HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> has logged a revival in earnings performance in 2H20 with a 34.6% YoY growth, accelerating from just 6.2% in 1H20. This is backed by the resurgence in sales growth for all its major products, with excavator and forklift being the best ones. It declared a final DPS of HK$0.33, translating into an attractive dividend yield of 12.2%.</p><p>We saw Lonking stepping into FY21 positively - government's infrastructure spending will continue to support construction machinery demand, and industry sales already pointed to excellent demand in 2M21. We expect net cash will reach HK$0.90/share by end-FY21, 33% of the share price, and its 4.4x PER and 0.89x P/B are just too cheap for a quality company that expects to earn ROE of 21.4% in this year.</p>

Lonking Holdings (3339 HK) has logged a revival in earnings performance in 2H20 with a 34.6% YoY growth, accelerating from just 6.2% in 1H20. This is backed by the resurgence in sales growth for all its major products, with excavator and forklift being the best ones. It declared a final DPS of HK$0.33, translating into an attractive dividend yield of 12.2%.We saw Lonking stepping into FY21 positively - government's infrastructure spending will continue to support construction machinery demand, and industry sales already pointed to excellent demand in 2M21. We expect net cash will reach HK$0.90/share by end-FY21, 33% of the share price, and its 4.4x PER and 0.89x P/B are just too cheap for a quality company that expects to earn ROE of 21.4% in this year.

Lonking (3339 HK): Rock Solid at 12.2% FY20 Dividend Yield, Still with Lots of Net Cash

