Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<p>This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. </p><p>The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. </p><p>This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. </p><p>Notable new entrants to the top decile this month include the beaten-down Chinese tech names such as <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> , and <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> as well as two Brazilian large caps in <a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> and <a href="https://www.smartkarma.com/entities/ambev-sa" target="_blank" data-smartkarma-citation="entities:24454:1" rel="noopener">Ambev SA (ABEV3 BZ)</a>.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 48pt;">rank</td>
<td style="width: 169pt;">Name</td>
<td style="width: 119pt;">Sector</td>
<td style="width: 95pt;">Location</td>
<td style="text-align: center; width: 48pt;">prev.</td>
</tr>
<tr>
<td style="text-align: center;">1</td>
<td>
<a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">10</td>
</tr>
<tr>
<td style="text-align: center;">2</td>
<td>
<a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> </td>
<td>Communication</td>
<td>China</td>
<td style="text-align: center;">5</td>
</tr>
<tr>
<td style="text-align: center;">3</td>
<td>
<a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> </td>
<td>Information Technology</td>
<td>Korea (South)</td>
<td style="text-align: center;">16</td>
</tr>
<tr>
<td style="text-align: center;">4</td>
<td>
<a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> </td>
<td>Information Technology</td>
<td>China</td>
<td style="text-align: center;">91</td>
</tr>
<tr>
<td style="text-align: center;">5</td>
<td>
<a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">34</td>
</tr>
<tr>
<td style="text-align: center;">6</td>
<td>
<a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> </td>
<td>Materials</td>
<td>Brazil</td>
<td style="text-align: center;">38</td>
</tr>
<tr>
<td style="text-align: center;">7</td>
<td>
<a href="https://www.smartkarma.com/entities/ambev-sa" target="_blank" data-smartkarma-citation="entities:24454:1" rel="noopener">Ambev SA (ABEV3 BZ)</a> </td>
<td>Consumer Staples</td>
<td>Brazil</td>
<td style="text-align: center;">35</td>
</tr>
<tr>
<td style="text-align: center;">8</td>
<td>
<a href="https://www.smartkarma.com/entities/ambev-sa" target="_blank" data-smartkarma-citation="entities:24454:1" rel="noopener">Ambev SA (ABEV3 BZ)</a> </td>
<td>Communication</td>
<td>China</td>
<td style="text-align: center;">43</td>
</tr>
<tr>
<td style="text-align: center;">9</td>
<td>
<a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> </td>
<td>Financials</td>
<td>China</td>
<td style="text-align: center;">23</td>
</tr>
<tr>
<td style="text-align: center;">10</td>
<td>
<a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">79</td>
</tr>
<tr><td colspan="5" style="text-align: left;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td></tr>
</tbody>
</table><p><em>As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions. </em></p>

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. Notable new entrants to the top decile this month include the beaten-down Chinese tech names such as Xiaomi Corp (1810 HK), Alibaba Group (9988 HK), Tencent (700 HK) , and JD.com Inc. (9618 HK) as well as two Brazilian large caps in Vale SA (VALE3 BZ) and Ambev SA (ABEV3 BZ).









rank
Name
Sector
Location
prev.


1

New Oriental Education &amp; Technology Group (9901 HK) 
Consumer Discretionary
China
10


2

NetEase (9999 HK) 
Communication
China
5


3

Samsung Electronics (005930 KS) 
Information Technology
Korea (South)
16


4

Xiaomi Corp (1810 HK) 
Information Technology
China
91


5

Alibaba Group (9988 HK) 
Consumer Discretionary
China
34


6

Vale SA (VALE3 BZ) 
Materials
Brazil
38


7

Ambev SA (ABEV3 BZ) 
Consumer Staples
Brazil
35


8

Ambev SA (ABEV3 BZ) 
Communication
China
43


9

Ping An Insurance (H) (2318 HK) 
Financials
China
23


10

JD.com Inc. (9618 HK) 
Consumer Discretionary
China
79

Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas

As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions. 

