Quantitative Equity Analyst, DMA

Charlotte van Tiddens, CFA

Quantitative Equity Analyst

Technology-First Company

DMA is a technology-first company that provides an end-to-end SaaS solution to institutional investors. DMA enables regulated entities like asset managers, wealth managers, investment managers and financial advisors to connect their front and back office, break silos and reduce headcount.

Event-Driven

<ul><li>Naspers and Prosus reported H1 FY24 results last week Wednesday before the open.</li><li>No major surprises, all three discounts closed slightly lower. We see room for further narrowing as the consolidated ecommerce businesses approach profitability ahead of the initial target.</li><li>Prosus is still trading below the value of its Tencent stake.</li></ul>

Naspers and Prosus reported H1 FY24 results last week Wednesday before the open.No major surprises, all three discounts closed slightly lower. We see room for further narrowing as the consolidated ecommerce businesses approach profitability ahead of the initial target.Prosus is still trading below the value of its Tencent stake.

NPN X PRX Discount Update + Key Takeaways H1 FY24 Results

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

Thematic (Sector/Industry)

<ul>
<li>EMEA Financials are the largest Regional Sector underweight in global EM, with just 11.6% of managers positioned ahead of the MSCI EM index.</li>
<li>Moderate but uneven recovery underway, with buying in Greece, Saudi, Kuwait and Poland Financials.</li>
<li>Despite being the sector's predominant country holding, South African Financials are experiencing a halt in growth; nonetheless, FirstRand and Standard Bank continue to be key holdings.</li>
</ul>


EMEA Financials are the largest Regional Sector underweight in global EM, with just 11.6% of managers positioned ahead of the MSCI EM index.
Moderate but uneven recovery underway, with buying in Greece, Saudi, Kuwait and Poland Financials.
Despite being the sector's predominant country holding, South African Financials are experiencing a halt in growth; nonetheless, FirstRand and Standard Bank continue to be key holdings.


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

<ul>
<li>The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).</li>
<li>Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.</li>
<li>We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.</li>
</ul>


The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).
Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.
We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.


Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

Cross Asset Strategy

<ul>
<li>South African allocations have fallen to record lows among active GEM investors.  Over the last 6-months, weights have fallen by 0.77% to just 2.82% after fund outflows of $2.78bn.</li>
<li>Naspers was the driver following the Prosus exchange offer.  28 of the 126 pre-existing holders of Naspers sold down their positions , totalling $2.45bn in combined outflows</li>
<li>Strip out Naspers and South Africa looks to be bottoming out.  Selected stocks are starting to attract interest from active EM managers, led by FirstRand, MTN and Capitec.</li>
</ul>


South African allocations have fallen to record lows among active GEM investors.  Over the last 6-months, weights have fallen by 0.77% to just 2.82% after fund outflows of $2.78bn.
Naspers was the driver following the Prosus exchange offer.  28 of the 126 pre-existing holders of Naspers sold down their positions , totalling $2.45bn in combined outflows
Strip out Naspers and South Africa looks to be bottoming out.  Selected stocks are starting to attract interest from active EM managers, led by FirstRand, MTN and Capitec.


Naspers Drives South Africa Positioning to All-Time Lows, but Bright Spots Emerge

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Africa has been described as the "final frontier". Regarding financial services, the adoption of new technologies is progressing fast in young underbanked populations. And the market is huge- almost the size of India or China. It is here that there is greatest potential returns and the greatest risk- from climate change, terrorism etc. Zimbabwe is a case in point: high risk but highly profitable.South Africa is a regional hub, not just for manufacturing but for financial services.  The top banks with broadly similar business models have ample exposure to high-risk high-return markets outside their home base. Just as say, though to a lesser scale, the Colombian banks tap into opportunities in Central America.The South African system has weather the C-19 storm better than many foretold and remains resilient and open to external financing. Impaired Loans hover around 5% which seems a fair reflection of the Asset Quality of the system unlike elsewhere. Liquidity and Capitalisation (helped by dividend restrictions) are on an upward trend though lower interest rates have exerted a negative pull on NIM/Spread and Profitability (despite Cost of Funds reduction) as LLPs have risen fast and top-lines have flatlined. This has affected Efficiency ratios. Writeback of provisions has yet to materialise in contrast to other markets. This means that the PH Score has eroded. The deterioration in value-quality trends though has been more than offset by the commodity tailwind which has underpinned South African bank shares. There are similarities again with Brazil.Despite their exposure to regional markets, South African banks remain mainly a narrative around the Sovereign. They hold a lot of government debt. Credit risk is more pronounced in the Sovereign than the banks. Low growth, high unemployment, C-19 and its impact on tourism and mining, and a dysfunctional energy market remain huge challenges. But the top banks adopt quality risk management policies in the face of potential and real defaults in areas such as car loans, consumer finance, and SMEs.With the top banks, as has been mentioned there are great similarities in business model, though there are nuances and slight differences of identity and focus. Standard Bank Group is partially owned by ICBC and thus has more of a Chinese connection.  Nedbank has a concentration in CRE which has as yet not revealed stresses from C-19. FirstRand has its merchant bank. Absa, Standard, Nedbank, and FirstRand all share a pan-African focus. Capitec is somewhat different structurally though with a mass market proposition, more susceptible to labour statistics, though lower income inhabitants tend to be better clients than many think.South African bank shares have had a good run of late. They have coped better than many thought, including this author. I underestimated the impact of higher commodities and extent of funding expansion (Liquidity injection) on the sector. Valuations are now of course higher. Once we get higher PH Scores, I will be somewhat more confident.  That could be around the corner in some cases with writebacks of provisions at some stage. But the market remains quite highly rated. For a reason: top South African banks (again like Brazil) know their onions.  Regarding recent trading history, momentum is not bad though the reflation story has taken a few knocks of late and shares have run out of steam.