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<div>
<p>Spreads narrowed sharply this week with 68 of 100 liquid spreads narrowing, 32 widening. The big winner on the week was Consumer narrowing 2.46% as every spread in the space narrowed despite five of six stocks falling in Hs (i.e. As fell even more). </p>
<p>The <a href="https://www.smartkarma.com/entities/shandong-chenming-paper-h" target="_blank" data-smartkarma-citation="entities:13775:1" rel="noopener">Shandong Chenming Paper H (1812 HK)</a> situation intruded on the H/S spreads this week as the decision to convert the B shares to Hs (described by <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> in <a href="https://www.smartkarma.com/insights/shandong-chenming-paper-1812-hk-the-h-b-convergence-trade" target="_blank" data-smartkarma-citation="insights:49247" rel="noopener">Shandong Chenming Paper (1812 HK): The H/B Convergence Trade</a> mid-week) caused ructions in the H/A spread.</p>
<p>But overall, it was a decent week. Only two sectors saw spreads widen (Energy and Utilities), both accompanied by net southbound selling in the week to Wednesday (the last day to which we have granular name-by-name data).</p>
<table class="table table-striped"><tbody>
<tr>
<td><p>Sector</p></td>
<td style="text-align: right;"><p>Last Week</p></td>
<td style="text-align: right;"><p>Previous Week</p></td>
<td style="text-align: right;"><p>3wks Ago</p></td>
<td style="text-align: right;"><p>4wks Ago</p></td>
</tr>
<tr>
<td><p>Consumer</p></td>
<td style="text-align: right;"><p>+ 2.46%</p></td>
<td style="text-align: right;"><p>+ 0.74%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>-  1.65%</p></td>
</tr>
<tr>
<td><p>Energy</p></td>
<td style="text-align: right;"><p>-  0.39%</p></td>
<td style="text-align: right;"><p>-  0.56%</p></td>
<td style="text-align: right;"><p>-  0.36%</p></td>
<td style="text-align: right;"><p>+ 0.67%</p></td>
</tr>
<tr>
<td><p>Financials &amp; Real Estate</p></td>
<td style="text-align: right;"><p>+ 0.92%</p></td>
<td style="text-align: right;"><p>+ 0.53%</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>-  1.12%</p></td>
</tr>
<tr>
<td><p>Health Care &amp; Info Tech</p></td>
<td style="text-align: right;"><p>+ 1.50%</p></td>
<td style="text-align: right;"><p>+ 2.29%</p></td>
<td style="text-align: right;"><p>-  0.54%</p></td>
<td style="text-align: right;"><p>-  2.86%</p></td>
</tr>
<tr>
<td><p>Industrials</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>+ 0.15%</p></td>
<td style="text-align: right;"><p>-  0.42%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
</tr>
<tr>
<td><p>Materials</p></td>
<td style="text-align: right;"><p>+ 1.42%</p></td>
<td style="text-align: right;"><p>+ 0.61%</p></td>
<td style="text-align: right;"><p>-  0.33%</p></td>
<td style="text-align: right;"><p>-  0.84%</p></td>
</tr>
<tr>
<td><p>Utilities</p></td>
<td style="text-align: right;"><p>-  0.91%</p></td>
<td style="text-align: right;"><p>-  0.87%</p></td>
<td style="text-align: right;"><p>-  1.25%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
</tr>
<tr>
<td><p><strong>Sector Average</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.88%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.41%</strong></p></td>
<td style="text-align: right;"><p><strong>-  0.26%</strong></p></td>
<td style="text-align: right;"><p><strong>-  1.02%</strong></p></td>
</tr>
<tr>
<td><p><strong>All Market Average</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.96%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.59%</strong></p></td>
<td style="text-align: right;"><p><strong>+ 0.05%</strong></p></td>
<td style="text-align: right;"><p><strong>-  1.22%</strong></p></td>
</tr>
</tbody></table>
</div><div><div></div></div><p><span>10-day cross-market spread volatility continues to fall. This past week ended at 20% down from 23% in the ten days to 12 March. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still under 20%.</span></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/770/original/Screenshot+2021-03-20+at+8.25.25+PM.png?1616243179" class="editor-image img-responsive" data-smartkarma-image-id="195770"></figure></section><div><div>
<hr>
<h3>The H/A Spread Market</h3>
</div></div><div><p>The past week has seen H-shares come off, but spreads narrow as Hs outperformed their As pretty dramatically. Interestingly, the narrower the spread, to start with, the better the performance on the week. Ideally, spread players want to see that red line sloping downward from upper left to lower right because even a big spread movement for a 70% discount stock means very large performance is needed to catch up. </p></div><div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/724/original/Screenshot+2021-03-20+at+5.41.02+PM.png?1616233277" class="editor-image img-responsive" data-smartkarma-image-id="195724"></figure></section></div><div>
<p>The average discount has started tightening again and we are at 38% which is where the spread rebounded to un Q2 of 2020 after widening in the Covid-crash. </p>
<p>In 2019, spreads spent a fairly long time in the 34-36% average. </p>
</div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/728/original/Screenshot+2021-03-20+at+5.44.03+PM.png?1616233457" class="editor-image img-responsive" data-smartkarma-image-id="195728"></figure></section></section><hr><div><div><h2>Last Week's Recommendations</h2></div></div><div><ul style="list-style-type: disc;">
<li>There were 81 recommendations last week.</li>
<li>Positive alpha returned. There were 49 long spreads and 32 short spreads which gained on average 27bp against the delta-neutral gain of 0.20%, indicating spread alpha of 7bp on the week. This is back to a good trend after a horrible week the week before.</li>
<li>There are <em>nearly</em> 80 recommendations this week (turnover remains low).  </li>
</ul></div><hr><div><div><h2>Consumer Sector</h2></div></div><div>
<p>The first sector discussed is Consumer. It was a complex week there. </p>
<ul>
<li>Five out of six H-shares were down on the week. <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a> was up 10.6%.</li>
<li>All six spreads narrowed with the average H-share outperformance of A at 2.46%. It was a strong week for every spread in the group. </li>
<li>Normally when this happens, there is significant net selling by Southbound. This week saw net buying of HK$270mm to Wednesday, halting four straight weeks prior of net selling. </li>
</ul>
</div><div></div><div><div><div class="content-highlight">
<p>Last week, I recommended keeping the shorts (<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a>) and the long in <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> and adding a long on <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> H vs A.</p>
<p>Those trades lost an average of 0.51% last week in spread terms after losing 29bp the week before, and 16bp the week before that. Despite three losing weeks in a row, positioning in the sector is still up 262bp in four weeks. </p>
<p>This week's trade recommendations are below the fold.</p>
</div></div></div><div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/729/original/Screenshot+2021-03-20+at+5.44.45+PM.png?1616233498" class="editor-image img-responsive" data-smartkarma-image-id="195729"></figure></section></div><div><section>For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section></div>


