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

*Wealth Management Connect: Wealth Management (WM) Connect should allow the residents of Hong Kong and the Greater Bay Area (GBA) to purchase WM products in each other's markets. The launch of a GBA financial connection has been the key turning point to convert HKEx from a conduit of capital flows to mainland China to a marketplace for transactions which connect mainland China and global liquidity; and
Consultation Paper Released: On May 6, 2021, mainland China’s financial regulatory authorities released a consultation paper on WM Connect. This should be another avenue to bring additional mainland Chinese liquidity through HKEX. Benefits to HKEX in the beginning will be limited given the initial quotas on residents and limitations on products.

*Wealth Management Connect: Wealth Management (WM) Connect should allow the residents of Hong Kong and the Greater Bay Area (GBA) to purchase WM products in each other's markets. The launch of a GBA financial connection has been the key turning point to convert HKEx from a conduit of capital flows to mainland China to a marketplace for transactions which connect mainland China and global liquidity; and
Consultation Paper Released: On May 6, 2021, mainland China’s financial regulatory authorities released a consultation paper on WM Connect. This should be another avenue to bring additional mainland Chinese liquidity through HKEX. Benefits to HKEX in the beginning will be limited given the initial quotas on residents and limitations on products.

Hong Kong Exchange & Clearing – Making The Connection

*Glittering Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 1Q21 earnings of HKD 3.8 bn, improving HKD 915 mn (31.3%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 363 mn or 43.8% linked quarter) – increasing HKD 1.3 bn (61.0%) to HKD 3.4 bn. Results were highlighted by HKEX’ positive operating jaws, as recurring revenue increased HKD 1.2 bn (28.6%) while operating expenses declined HKD 194 mn (14.5%) over the period;  and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, 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.

*Glittering Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 1Q21 earnings of HKD 3.8 bn, improving HKD 915 mn (31.3%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 363 mn or 43.8% linked quarter) – increasing HKD 1.3 bn (61.0%) to HKD 3.4 bn. Results were highlighted by HKEX’ positive operating jaws, as recurring revenue increased HKD 1.2 bn (28.6%) while operating expenses declined HKD 194 mn (14.5%) over the period;  and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, 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 – Golden Quarter, But Risks Are High

*Solid March Trading Result: Singapore Exchange (SGX.SP) [SGX] reported strong FY 3Q21 securities and derivatives volumes due to improving market caps and velocity. Securities value traded and average daily trading vale (ADTV) increased 50% and 24% MOM in March, respectively. Derivative volumes also improved 31% MOM to 23.2 mn contracts, reaching a new peak since July 2020; and *A Wrench Thrown Into SGX’s SPAC Plan:  The U.S. Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into SGX’s SPAC plans.

*Solid March Trading Result: Singapore Exchange (SGX.SP) [SGX] reported strong FY 3Q21 securities and derivatives volumes due to improving market caps and velocity. Securities value traded and average daily trading vale (ADTV) increased 50% and 24% MOM in March, respectively. Derivative volumes also improved 31% MOM to 23.2 mn contracts, reaching a new peak since July 2020; and *A Wrench Thrown Into SGX’s SPAC Plan:  The U.S. Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into SGX’s SPAC plans.

Singapore Exchange – Solid Quarter, But SPAC Setback

*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.

*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

*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.

*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

Japan

Daiwa Securities Group Inc. is a holding company. The Group provides a comprehensive financial services including dealing, brokerage, underwriting, and distribution of securities.  Other services are research & systems development, custody service, and asset management. Daiwa has subsidiaries in US, Europe, Asia, and Middle East.

SBI Holdings, Inc. manages venture capital fund which mainly invest in Internet related venture companies.  The Company also provides brokerage, investment banking, and financial services.

MATSUI SECURITIES CO., LTD. provides online brokerage services through its website.  The Company offers investment news and educational services.

Ichigo Inc. is a value-add real estate company. The Company's three key businesses are Value-Add, in which Ichigo acquires and improves mid-sized, prime location real estate, Asset Management including the Ichigo Office REIT (8975), and Clean Energy, in which Ichigo builds and operates solar power plants  on disused land nationwide.

Monex Group, Inc. is a holding company, which was established through merger between Monex and Nikko Beans. The Company manages its subsidiaries that provides investing services for self-directed investors through Internet and telephone.