Africa has been described as the "final frontier". Regarding financial services, the adoption of new technologies is progressing fast in young underbanked populations. And the market is huge- almost the size of India or China. It is here that there is greatest potential returns and the greatest risk- from climate change, terrorism etc. Zimbabwe is a case in point: high risk but highly profitable.South Africa is a regional hub, not just for manufacturing but for financial services.  The top banks with broadly similar business models have ample exposure to high-risk high-return markets outside their home base. Just as say, though to a lesser scale, the Colombian banks tap into opportunities in Central America.The South African system has weather the C-19 storm better than many foretold and remains resilient and open to external financing. Impaired Loans hover around 5% which seems a fair reflection of the Asset Quality of the system unlike elsewhere. Liquidity and Capitalisation (helped by dividend restrictions) are on an upward trend though lower interest rates have exerted a negative pull on NIM/Spread and Profitability (despite Cost of Funds reduction) as LLPs have risen fast and top-lines have flatlined. This has affected Efficiency ratios. Writeback of provisions has yet to materialise in contrast to other markets. This means that the PH Score has eroded. The deterioration in value-quality trends though has been more than offset by the commodity tailwind which has underpinned South African bank shares. There are similarities again with Brazil.Despite their exposure to regional markets, South African banks remain mainly a narrative around the Sovereign. They hold a lot of government debt. Credit risk is more pronounced in the Sovereign than the banks. Low growth, high unemployment, C-19 and its impact on tourism and mining, and a dysfunctional energy market remain huge challenges. But the top banks adopt quality risk management policies in the face of potential and real defaults in areas such as car loans, consumer finance, and SMEs.With the top banks, as has been mentioned there are great similarities in business model, though there are nuances and slight differences of identity and focus. Standard Bank Group is partially owned by ICBC and thus has more of a Chinese connection.  Nedbank has a concentration in CRE which has as yet not revealed stresses from C-19. FirstRand has its merchant bank. Absa, Standard, Nedbank, and FirstRand all share a pan-African focus. Capitec is somewhat different structurally though with a mass market proposition, more susceptible to labour statistics, though lower income inhabitants tend to be better clients than many think.South African bank shares have had a good run of late. They have coped better than many thought, including this author. I underestimated the impact of higher commodities and extent of funding expansion (Liquidity injection) on the sector. Valuations are now of course higher. Once we get higher PH Scores, I will be somewhat more confident.  That could be around the corner in some cases with writebacks of provisions at some stage. But the market remains quite highly rated. For a reason: top South African banks (again like Brazil) know their onions.  Regarding recent trading history, momentum is not bad though the reflation story has taken a few knocks of late and shares have run out of steam.

South African Banks: Opportunities and Risks

South Africa

Capitec Bank Holdings Limited operates as a bank controlling company. The Company conducts retail banking services including saving, credit and transacting. Capitec Bank Holdings serves customers in South Africa.

Absa Group Limited provides banking services. The Company offers retail, business, corporate, and investment banking, as well as wealth management services. Absa Group serves customers in South Africa.

Nedbank Group Ltd is a bank holding company which provides personal, commercial, corporate and merchant banking, fund management and related financial services throughout South Africa. In addition, Nedbank operates internationally through offices in London, Isle of Man, and  subsidiaries and associates in sub-Saharan Africa.