Spreads narrowed sharply this week with 68 of 100 liquid spreads narrowing, 32 widening. The big winner on the week was Consumer narrowing 2.46% as every spread in the space narrowed despite five of six stocks falling in Hs (i.e. As fell even more). 
The Shandong Chenming Paper H (1812 HK) situation intruded on the H/S spreads this week as the decision to convert the B shares to Hs (described by David Blennerhassett in Shandong Chenming Paper (1812 HK): The H/B Convergence Trade mid-week) caused ructions in the H/A spread.
But overall, it was a decent week. Only two sectors saw spreads widen (Energy and Utilities), both accompanied by net southbound selling in the week to Wednesday (the last day to which we have granular name-by-name data).


Sector
Last Week
Previous Week
3wks Ago
4wks Ago


Consumer
+ 2.46%
+ 0.74%
-  0.14%
-  1.65%


Energy
-  0.39%
-  0.56%
-  0.36%
+ 0.67%


Financials &amp; Real Estate
+ 0.92%
+ 0.53%
+ 1.19%
-  1.12%


Health Care &amp; Info Tech
+ 1.50%
+ 2.29%
-  0.54%
-  2.86%


Industrials
+ 1.19%
+ 0.15%
-  0.42%
-  1.20%


Materials
+ 1.42%
+ 0.61%
-  0.33%
-  0.84%


Utilities
-  0.91%
-  0.87%
-  1.25%
-  0.14%


Sector Average
+ 0.88%
+ 0.41%
-  0.26%
-  1.02%


All Market Average
+ 0.96%
+ 0.59%
+ 0.05%
-  1.22%


10-day cross-market spread volatility continues to fall. This past week ended at 20% down from 23% in the ten days to 12 March. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still under 20%.

The H/A Spread Market
The past week has seen H-shares come off, but spreads narrow as Hs outperformed their As pretty dramatically. Interestingly, the narrower the spread, to start with, the better the performance on the week. Ideally, spread players want to see that red line sloping downward from upper left to lower right because even a big spread movement for a 70% discount stock means very large performance is needed to catch up. 
The average discount has started tightening again and we are at 38% which is where the spread rebounded to un Q2 of 2020 after widening in the Covid-crash. 
In 2019, spreads spent a fairly long time in the 34-36% average. 
Last Week's Recommendations
There were 81 recommendations last week.
Positive alpha returned. There were 49 long spreads and 32 short spreads which gained on average 27bp against the delta-neutral gain of 0.20%, indicating spread alpha of 7bp on the week. This is back to a good trend after a horrible week the week before.
There are nearly 80 recommendations this week (turnover remains low).  
Consumer Sector
The first sector discussed is Consumer. It was a complex week there. 

Five out of six H-shares were down on the week. Tsingtao Brewery Co Ltd H (168 HK) was up 10.6%.
All six spreads narrowed with the average H-share outperformance of A at 2.46%. It was a strong week for every spread in the group. 
Normally when this happens, there is significant net selling by Southbound. This week saw net buying of HK$270mm to Wednesday, halting four straight weeks prior of net selling. 


Last week, I recommended keeping the shorts (BYD (1211 HK) and Fuyao Glass Industry Group (3606 HK)) and the long in Guangzhou Automobile Group (2238 HK) and adding a long on Hisense Home Appliances Group Co., Ltd. H (921 HK) H vs A.
Those trades lost an average of 0.51% last week in spread terms after losing 29bp the week before, and 16bp the week before that. Despite three losing weeks in a row, positioning in the sector is still up 262bp in four weeks. 
This week's trade recommendations are below the fold.
For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.