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

<p><strong><em>*Bank Call Reveals Nothing: </em></strong>A competitor held a conference call with Ping An Bank (000001.CH) [PAB]. According to management, the market has over-reacted to risks associated with China Evergrande Group (3333.HK) [Evergrande] and certain other developers. Further, PAB believes that policymakers in Beijing are likely to maintain stable growth within the property sector and coordinate the completion of housing projects – and this “should contain” any spillover effect;  </p><p><strong><em>*What Wasn’t Addressed:</em></strong> The Group has real estate-related exposure which represents 24.3% of Ping An Insurance’ (2318.HK) [Ping An] stated equity – more so depending which insurance subsidiary (likely Ping An Life [PAL] given the shortfall in 1H21 earnings) this risk is attributed to. There was no mention of Ping An remaining a source of strength to PAB given the PAL stress, nor if PAB participates in real estate financings led by Ping An - normal practice for conglomerates in mainland China; and  </p><p>*<em><strong>Negative Credit Delta Could Accelerate Capital Raise: </strong></em>By our analysis, we find that PAB credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized at 2Q21 - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at the current level, we find that PAB’s reserves still remain quite light by CNY 16 bn - representing about two quarters of pre-tax earnings.   </p>

*Bank Call Reveals Nothing: A competitor held a conference call with Ping An Bank (000001.CH) [PAB]. According to management, the market has over-reacted to risks associated with China Evergrande Group (3333.HK) [Evergrande] and certain other developers. Further, PAB believes that policymakers in Beijing are likely to maintain stable growth within the property sector and coordinate the completion of housing projects – and this “should contain” any spillover effect;  *What Wasn’t Addressed: The Group has real estate-related exposure which represents 24.3% of Ping An Insurance’ (2318.HK) [Ping An] stated equity – more so depending which insurance subsidiary (likely Ping An Life [PAL] given the shortfall in 1H21 earnings) this risk is attributed to. There was no mention of Ping An remaining a source of strength to PAB given the PAL stress, nor if PAB participates in real estate financings led by Ping An - normal practice for conglomerates in mainland China; and  *Negative Credit Delta Could Accelerate Capital Raise: By our analysis, we find that PAB credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized at 2Q21 - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at the current level, we find that PAB’s reserves still remain quite light by CNY 16 bn - representing about two quarters of pre-tax earnings.   

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

<div>
<p>Prudential raised around US$2.4bn via an international and public offering in Hong Kong. </p>
</div>
<p>We covered various aspects of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/prudential-hong-kong-offering-well-flagged-pivot-to-asia-mind-the-liquidity-gap" target="_blank" rel="noopener">Prudential Hong Kong Offering - Well Flagged Pivot to Asia, Mind the Liquidity Gap</a>.</p>
<div>
<p>In this note, we will talk about the updates since then.</p>
</div>


Prudential raised around US$2.4bn via an international and public offering in Hong Kong. 

We covered various aspects of the deal in our earlier note, Prudential Hong Kong Offering - Well Flagged Pivot to Asia, Mind the Liquidity Gap.

In this note, we will talk about the updates since then.


Prudential Hong Kong Offering - Trading Quick Note

<p><strong><em>*Disposal of Shengjing Bank Stake:</em></strong> China Evergrande Group (3333.HK) [Evergrande] announced that it is selling a 19.93% stake in Shengjing Bank (2066.HK) at a take-under price of CNY 5.70 per share (19.8% below market) or at a P/BV or 51.4% - representing a MTM loss of CNY 9.9 bn (USD 1.53 bn) or approximately 2.5% of Evergrande’s stated equity; and  </p><p><strong><em>*Systemic Banking Risk Highlighted: </em></strong>Evergrande is alleged to have USD 20 bn in “direct and indirect” risk due to Shengjing Bank, which would represent a true systemic challenge given the bank's size and importance. If the Evergrande exposure of CNY 129.4 bn is remotely correct, it would appear that Shenjiang Bank has been materially under-reporting NPLs. If this figure is correct, a reserve shortfall of CNY 128.4 (USD 19.9 bn) would appear to exist – representing 158% of 2Q21 stated equity and intimating Shengjing Bank is technically insolvent.</p>

