Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

The Asia HY Trade Book for the month of July includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index.

  The Asia HY Trade Book for the month of July includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index. 

Asia HY Trade Book - July 2021 - Lucror Analytics

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> has got approval from the <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> for a dual primary listing. Media reports indicate that the company could raise between US$1bn-2bn in the offering. Based on the <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> timeline, Li Auto could list around 6-9 August.<a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> / <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> raised US$1.8bn via a dual primary listing earlier this month and <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> is following closely behind. Maybe <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> comes next.We expect <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> to get Fast Entry to the Hang Seng Composite Index (HSCI) though, as a WVR security, the stock will only be eligible for Stock Connect once it has completed 6 months of listing plus 20 trading days.Li Auto could also be included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December review. This will lead to a further drop in the HSCEI 2022 dividend futures since we do not expect <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a> to pay dividends in the near future, while the potential deletion is a higher dividend yielding stock.

Li Auto Inc. (LI US) has got approval from the HKEX (388 HK) for a dual primary listing. Media reports indicate that the company could raise between US$1bn-2bn in the offering. Based on the XPeng (9868 HK) timeline, Li Auto could list around 6-9 August.Xpeng (XPEV US) / XPeng (9868 HK) raised US$1.8bn via a dual primary listing earlier this month and Li Auto Inc. (LI US) is following closely behind. Maybe NIO Inc (NIO US) comes next.We expect Li Auto Inc. (LI US) to get Fast Entry to the Hang Seng Composite Index (HSCI) though, as a WVR security, the stock will only be eligible for Stock Connect once it has completed 6 months of listing plus 20 trading days.Li Auto could also be included in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December review. This will lead to a further drop in the HSCEI 2022 dividend futures since we do not expect Li Auto Inc. (LI US) to pay dividends in the near future, while the potential deletion is a higher dividend yielding stock.

Li Auto (LI US) Dual Primary Listing: HSCI Fast Entry; HSCEI Dec Inclusion & Div Futures Lower

We view Shimao Group as "Low Risk" on the LARA scale. Our view considers its good brand value and high exposure to Tier 1 and 2 cities, especially in the affluent Yangtze River Delta and Greater Bay Area. The company has demonstrated a track record of prudent financial management, with moderate but stable leverage over the years. In our view, Shimao's credit profile is among the strongest for Chinese developers under our coverage. In addition, the company has strong access to capital, as seen from its diversified funding sources and competitive borrowing costs. It also has moderately low exposure to JVs compared to peers, which improves transparency. We view positively the listing of subsidiaries Shanghai Shimao and Shimao Services on the SSE and HKEX, respectively. The multiple listings improve the group's overall access to capital markets, albeit there is a degree of cash leakage to minority shareholders. Our fundamental Credit Bias is "Stable", reflecting the steady growth in Shimao's contracted sales and revenue. The company has met all of the regulator’s Three Red Lines requirements.   We view Shimao as "Weak" on the LAGA scale, primarily due to the control of Chairman/CEO Hui Wing Mau, who has a 65% stake in the company. His son, Jason Hui, is Vice-Chairman/ED of Shimao Group and Chairman/ED of Shimao Services, while his daughter, Carol Hui, is Vice-Chairman of Shanghai Shimao (a 64%-owned subsidiary listed on the Shanghai exchange). Only three of the eight Board members are independent. We view negatively that all three INEDs have been in their positions for more than 15 years and sit on multiple other Boards.

  We view Shimao Group as "Low Risk" on the LARA scale. Our view considers its good brand value and high exposure to Tier 1 and 2 cities, especially in the affluent Yangtze River Delta and Greater Bay Area. The company has demonstrated a track record of prudent financial management, with moderate but stable leverage over the years. In our view, Shimao's credit profile is among the strongest for Chinese developers under our coverage. In addition, the company has strong access to capital, as seen from its diversified funding sources and competitive borrowing costs. It also has moderately low exposure to JVs compared to peers, which improves transparency.   We view positively the listing of subsidiaries Shanghai Shimao and Shimao Services on the SSE and HKEX, respectively. The multiple listings improve the group's overall access to capital markets, albeit there is a degree of cash leakage to minority shareholders.   Our fundamental Credit Bias is "Stable", reflecting the steady growth in Shimao's contracted sales and revenue. The company has met all of the regulator’s Three Red Lines requirements.     We view Shimao as "Weak" on the LAGA scale, primarily due to the control of Chairman/CEO Hui Wing Mau, who has a 65% stake in the company. His son, Jason Hui, is Vice-Chairman/ED of Shimao Group and Chairman/ED of Shimao Services, while his daughter, Carol Hui, is Vice-Chairman of Shanghai Shimao (a 64%-owned subsidiary listed on the Shanghai exchange). Only three of the eight Board members are independent. We view negatively that all three INEDs have been in their positions for more than 15 years and sit on multiple other Boards. 