Quiddity Weekly H/A: Consumer Strong, Spreads Narrowing Masks A-Share Weakness

<div><p>Spreads generally narrowed this week with 63 of 100 liquid spreads narrowing, 37 widening. The big winner on the week was Health Care and Tech narrowing 2.3%. One tech name <a href="https://www.smartkarma.com/entities/flat-glass-group-ltd" target="_blank" data-smartkarma-citation="entities:1108:1" rel="noopener">Flat Glass (6865 HK)</a> moved 10+% while several healthcare names saw spreads narrow 3-7% each, all happening in a somewhat lackluster week for outright performance. Overall, five of seven sectors represented saw spreads narrow.</p></div><div><table class="table table-striped"><tbody>
<tr>
<td><p>Sector</p></td>
<td style="text-align: right;"><p>Last Week</p></td>
<td style="text-align: right;"><p>Previous Week</p></td>
<td style="text-align: right;"><p>3wks Ago</p></td>
<td style="text-align: right;"><p>4wks Ago</p></td>
</tr>
<tr>
<td><p>Consumer</p></td>
<td style="text-align: right;"><p>+ 0.74%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>-  1.65%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
</tr>
<tr>
<td><p>Energy</p></td>
<td style="text-align: right;"><p>-  0.56%</p></td>
<td style="text-align: right;"><p>-  0.36%</p></td>
<td style="text-align: right;"><p>+ 0.67%</p></td>
<td style="text-align: right;"><p>+ 1.43%</p></td>
</tr>
<tr>
<td><p>Financials &amp; Real Estate</p></td>
<td style="text-align: right;"><p>+ 0.53%</p></td>
<td style="text-align: right;"><p>+ 1.19%</p></td>
<td style="text-align: right;"><p>-  1.12%</p></td>
<td style="text-align: right;"><p>+ 0.10%</p></td>
</tr>
<tr>
<td><p>Health Care &amp; Info Tech</p></td>
<td style="text-align: right;"><p>+ 2.29%</p></td>
<td style="text-align: right;"><p>-  0.54%</p></td>
<td style="text-align: right;"><p>-  2.86%</p></td>
<td style="text-align: right;"><p>+ 1.45%</p></td>
</tr>
<tr>
<td><p>Industrials</p></td>
<td style="text-align: right;"><p>+ 0.15%</p></td>
<td style="text-align: right;"><p>-  0.42%</p></td>
<td style="text-align: right;"><p>-  1.20%</p></td>
<td style="text-align: right;"><p>+ 0.26%</p></td>
</tr>
<tr>
<td><p>Materials</p></td>
<td style="text-align: right;"><p>+ 0.61%</p></td>
<td style="text-align: right;"><p>-  0.33%</p></td>
<td style="text-align: right;"><p>-  0.84%</p></td>
<td style="text-align: right;"><p>+ 3.08%</p></td>
</tr>
<tr>
<td><p>Utilities</p></td>
<td style="text-align: right;"><p>-  0.87%</p></td>
<td style="text-align: right;"><p>-  1.25%</p></td>
<td style="text-align: right;"><p>-  0.14%</p></td>
<td style="text-align: right;"><p>+ 0.99%</p></td>
</tr>
<tr>
<td><p>Sector Average</p></td>
<td style="text-align: right;"><p>+ 0.41%</p></td>
<td style="text-align: right;"><p>-  0.26%</p></td>
<td style="text-align: right;"><p>-  1.02%</p></td>
<td style="text-align: right;"><p>+ 0.87%</p></td>
</tr>
<tr>
<td><p>All Market Average</p></td>
<td style="text-align: right;"><p>+ 0.59%</p></td>
<td style="text-align: right;"><p>+ 0.05%</p></td>
<td style="text-align: right;"><p>-  1.22%</p></td>
<td style="text-align: right;"><p>+ 0.76%</p></td>
</tr>
</tbody></table></div><div><div></div></div><p>10-day cross-market spread volatility continues to be somewhat high at 23% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still just under 20%.</p><div><div>
<hr>
<h3>The H/A Spread Market</h3>
</div></div><div><p>The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. </p></div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/200/original/Screenshot+2021-03-14+at+9.05.58+AM.png?1615683976" class="editor-image img-responsive" data-smartkarma-image-id="194200"></figure><p></p></section></section><p>The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% plus or minus a small bit for the past eight weeks or so (despite that illiquidity-bump around LNY). This week we narrowed just inside 40%.</p><section><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/201/original/Screenshot+2021-03-14+at+9.08.22+AM.png?1615684116" class="editor-image img-responsive" data-smartkarma-image-id="194201"></figure></section><p></p></section></section><hr><div><div><h2>Last Week's Recommendations</h2></div></div><div><ul style="list-style-type: disc;">
<li>There were 80 recommendations last week.</li>
<li>This is the second week of negative alpha for the portfolio strategy in as many weeks. The average trade loss 22bp and only 31 of 80 trades recommended was up on the week. Shorts were particularly to blame as spread compression among the names in the 10-25% discount range was much wider than in the 35-60% discount range.</li>
<li>There are <em>nearly</em> 80 recommendations this week (turnover remains low).  </li>
</ul></div><hr><div><div><h2>Consumer Sector</h2></div></div><div><p>The first sector discussed is Consumer, where most H-shares fell on the week. Shares averaged down 1.4% this past week after gaining 0.6% the week before. The two gainers from the prior week both fell this week.</p></div><div><ul style="list-style-type: disc;">
<li>Spreads were less tame, but momentum continues to be strong.</li>
<li>
<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> ended the week down 2% despite good production numbers out at the end of the week prior. BYD is down 28% in four weeks. </li>
<li>
<a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> continued to fall and the spread continued to widen. It is now 13% wider over 4 weeks, but is still the second-narrowest spread in the sector at 21% vs the average spread in the sector at -30%.</li>
<li>Southbound was a net seller of nearly HK$611mm after selling nearly that amount the prior week and HK$2bn in the two weeks before that. <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> saw continued net buying by southbound, which added about 60bp of H-share float ownership on the week through Wednesday.</li>
</ul></div><div><div><div class="content-highlight">
<p>Last week, I recommended staying short <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> H vs A, unwinding the <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> short, and replacing the <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> long with <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a>. </p>
<p>Those trades lost an average of 0.29% last week in spread terms after losing 16bp the week before, but gaining 3.58% the week before that. </p>
</div></div></div><div>
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/249/original/Screenshot+2021-03-14+at+11.50.08+AM.png?1615693825" class="editor-image img-responsive" data-smartkarma-image-id="194249"></figure><p></p></section></section><section class="figure">For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section>
</div>