*Disposal of Shengjing Bank Stake: China Evergrande Group (3333.HK) [Evergrande] announced that it is selling a 19.93% stake in Shengjing Bank (2066.HK) at a take-under price of CNY 5.70 per share (19.8% below market) or at a P/BV or 51.4% - representing a MTM loss of CNY 9.9 bn (USD 1.53 bn) or approximately 2.5% of Evergrande’s stated equity; and  *Systemic Banking Risk Highlighted: Evergrande is alleged to have USD 20 bn in “direct and indirect” risk due to Shengjing Bank, which would represent a true systemic challenge given the bank's size and importance. If the Evergrande exposure of CNY 129.4 bn is remotely correct, it would appear that Shenjiang Bank has been materially under-reporting NPLs. If this figure is correct, a reserve shortfall of CNY 128.4 (USD 19.9 bn) would appear to exist – representing 158% of 2Q21 stated equity and intimating Shengjing Bank is technically insolvent.

China Evergrande Group – Daisy Chain Pulled

FWD Group Holdings / Equity Capital Markets

<div><p>FWD, a pan-Asian life insurer founded by Richard Li, aims to raise up to US$3bn in its US IPO. </p></div><div><p>FWD is a pan-Asia life insurer operating in ten markets including Hong Kong (and Macau), Thailand (and Cambodia), Japan, the Philippines, Indonesia, Singapore, Vietnam and Malaysia. Southeast Asia markets contributed over 40% of its Value of New Business (VNB) in 2020. It had served over 9.9m customers as of Jun 21.</p></div><div>In our previous note, we spoke about the positive aspects of the deal, <a href="https://www.smartkarma.com/insights/fwd-pre-ipo-the-positives-growing-fast" target="_blank" rel="noopener">FWD Pre-IPO - The Positives - Growing Fast</a>.</div><div></div><div>In this note we will talk about some of the not so pleasant aspects. </div>

FWD, a pan-Asian life insurer founded by Richard Li, aims to raise up to US$3bn in its US IPO. FWD is a pan-Asia life insurer operating in ten markets including Hong Kong (and Macau), Thailand (and Cambodia), Japan, the Philippines, Indonesia, Singapore, Vietnam and Malaysia. Southeast Asia markets contributed over 40% of its Value of New Business (VNB) in 2020. It had served over 9.9m customers as of Jun 21.In our previous note, we spoke about the positive aspects of the deal, FWD Pre-IPO - The Positives - Growing Fast.In this note we will talk about some of the not so pleasant aspects. 

FWD Pre-IPO - The Negatives - Strategy Remains Unclear

China

Ping An Insurance (Group) Company of China Limited provides products and services through its five ecosystems in financial services, healthcare, auto services, real estate services and Smart City solutions. The Group's insurance business writes property, casualty, and life insurance products.

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Ping An Insurance Group of (601318 CH)

Screening for GEMs: October 2021

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

Ping An Insurance – Don’t Bank On It

PING AN: Competitor conference call with PAB reveals nonchalant management. The Group has enormous real estate-related exposure, and questions of...

Thomas J. Monaco

Prudential Hong Kong Offering - Trading Quick Note

Prudential raised around US$2.4bn via an international and public offering in Hong Kong. In this note, we will talk about the updates since then.

Sumeet Singh

China Evergrande Group – Daisy Chain Pulled

EVERGRANDE: Evergrande is selling a 19.9% stake in Shengjing Bank, leading to a MTM loss of USD 1.53 bn or 2.5% of equity. It's risk outstanding is...

Thomas J. Monaco

FWD Pre-IPO - The Negatives - Strategy Remains Unclear

FWD, a pan-Asian life insurer founded by Richard Li, aims to raise up to US$3bn in its US IPO. In this note, we will talk about the not so pleasant...

Sumeet Singh

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