Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
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<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
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<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
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In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

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

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing.

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing. 

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

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

EURO STOXX 50 Price EUR / Technical Analysis

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

China Pacific Insurance / Equity Bottom-Up

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.  

China Pacific Insurance – No Sign Of Life

United Kingdom

Prudential plc is an international company which provides a wide assortment of insurance and investment products and services. Insurance products include life, accident and health, property and casualty insurance, as well as fixed and variable annuities.  Financial and investment services include personal and group pensions, equity plans, mortgages and deposit accounts.

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Prudential PLC (PRU LN)

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Thomas J. Monaco

AIA Group – Risks Remain High

AIA GROUP: AIA 1Q21 results with VONB improving 62.3% QOQ due to higher sales volume and VONB margin expansion driven by China, Thailand, and...

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Major Breakout For EURO STOXX 50

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and...

Vermilion Research

China Pacific Insurance – No Sign Of Life

CHINA PACIFIC INSURANCE: CPIC HOH results continue to exhibit challenges, declining 21.3%. Profitability was hurt by both the Life and P&C units.

Thomas J. Monaco

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