Spreads generally narrowed this week with 63 of 100 liquid spreads narrowing, 37 widening. The big winner on the week was Health Care and Tech narrowing 2.3%. One tech name Flat Glass (6865 HK) moved 10+% while several healthcare names saw spreads narrow 3-7% each, all happening in a somewhat lackluster week for outright performance. Overall, five of seven sectors represented saw spreads narrow.

Sector
Last Week
Previous Week
3wks Ago
4wks Ago


Consumer
+ 0.74%
-  0.14%
-  1.65%
-  1.20%


Energy
-  0.56%
-  0.36%
+ 0.67%
+ 1.43%


Financials &amp; Real Estate
+ 0.53%
+ 1.19%
-  1.12%
+ 0.10%


Health Care &amp; Info Tech
+ 2.29%
-  0.54%
-  2.86%
+ 1.45%


Industrials
+ 0.15%
-  0.42%
-  1.20%
+ 0.26%


Materials
+ 0.61%
-  0.33%
-  0.84%
+ 3.08%


Utilities
-  0.87%
-  1.25%
-  0.14%
+ 0.99%


Sector Average
+ 0.41%
-  0.26%
-  1.02%
+ 0.87%


All Market Average
+ 0.59%
+ 0.05%
-  1.22%
+ 0.76%

10-day cross-market spread volatility continues to be somewhat high at 23% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is still just under 20%.

The H/A Spread Market
The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% plus or minus a small bit for the past eight weeks or so (despite that illiquidity-bump around LNY). This week we narrowed just inside 40%.Last Week's Recommendations
There were 80 recommendations last week.
This is the second week of negative alpha for the portfolio strategy in as many weeks. The average trade loss 22bp and only 31 of 80 trades recommended was up on the week. Shorts were particularly to blame as spread compression among the names in the 10-25% discount range was much wider than in the 35-60% discount range.
There are nearly 80 recommendations this week (turnover remains low).  
Consumer SectorThe first sector discussed is Consumer, where most H-shares fell on the week. Shares averaged down 1.4% this past week after gaining 0.6% the week before. The two gainers from the prior week both fell this week.
Spreads were less tame, but momentum continues to be strong.

BYD (1211 HK) ended the week down 2% despite good production numbers out at the end of the week prior. BYD is down 28% in four weeks. 