OKASAN SECURITIES GROUP INC. is a comprehensive securities firm based in Mie Prefecture.  The Company is active in stock transaction for individual investors.  Okasan Holdings provides financial services such as the dealing, brokerage, underwriting, and distribution of securities.  The Company also provides investment consulting and trust services.

Tokai Tokyo Financial Holdings, Inc. is a comprehensive securities firm. The Company provides financial services such as dealing, distribution, brokerage, underwriting, and distribution of securities and investment trust.

Aizawa Securities Co Ltd is a comprehensive securities firm. The Company provides financial services such as dealing, brokerage, underwriting, and distribution of securities, and investment trust.

JAFCO Co., Ltd. forms venture capital groups to invest primarily in domestic and foreign private companies with high potential for future growth.  The Company also provides management services to the groups, makes loans and offers consultation services to the invested companies.

M&A Capital Partners Co., Ltd. is an M&A advisory firm. The Company provides advisory service in M&A due diligence, business strategy, corporate regeneration, capital increase strategy to support owners of small and medium companies with business succession.

Haitong Securities Co., Ltd. offers securities services. The Company provides securities brokerage, asset management, securities investment, share transfer agency, and capital intermediary services. Haitong Securities focuses on  online brokerage, wealth management, and institutional investors.

Haitong Securities Co Ltd (A) (600837 CH)

Huatai Securities Co., Ltd. provides financial company. The Company provides securities brokerage services, research consulting services, investment banking and direct investment services, fixed-income services and asset management services.

Yuanta Financial Holding Co., Ltd. is a holding company. Its main businesses include brokerage, margin financing, domestic and overseas issuance, financial and M&A advisory, primary listings, corporate financial, securities underwriting and placements, etc. The company also holds the leading position in the derivatives business.

Pershing Square Holdings Ltd is a closed-ended hedge fund vehicle incorporated in Guernsey.

Houlihan Lokey, Inc. operates as an investment bank. The Company offers mergers and acquisitions, financial restructuring, capital markets, strategic consulting, and financial advisory services. Houlihan Lokey serves customers worldwide.

Interactive Brokers Group, Inc. is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures, and foreign exchange instruments.

GF Securities Co Ltd. is a securities firm. The Company offers investment banking services including equity and bond underwriting, mergers and acquisitions consulting, financial consulting, brokerage services, and asset management services.

LPL Financial Holdings, Inc. offers technology, brokerage and investment advisory services through business relationships with all types of financial advisors. Through proprietary technology, custody and clearing platforms, the Company offers access to financial products and services that enable them to provide financial advice and brokerage services to retail investors.

Franklin Resources, Inc. (d.b.a. Franklin Templeton Investments) provides investment advisory services to mutual fund, retirement, institutional/separate accounts and high net worth investors. The Company manages various asset classes including global equity, global institutional and municipal fixed income, money funds, alternative investments, and hedge funds.

Jefferies Financial Group Inc. is a global diversified financial services company focusing on investment banking and capital markets, asset management and direct investing. The Company offers a full range of investment banking, equities, fixed income, asset and wealth management products and services.

Japan Exchange Group Inc is the holding company created through the merger of Tokyo Stock Exchange Group, Inc and Osaka Securities Exchange Co., Ltd. The group provides and operates a marketplace for the trading of equities, futures, and options. The Group manages the trading, as well as administers listed stocks and registered members.

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Japan Exchange Group (8697 JP)

Hong Kong Exchange & Clearing – Making The Connection

HONG KONG EXCHANGES & CLEARING: Mainland China’s financial regulatory authorities released a consultation paper on WM Connect, an avenue to bring...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Golden Quarter, But Risks Are High

HONG KONG EXCHANGES & CLEARING: HKEX 1Q21 operating earnings increased 61.0% QOQ, highlighted by positive operating jaws. HKEX needs to contend a...

Thomas J. Monaco

Singapore Exchange – Solid Quarter, But SPAC Setback

SINGAPORE EXCHANGE: SGX reported strong securities/derivatives volumes on improving market caps/velocity. The U.S. SEC, however, issued SPAC...

Thomas J. Monaco

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 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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