Alpha-Centric ESG Research

Kyle Rudden

Last week's announcement by Singapore Exchange – regarding its launching four FTSE ESG Index futures – is a really big deal for SGX. Not that it will not solve all of SGX's problems overnight; the liquidity-building takes time, and four ESG contracts won't make up for all those lost MSCI trades.Nonetheless, these ESG futures contracts are "worth" more than one might think, in two ways. For SGX FIRST, the launch proves its ability to execute. For SGX in general, it's a much-needed boost – financial and psychological – after last year's MSCI losses.I will be publishing a series of on various ESG investment products, starting with derivatives (very soon). That will provide additional detail.

Last week's announcement by Singapore Exchange – regarding its launching four FTSE ESG Index futures – is a really big deal for SGX. Not that it will not solve all of SGX's problems overnight; the liquidity-building takes time, and four ESG contracts won't make up for all those lost MSCI trades.Nonetheless, these ESG futures contracts are "worth" more than one might think, in two ways. For SGX FIRST, the launch proves its ability to execute. For SGX in general, it's a much-needed boost – financial and psychological – after last year's MSCI losses.I will be publishing a series of on various ESG investment products, starting with derivatives (very soon). That will provide additional detail.

SGX FIRST Launches ESG Futures Putting It in the Company of ESG Derivatives Leaders ICE and Eurex

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul>
<li>The investor rotation into value focusing in on EM and DM banks; our key picks are <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a>, <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> in EM banks, and <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>, and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> in Southern Europe banks</li>
<li>Exchanges and Big Data, the convergence; <a href="https://www.smartkarma.com/entities/intercontinental-exchange-inc" target="_blank" data-smartkarma-citation="entities:10221:1" rel="noopener">Intercontinental Exchange (ICE US)</a> is strong on recurring revenues, and both ICE and <a href="https://www.smartkarma.com/entities/s-p-global-inc" target="_blank" data-smartkarma-citation="entities:9735:1" rel="noopener">S&amp;P Global Inc. (SPGI US)</a> should deliver shareholder value creation from transformative M&amp;A</li>
<li>Potential for premium growth and returns in digital payments; we like <a href="https://www.smartkarma.com/entities/nexi-spa" target="_blank" data-smartkarma-citation="entities:28921:1" rel="noopener">Nexi SpA (NEXI IM)</a>, where we see clear benefits from its M&amp;A, and we see <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a> as a core holding</li>
<li>Digital wealth managers focus on the mass affluent; <a href="https://www.smartkarma.com/entities/finecobank-banca-fineco-spa" target="_blank" data-smartkarma-citation="entities:21188:1" rel="noopener">Finecobank Banca Fineco (FBK IM)</a> stands out in Europe, <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a> is the leader in Brazil but looks over-valued and exposed to increased competition, in our view</li>
<li>Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals</li>
</ul>


The investor rotation into value focusing in on EM and DM banks; our key picks are Credicorp Ltd (BAP US), Turkiye Garanti Bankasi As (GARAN TI), Commercial International Bank (COMI EY) in EM banks, and UniCredit SpA (UCG IM), CaixaBank SA (CABK SM), and BPER Banca S.p.A (BPE IM) in Southern Europe banks
Exchanges and Big Data, the convergence; Intercontinental Exchange (ICE US) is strong on recurring revenues, and both ICE and S&amp;P Global Inc. (SPGI US) should deliver shareholder value creation from transformative M&amp;A
Potential for premium growth and returns in digital payments; we like Nexi SpA (NEXI IM), where we see clear benefits from its M&amp;A, and we see Paypal Holdings (PYPL US) as a core holding
Digital wealth managers focus on the mass affluent; Finecobank Banca Fineco (FBK IM) stands out in Europe, XP Inc (XP US) is the leader in Brazil but looks over-valued and exposed to increased competition, in our view
Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals


FinTech & Financial Investment Themes 2021

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

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.  