Shimao Group - Tear Sheet - Lucror Analytics

Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance, replacing <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>.With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to <a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> and there will be arb opportunities which could result in conversion from the ADS to the HK listing.The inclusion of Xpeng (9868 HK) in the index will push the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.

Xpeng (9868 HK) listed in Hong Kong on 7 July was added to the Hang Seng Composite Index (HSCI) at the close of trading on 20 July. However, being a WVR security, the stock will not be eligible for Southbound Stock Connect till early 2022.Subject to passing the velocity test, we see Xpeng (9868 HK) as an inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance, replacing Evergrande Real Estate Group (3333 HK).With Hang Seng Indexes treating the stock as a primary listing, HSCEI passive trackers will need to buy a large part of the stock that was offered in Hong Kong. This could push Xpeng (9868 HK) to trade at a premium to Xpeng (XPEV US) and there will be arb opportunities which could result in conversion from the ADS to the HK listing.The inclusion of Xpeng (9868 HK) in the index will push the Hang Seng China Enterprises Index (HSCEI INDEX) 2022 dividend futures lower. With the recent changes in China to companies looking to list on a foreign exchange, the HFCAA, and other structural changes to the index, we prefer a short position in the HSCEI 2022 dividend futures.

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

Hang Seng Indexes has increased the number of index shares and free float for <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>, <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> and <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a>, with no change made to the capping factor.This will lead to an increase in the index weight for <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and passive funds benchmarked to the indices will need to buy the stock at the close of trading on 16 July while selling the other index constituents.For July, we estimate passive funds will need to buy 45.52m shares (HK$9.34bn; 2 days of ADV) of <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>. The largest impact of passive selling in terms of days of ADV will be on <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a>, <a href="https://www.smartkarma.com/entities/clp-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14433:1" rel="noopener">CLP Holdings (2 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a>, <a href="https://www.smartkarma.com/entities/hang-lung-properties-ltd" target="_blank" data-smartkarma-citation="entities:49:1" rel="noopener">Hang Lung Properties (101 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-holdings-co" target="_blank" data-smartkarma-citation="entities:5225:1" rel="noopener">Country Garden Holdings Co (2007 HK)</a>.However, passive funds will need to sell <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> at the implementation of the quarterly rebalance in September when the capping factor will be lowered to cap the weight of the stock at 8% in the three indices.

Hang Seng Indexes has increased the number of index shares and free float for Alibaba Group (9988 HK) in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX), with no change made to the capping factor.This will lead to an increase in the index weight for Alibaba Group (9988 HK) and passive funds benchmarked to the indices will need to buy the stock at the close of trading on 16 July while selling the other index constituents.For July, we estimate passive funds will need to buy 45.52m shares (HK$9.34bn; 2 days of ADV) of Alibaba Group (9988 HK). The largest impact of passive selling in terms of days of ADV will be on HSBC Holdings (5 HK), CLP Holdings (2 HK), China Construction Bank H (939 HK), Hang Lung Properties (101 HK) and Country Garden Holdings Co (2007 HK).However, passive funds will need to sell Alibaba Group (9988 HK) at the implementation of the quarterly rebalance in September when the capping factor will be lowered to cap the weight of the stock at 8% in the three indices.

Alibaba (9988 HK): Passive Inflow from HSI, HSCEI, HSTECH Trackers in July

Hong Kong

Shimao Property Holdings Limited develops real estate projects in China.

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Shimao Property Holdings (813 HK)

Asia HY Trade Book - July 2021 - Lucror Analytics

The Asia HY Trade Book for the month of July includes a summary of our recommendations, as well as our high-conviction ideas. The report also...

Lucror Analytics

Li Auto (LI US) Dual Primary Listing: HSCI Fast Entry; HSCEI Dec Inclusion & Div Futures Lower

Li Auto is looking to dual-primary list in HK. The stock should get Fast Entry to the HSCI and join Southbound Stock Connect in Q1 2022. Li Auto...

Brian Freitas

Shimao Group - Tear Sheet - Lucror Analytics

We view Shimao Group as "Low Risk" on the LARA scale. Our view considers its good brand value and high exposure to Tier 1 and 2 cities,...

Lucror Analytics

Xpeng (9868 HK): Potential HSCEI Inclusion & Impact on 2022 Dividends

Xpeng (9868 HK) could be added to the HSCEI in December. Limited liquidity in HK could create arb opportunities with XPEV US. Xpeng index inclusion...

Brian Freitas

Alibaba (9988 HK): Passive Inflow from HSI, HSCEI, HSTECH Trackers in July

Following an increase in the number of CCASS shares and free float, Alibaba's index shares will be increased. Passive HSI/ HSCEI/ HSTECH trackers...

Brian Freitas

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