencent

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

Singapore Exchange - Another Deal, Another Distraction

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 – Completely Distracted

SINGAPORE EXCHANGE: SGX FY 2H21 result declined 14.6% HOH due to rising costs. This is a distracted company with three bolt-ons in last year....

Thomas J. Monaco

China Equity Strategy: Tug of War, Policy Uncertainty and Plenty Liquidity

We remain sanguine on China equity market outlook in 2H 2021 given the earning growth and plenty liquidity, but would wait for more clarity on...

Roger Xie

Li Auto (LI US) Dual Primary Listing: HSCI Fast Entry; HSCEI Dec Inclusion & Div Futures Lower

Li Auto is looking to dual-primary list in HK. The stock should get Fast Entry to the HSCI and join Southbound Stock Connect in Q1 2022. Li Auto...

Brian Freitas

Hong Kong Connect Flows: $1bn Outflow from Tencent

We highlight weekly inflows into Wuxi Biologics (2269 HK), HKEx (388 HK), China Mobile Limited (941 HK), as well as outflows from Tencent (700 HK),...

Ke Yan, CFA, FRM

Singapore Exchange - Another Deal, Another Distraction

SINGAPORE EXCHANGE: SGX announced that it was acquiring MaxxTrader for USD 125mn plus, its third acquisition since 2020. Numerous bolt-on deals...

Thomas J. Monaco

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