Singapore Exchange – Strains Seen For TW Futures

<ul>
<li>
<a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> has seen lacklustre share price performance relative to other global exchanges over the last six months</li>
<li>This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement</li>
<li>To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives</li>
<li>SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally</li>
<li>SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020</li>
<li>We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating</li>
<li>Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading</li>
</ul>



SGX (SGX SP) has seen lacklustre share price performance relative to other global exchanges over the last six months
This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement
To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives
SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally
SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020
We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating
Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading


SGX (SGX SP): Market Under-Rates Its Growth Potential

<ul>
<li>In this report, we look at how global exchanges are positioning themselves to diversify revenue streams beyond the traditional</li>
<li>Select exchanges in developed markets are actively focusing in on demand for exchanges’ proprietary data, a few are enhancing their data capabilities through M&amp;A</li>
<li>Emerging market exchanges are at a different stage of development, with more potential for new listings and growth in trading fees, but we believe that they still need to prepare for life beyond the traditional revenue model</li>
<li>In LatAm, B3 stands out as a beneficiary of the recent sharp cuts in domestic benchmark rates and rise in trading activity, but we believe that much of this is already reflected in B3’s recent share price re-rating, and that B3 is at risk of a trading downturn, with it yet to develop its data and related services revenue buffer; we prefer smaller cap Bolsa Mexicana
</li>
<li>In Asia, we like SGX which derives a higher share of revenues from data services than HK Exchange, and we also believe that SGX is less exposed than HKEx to prospective EBITDA margin erosion; Bursa Malaysia valuations seem stretched, in our view</li>
<li>In developed market exchanges, LSE Group is in the spotlight for its planned acquisition of Refinitiv, and its already high revenue share of data services, along with ICE and TMX of Canada; we highlight ICE for its attractive valuation, healthy EBITDA margin and its high share of revenue from data services</li>
<li>Risks to our negative view on B3 include continued high levels of trading in equities, derivatives supported by further central bank rate cuts and better-than-expected opex control; risks to our positive views on Bolsa Mexicana, ICE include weaker than expected trading activity and fewer than expected new listings</li>
</ul>


In this report, we look at how global exchanges are positioning themselves to diversify revenue streams beyond the traditional
Select exchanges in developed markets are actively focusing in on demand for exchanges’ proprietary data, a few are enhancing their data capabilities through M&amp;A
Emerging market exchanges are at a different stage of development, with more potential for new listings and growth in trading fees, but we believe that they still need to prepare for life beyond the traditional revenue model
In LatAm, B3 stands out as a beneficiary of the recent sharp cuts in domestic benchmark rates and rise in trading activity, but we believe that much of this is already reflected in B3’s recent share price re-rating, and that B3 is at risk of a trading downturn, with it yet to develop its data and related services revenue buffer; we prefer smaller cap Bolsa Mexicana

In Asia, we like SGX which derives a higher share of revenues from data services than HK Exchange, and we also believe that SGX is less exposed than HKEx to prospective EBITDA margin erosion; Bursa Malaysia valuations seem stretched, in our view
In developed market exchanges, LSE Group is in the spotlight for its planned acquisition of Refinitiv, and its already high revenue share of data services, along with ICE and TMX of Canada; we highlight ICE for its attractive valuation, healthy EBITDA margin and its high share of revenue from data services
Risks to our negative view on B3 include continued high levels of trading in equities, derivatives supported by further central bank rate cuts and better-than-expected opex control; risks to our positive views on Bolsa Mexicana, ICE include weaker than expected trading activity and fewer than expected new listings


United States

The Bank of New York Mellon Corporation (BNY Mellon) is a global financial services company. The Company provides asset and wealth management, asset servicing, issuer, clearing, and treasury services for institutions, corporations, and high net worth individuals.

BlackRock, Inc. provides diversified investment management services to institutional clients and to retail investors through various investment vehicles. The Company offers the BlackRock Funds and Blackrock Liquidity Funds, and also provides risk management services to fixed income institutional investors.

Ameriprise Financial, Inc. is a financial planning and services firm.  The Company provides financial planning, products and services that are designed to be utilized as solutions for its clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs.

CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities.  The Exchange brings together buyers and sellers of derivatives products on its trading floors, electronic trading platform, and through privately negotiated transactions that it clears.

The Charles Schwab Corporation provides a variety of financial services to individual investors, independent investment managers, retirement plans, and institutions.  The Company provides its clients with securities brokerage, banking, and related financial services through offices in the United States, Puerto Rico, and the United Kingdom.

