Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

A negative feedback loop of poor sentiment, managers selling down positions leading to big underperformance has caused allocations in China banks to more than halve over the past 2-years.  An exodus out of the four major state banks has occurred across GEM, Asia Ex-Japan and China managers as the narrative has focused on growth over value.  From an ownership perspective, there are signs that this is bottoming out.  Underweights are being closed, funds are moving back in and weights are moving higher.  Whilst inflows remain skewed towards the higher growth and premium valuation stocks of <a href="https://www.smartkarma.com/entities/ping-an-bank-co-ltd-a" target="_blank" data-smartkarma-citation="entities:681:1" rel="noopener">Ping An Bank Co Ltd A (000001 CH)</a> and <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> , ownership levels have moderated in the big four state banks.Against a backdrop of huge underperformance and low ownership levels, the majority of the active managers in our analysis are still positioned underweight in the China banks.  If the growth over value narrative does change, China Banks are one of the places you want to be.Analysis taken from our China fund universe, covering 114 active strategies with combined AUM of $62bn.

A negative feedback loop of poor sentiment, managers selling down positions leading to big underperformance has caused allocations in China banks to more than halve over the past 2-years.  An exodus out of the four major state banks has occurred across GEM, Asia Ex-Japan and China managers as the narrative has focused on growth over value.  From an ownership perspective, there are signs that this is bottoming out.  Underweights are being closed, funds are moving back in and weights are moving higher.  Whilst inflows remain skewed towards the higher growth and premium valuation stocks of Ping An Bank Co Ltd A (000001 CH) and China Merchants Bank H (3968 HK) , ownership levels have moderated in the big four state banks.Against a backdrop of huge underperformance and low ownership levels, the majority of the active managers in our analysis are still positioned underweight in the China banks.  If the growth over value narrative does change, China Banks are one of the places you want to be.Analysis taken from our China fund universe, covering 114 active strategies with combined AUM of $62bn.

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/ping-an-bank-co-ltd-a" target="_blank" data-smartkarma-citation="entities:681:1" rel="noopener">Ping An Bank Co Ltd A (000001 CH)</a>  is one of the more popular Chinese banks in GEM portfolios. The bank is dedicated mainly to consumer lending, including mortgages, and to a lesser extent the corporate segment, backed by time deposits (54%) and other sources of Funding. Ping An Bank is highly exposed to the property sector with 30% of credit related to mortgages and CRE.FY20/19 results show adverse fundamental momentum and trends with erosion in Profitability, in NIM, Asset Yield, and Spread, in Liquidity, in Provisioning, and in Capitalisation while Efficiency and Asset Quality trends displayed some improvement. “Core Income” showed firm expansion, especially in Fee and Commission Income streams, while robust Net Interest Income growth was underpinned by above-system credit growth. Comprehensive Income decreased by 9% YoY, weighed down more by asset writedowns from impairments on securities than by a reduced Loan Loss Provision.Asset Quality did progress across NPL “buckets” – the reason for a lower LLP- though we are mindful of the reduced Loan Loss Provision Coverage Ratio.<div class="content-highlight">
Ping AnBank shares command a premium rating. A FV of 18%, a PBV of 1.64x, an Earnings Yield of 5.0%, a Dividend Yield of 0.7%, and a Total Return Ratio of 0.3x, are not cheap.
Despite headline Asset Quality and Efficiency improvements, the bank clocks in with a low PH Score™ (3.4) in the bottom quartile globally. This may be a harsh Score for Ping An given that Capitalisation and Provisioning trends were in truth more nuanced. However, the premium rating calls for more.
</div>

Ping An Bank Co Ltd A (000001 CH)  is one of the more popular Chinese banks in GEM portfolios. The bank is dedicated mainly to consumer lending, including mortgages, and to a lesser extent the corporate segment, backed by time deposits (54%) and other sources of Funding. Ping An Bank is highly exposed to the property sector with 30% of credit related to mortgages and CRE.FY20/19 results show adverse fundamental momentum and trends with erosion in Profitability, in NIM, Asset Yield, and Spread, in Liquidity, in Provisioning, and in Capitalisation while Efficiency and Asset Quality trends displayed some improvement. “Core Income” showed firm expansion, especially in Fee and Commission Income streams, while robust Net Interest Income growth was underpinned by above-system credit growth. Comprehensive Income decreased by 9% YoY, weighed down more by asset writedowns from impairments on securities than by a reduced Loan Loss Provision.Asset Quality did progress across NPL “buckets” – the reason for a lower LLP- though we are mindful of the reduced Loan Loss Provision Coverage Ratio.
Ping AnBank shares command a premium rating. A FV of 18%, a PBV of 1.64x, an Earnings Yield of 5.0%, a Dividend Yield of 0.7%, and a Total Return Ratio of 0.3x, are not cheap.
Despite headline Asset Quality and Efficiency improvements, the bank clocks in with a low PH Score™ (3.4) in the bottom quartile globally. This may be a harsh Score for Ping An given that Capitalisation and Provisioning trends were in truth more nuanced. However, the premium rating calls for more.


Ping An Bank: Premium Rating Not Justified by Trends

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

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

Ping An Insurance – Hope Is Not A Strategy

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

Global Commodity-Related Equity Sectors In Secular Bull

China

Ping An Bank Co Ltd provides a full range of commercial banking services including RMB and foreign currency deposit, loan, international and domestic settlement, discount, currency trading, letter of credit, bank guarantee, and other related services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Ping An Bank Co Ltd A (000001 CH)

China Banks: Bottoming Out

China and HK banks have seen a large scale exodus from active China investors over the past 2 years. Managers now find themselves underweight and...

Steven Holden

Ping An Bank: Premium Rating Not Justified by Trends

Ping An Bank is a popular GEM stock. For such a premium rating, we would like to see better fundamental momentum while the Loan Loss Provision...

Paul Hollingworth

Ping An Insurance – Hope Is Not A Strategy

PING AN INSURANCE: Ping An reported 2H20 an operating profit decline of 12.2% HOH. Despite bottom-line improvement in Life, results are truly...

Thomas J. Monaco

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Banks: Bottoming Out

China and HK banks have seen a large scale exodus from active China investors over the past 2 years. Managers now find themselves underweight and...

Steven Holden

Ping An Bank: Premium Rating Not Justified by Trends

Ping An Bank is a popular GEM stock. For such a premium rating, we would like to see better fundamental momentum while the Loan Loss Provision...

Paul Hollingworth

Ping An Insurance – Hope Is Not A Strategy

PING AN INSURANCE: Ping An reported 2H20 an operating profit decline of 12.2% HOH. Despite bottom-line improvement in Life, results are truly...

Thomas J. Monaco

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

Global Commodity-Related Equity Sectors In Secular Bull

We believe commodities are in the early stages of a new secular bull market. Global Materials & Energy remain our favorite Sector overweights - add...

Vermilion Research