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

Thematic (Sector/Industry)

*Inflation Figures Are Wrong: The daily information be reported on inflation is simply wrong. There is actually an awful lot of inflation, and because central banks are controlling the narrative, we find the that the numbers are not being reported correctly. If energy, food, and housing costs are excluded from inflation reports, then inflation measurements are just wrong to begin with. Certainly, as consumers, we’d like to not be responsible for paying for food, energy, and housing; and*Stimulus Keeps Coming: 1Q21 GDP amounted to 6.4%, and 2Q21 GDP will be further boosted by the third round of stimulus checks. 1H21 should be boosted further by an expanded child tax care credit - becoming the fourth stimulus check of USD 110 bn - arguably even more effective if these monthly payments become a permanent source of income under President Biden’s tax plan. Infrastructure plan discussions are ongoing, and our belief is that nearly USD 2 tn in spending will be approved by Congress in late 1H21. The risk of a zero-to-negative GDP quarter for 1Q22 now becomes significant.

*Inflation Figures Are Wrong: The daily information be reported on inflation is simply wrong. There is actually an awful lot of inflation, and because central banks are controlling the narrative, we find the that the numbers are not being reported correctly. If energy, food, and housing costs are excluded from inflation reports, then inflation measurements are just wrong to begin with. Certainly, as consumers, we’d like to not be responsible for paying for food, energy, and housing; and*Stimulus Keeps Coming: 1Q21 GDP amounted to 6.4%, and 2Q21 GDP will be further boosted by the third round of stimulus checks. 1H21 should be boosted further by an expanded child tax care credit - becoming the fourth stimulus check of USD 110 bn - arguably even more effective if these monthly payments become a permanent source of income under President Biden’s tax plan. Infrastructure plan discussions are ongoing, and our belief is that nearly USD 2 tn in spending will be approved by Congress in late 1H21. The risk of a zero-to-negative GDP quarter for 1Q22 now becomes significant.

Equity Bottom-Up

China Huarong Asset Management / Equity Bottom-Up

*Legacy Risks Strangling China Huarong: The issue appears to be China Huarong Asset Management’s (Huarong) legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed. Since our last note, Huarong still continues to teeter on the edge of insolvency and ongoing silence from Beijing has materially impacted funding costs. Huarong has until August 2021 to finally release its 2020 financial statements; and *Too Big Too Fail:  None of what is occurring should come as a surprise given mainland China's rapidly increasing debt position since the financial crisis - along with the same at its SOEs which are perceived to be too-big-to-fail and wield enormous political clout. A funding backstop from state-owned banks has been ordered by the China Banking and Insurance Regulatory Commission (CBIRC), and the mainland Chinese government is likely to again blink and make good on Huarong's significant debt obligations. Distressed investors should consider picking away at Huarong’s debt; we’ll believe it when see Beijing imposing losses on investors in SOEs.

*Legacy Risks Strangling China Huarong: The issue appears to be China Huarong Asset Management’s (Huarong) legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed. Since our last note, Huarong still continues to teeter on the edge of insolvency and ongoing silence from Beijing has materially impacted funding costs. Huarong has until August 2021 to finally release its 2020 financial statements; and *Too Big Too Fail:  None of what is occurring should come as a surprise given mainland China's rapidly increasing debt position since the financial crisis - along with the same at its SOEs which are perceived to be too-big-to-fail and wield enormous political clout. A funding backstop from state-owned banks has been ordered by the China Banking and Insurance Regulatory Commission (CBIRC), and the mainland Chinese government is likely to again blink and make good on Huarong's significant debt obligations. Distressed investors should consider picking away at Huarong’s debt; we’ll believe it when see Beijing imposing losses on investors in SOEs.

China Huarong Asset Management – Silence Is Golden

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

*Expecting Poor 1H21 Operating Result: Sun Hung Kai &amp; Co. (86.HK) [SHK] announced that unaudited results for 4M21 approximated HKD 1.1 bn. Like the 2H20 result, 4M21 numbers appear to be driven by low quality and non-core MTM gains from its investment management business, and lower credit-related loss provisions. No discussion was had on both the type of non-cash gains nor if credit risk/quality has actually improved; and      *FOF Focus Not An Historical Winner: SHK does, however, remain focused on investment management, with its newly established funds management platform, called Sun Hung Kai Capital Partners. According to management, SHK has a strong pipeline of potential partnerships and fund launches planned for 2H21.

*Expecting Poor 1H21 Operating Result: Sun Hung Kai &amp; Co. (86.HK) [SHK] announced that unaudited results for 4M21 approximated HKD 1.1 bn. Like the 2H20 result, 4M21 numbers appear to be driven by low quality and non-core MTM gains from its investment management business, and lower credit-related loss provisions. No discussion was had on both the type of non-cash gains nor if credit risk/quality has actually improved; and      *FOF Focus Not An Historical Winner: SHK does, however, remain focused on investment management, with its newly established funds management platform, called Sun Hung Kai Capital Partners. According to management, SHK has a strong pipeline of potential partnerships and fund launches planned for 2H21.

Hong Kong

iShares MSCI Hong Kong ETF is an exchange-traded fund incorporated in the USA. The ETF's objective seeks to provide investment results that correspond to the performance of publicly traded securities in the Hong Kong market, as measured by the MSCI Hong Kong Index. The ETF invests in a representative sample of index stocks using a "portfolio sampling" technique.

iShares MSCI Hong Kong ETF (EWH US)

The Fix Is In

US ECONOMY: Reported inflation is simply wrong, as central banks control the narrative. In addition, 2H21 should be boosted by an expanded child...

Thomas J. Monaco

China Huarong Asset Management – Silence Is Golden

CHINA HUARONG: Huarong's legacy exposure associated with the misdeeds of its former Chairman have caused to Huarong to teeter. Beijing is likely to...

Thomas J. Monaco

Singapore Exchange – Peripatetic

SINGAPORE EXCHANGE: SGX held an Analysts’ Day which discussed various aspects of its business. Management appears to be scrambling to offset...

Thomas J. Monaco

Link REIT – Purchase or Perish

LINK REIT: The Link franchise continues to contract, and management appears hellbent on destroying shareholder value by chasing bad deals - the...

Thomas J. Monaco

Sun Hung Kai & Co. – Blowing Smoke

SUN HUNG KAI & CO: SHK announced unaudited results for 4M21 of HKD 1.1 bn, which appear to be driven by low quality MTM gains from investment...

Thomas J. Monaco