Moody's Corporation is a credit rating, research, and risk analysis firm.  The Company provides credit ratings and related research, data and analytical tools, quantitative credit risk measures, risk scoring software, and credit portfolio management solutions and securities pricing software and valuation models.

KKR & Co. Inc. operates as an investment firm. The Company manages investments such as private equity, energy, infrastructure, real estate, credit strategies, and hedge funds. KKR & Co serves clients worldwide.

State Street Corporation services institutional investors and manages financial assets worldwide.  The Company's products and services include custody, accounting, administration, daily pricing, international exchange services, cash management, financial asset management, securities lending, and investment advisory services.

Tradeweb Markets Inc. builds and operates electronic marketplaces for rates, credit, equities/ETFs and money markets. The company serves institutional, wholesale and retail clients in 62 countries including large global asset managers, insurance companies, central banks, financial advisory firms, proprietary trading firms, hedge funds, banks and dealers.

Raymond James Financial, Inc. provides financial services to individuals, corporations, and municipalities through its subsidiary investment firms. The Company operates throughout the United States, Canada and overseas.

Macquarie Group Ltd. offers banking, financial advisory, investment and funds management services.  The Company offers financial advice, cash management, wealth management and private banking, life insurance, securities brokerage, corporate debt financing, real estate funds management, real estate development financing, investment funds management, and foreign exchange services.

London Stock Exchange Group plc is the United Kingdom's primary stock exchange. The LSE provides markets that facilitate the raising of capital and the trading of corporate securities, access to a trading environment, as well as real-time pricing and reference information services worldwide.  Market coverage includes equities, derivatives and fixed-interest securities.

London Stock Exchange Group plc is the United Kingdom's primary stock exchange. The LSE provides markets that facilitate the raising of capital and the trading of corporate securities, access to a trading environment, as well as real-time pricing and reference information services worldwide. Market coverage includes equities, derivatives and fixed-interest securities.

London Stock Exchange Group PL (LNSTY US)

Banco BTG Pactual S/A. provides financial services. The Company offers asset and wealth management, investment banking, trading, corporate lending, sales, and other related solutions. Banco BTG Pactual serves customers in Brazil.

CITIC Securities Co., Ltd. provides securities brokerage, trading, underwriting, investment banking, asset management, and investment consulting services.

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.

Deutsche Boerse AG provides a variety of stock exchange introduction, trading, and operational services to institutions and private investors. The Company offers electronic trading systems for buying and selling of securities on stock exchanges in Europe.  Deutsche Boerse offers indices such as DAX, MDAX, SDAX, and XTF, as well as trading in options and futures.

3i Group plc is an international investor focused on private equity, infrastructure and debt management. The Company's investments are located across multiple continents through local investment teams in Europe, Asia and North America.

CSC Financial Co., Ltd. provides investment management services. The Company offers investment banking, wealth management, and trading and institutional client services. CSC Financial conducts its business in Hong Kong.

Intercontinental Exchange, Inc. operates global commodity and financial products marketplaces.  The Company operates electronic energy markets and soft commodity exchanges as well.  ICE offers access to contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including cocoa, coffee, cotton, orange juice, and sugar.

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Intercontinental Exchange (ICE US)

SGX FIRST Launches ESG Futures Putting It in the Company of ESG Derivatives Leaders ICE and Eurex

SGX's lauch of ESG futures is a big deal. It proves SGX FIRST's ability to execute, and softens the pain of MSCI losses.

Kyle Rudden

FinTech & Financial Investment Themes 2021

Our key 2021 investment themes and ideas in EM and S Europe banks, exchanges and data providers, digital payments companies and digital wealth...

Victor Galliano

Singapore Exchange – Strains Seen For TW Futures

SINGAPORE EXCHANGE: November Stats Look Good Generally Across The Board; However, Taiwan Futures Slippage Could Impact A50.

Thomas J. Monaco

SGX (SGX SP): Market Under-Rates Its Growth Potential

The market is too bearish on SGX's revenue and earnings outlook, and we believe that the recently published market statistics for September show...

Victor Galliano

Exchanges: Life Beyond Trading

In this report, we look at how global exchanges are positioning themselves to diversify revenue streams beyond the traditional Select exchanges in...

Victor Galliano

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