FirstRand Limited is a portfolio of separately branded, integrated financial services businesses offering a universal set of transactional, lending, investment and insurance products and services in South Africa, certain markets in sub-Saharan Africa and the UK.

Sanlam Limited provides diversified financial services. The Company specializes in insurance, financial planning, retirement, trust, wills, short-term insurance, asset and risk management, capital market activities, investment, and wealth management. Sanlam serves customers worldwide.

Investec PLC is an international specialist bank and asset manager.  The Group provides corporate and investment banking, private banking, securities trading, asset management, property trading and management and trade finance services. Dually-listed company with INL SJ.

Investec Limited is an international investment and private banking group. The Group provides corporate and investment banking, private banking, securities trading, asset management, property trading and management and trade finance services.  Dually-listed company with INVP LN.

Discovery Ltd. offers health insurance in South Africa, the United States and the United Kingdom, and life insurance in South Africa and the United Kingdom.  The Company also offers tax-efficient investment products, and sponsors a science-based wellness program.

Remgro Ltd is an investment holding company that invests in banking and financial services, packaging, glass products, medical services, mining, petroleum, wine and spirits, food and home and personal care products. It holds investments, amongst others, in FirstRand Bank, RMB Holdings, Rainbow Chicken, Medi-Clinic Corp., Unilever South Africa, Tsb Sugar and Total South Africa.

OUTsurance Group Limited operates as an insurance firm. The Company offers auto, home, life, and business insurance products and services. OUTsurance Group serves customers in South Africa.

CIMB Group Holdings Berhad provides commercial banking and related financial services. The Company and its subsidiaries, operate as a regional universal bank offering a full range of financial products and services, covering corporate and investment banking, consumer banking, treasury, insurance and asset management.

Standard Chartered PLC is an international banking group operating principally in Asia, Africa, and the Middle East. The Company offers its products and services in the personal, consumer, corporate, institutional and treasury areas.

CTBC Financial Holding Company Ltd. is a holding company.  Through its subsidiaries, the Company provides a variety of banking and financial services, including deposit, loan, guarantee, international banking, trust banking, credit card, investment banking, safety deposit box, and Internet banking services.

Punjab National Bank provides financial services such as corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The Company provides services to domestic conglomerates, medium and small industrial units, exporters, non-resident Indians and multinational companies.

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

Public Bank Berhad provides a range of banking and financial services which include leasing and factoring, stock and futures broking, financing for the purchase of licensed public vehicles, and other financial services. The Group's overseas operations include branches in Hong Kong, Sri Lanka, Laos, Cambodia, and Vietnam.

Bank of Nanjing Co., Ltd. operates commercial banking businesses. The Company offers deposits, loans, settlement, discounting, financial bond issuance, government bond underwriting, bank guarantee, and other related financial services. Bank of Nanjing provides services for enterprises and individuals.

KB Financial Group Inc. (the "Company"), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfer with the former shareholders of its subsidiaries including Kookmin Bank in order to provide management services and financing to associated companies. The headquarters are located at Seoul, Korea

E.Sun Financial Holding Company Ltd. is a holding company.  Through its subsidiaries, the Company provides banking, brokerage and dealer services.

Bank of Beijing Company Ltd. attracts deposits and offers commercial banking services.  The Bank offers short-, medium- and long-term loans, insurance, foreign exchange, international settlement, government bonds, and other products and services.

Standard Bank Group Limited is an African integrated financial services group offering a full range of banking and related financial services. The Bank provides services in transactional banking, saving, borrowing, lending, investment, insurance, risk management, wealth management, and advisory services.

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Standard Bank (SBK SJ)

NPN X PRX Discount Update + Key Takeaways H1 FY24 Results

Naspers and Prosus reported H1 FY24 results last week Wednesday before the open. No major surprises, all three discounts closed slightly lower.

DMA

EMEA Financials: Uneven Recovery

EMEA Financials are the largest Regional Sector underweight in global EM. Moderate but uneven recovery underway, with buying in Greece, Saudi,...

Steven Holden

Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China $MCHI, and...

Vermilion Research

Naspers Drives South Africa Positioning to All-Time Lows, but Bright Spots Emerge

Heavy selling in Naspers has driven South Africa exposure to record lows following the Prosus exchange offer. EM active managers turn instead to...

Steven Holden

South African Banks: Opportunities and Risks

South African bank shares have performed well of late, underpinned by commodities narrative. They remain quite highly rated though long-term the...

Paul Hollingworth

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