Fuyao Glass Industry Group (3606 HK) continued to fall and the spread continued to widen. It is now 13% wider over 4 weeks, but is still the second-narrowest spread in the sector at 21% vs the average spread in the sector at -30%.
Southbound was a net seller of nearly HK$611mm after selling nearly that amount the prior week and HK$2bn in the two weeks before that. Great Wall Motor (2333 HK) saw continued net buying by southbound, which added about 60bp of H-share float ownership on the week through Wednesday.

Last week, I recommended staying short BYD (1211 HK), and Fuyao Glass Industry Group (3606 HK) H vs A, unwinding the Hisense Home Appliances Group Co., Ltd. H (921 HK) short, and replacing the Great Wall Motor (2333 HK) long with Guangzhou Automobile Group (2238 HK). 
Those trades lost an average of 0.29% last week in spread terms after losing 16bp the week before, but gaining 3.58% the week before that. 

For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.


Quiddity Weekly H/A: Energy Up, Spreads Wider, Pharmas Down Spreads Narrower

Event-Driven

<div>
<p>Spreads were mixed this week with 48 out of 100 observed pair spreads narrower and 52 wider. The big winner on the week was Financials with spreads 119bp narrower on average. Banks and Big Insurance generally narrowed. </p>
</div>
<div>
<p>Overall, it was a lackluster performance, and one cannot say spreads won't move wider, but at 40% discount (and an arithmetic average upside of 87% for each liquid H to reach parity with its A), this spreads <em>are</em> wide.</p>
</div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 211.818px;">
<p><strong>Sector</strong></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><strong>Last Week</strong></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><strong>Previous Week</strong></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><strong>3wks Ago</strong></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><strong>4wks Ago</strong></p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Consumer</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.14%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.65%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>-  1.20%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 2.55%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Energy</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.36%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>+ 0.67%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 1.43%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  1.64%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Financials &amp; Real Estate</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>+ 1.19%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.12%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.10%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 0.29%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Health Care &amp; Info Tech</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.54%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  2.86%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 1.45%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  1.52%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Industrials</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.42%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  1.20%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.26%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  0.62%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Materials</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  0.33%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  0.84%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 3.08%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>-  0.57%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p>Utilities</p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p>-  1.25%</p>
</td>
<td style="text-align: right; width: 136.364px;">
<p>-  0.14%</p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p>+ 0.99%</p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p>+ 0.25%</p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p><em><strong>Sector Average</strong></em></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><em><strong>-  0.26%</strong></em></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><em><strong>-  1.02%</strong></em></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><em><strong>+ 0.87%</strong></em></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><em><strong>-  0.18%</strong></em></p>
</td>
</tr>
<tr>
<td style="width: 211.818px;">
<p><strong>All Market Average</strong></p>
</td>
<td style="text-align: right; width: 99.0909px;">
<p><strong>- 0.03%</strong></p>
</td>
<td style="text-align: right; width: 136.364px;">
<p><strong>-  1.22%</strong></p>
</td>
<td style="text-align: right; width: 95.4545px;">
<p><strong>+ 0.76%</strong></p>
</td>
<td style="text-align: right; width: 97.2727px;">
<p><strong>-  0.33%</strong></p>
</td>
</tr>
</tbody>
</table>
</div>
<div>
<div></div>
</div>
<div>
<p>10-day cross-market spread volatility continues to be high at 26% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is quite a bit lower. </p>
</div>
<div>
<div>
<hr>
<h3>The H/A Spread Market</h3>
</div>
</div>
<div>
<p>The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. </p>
</div>
<section>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/678/original/Screenshot+2021-03-07+at+8.28.29+PM.png?1615120136" class="editor-image img-responsive" data-smartkarma-image-id="192678"></figure>
</section>
<p></p>
</section>
<div>
<p>The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% for the past four weeks or so (despite that illiquidity-bump around LNY). </p>
</div>
<section>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/679/original/Screenshot+2021-03-07+at+8.30.27+PM.png?1615120295" class="editor-image img-responsive" data-smartkarma-image-id="192679"></figure>
</section>
</section>
<hr>
<div>
<h2>Last Week's Recommendations</h2>
</div>
<div>
<ul style="list-style-type: disc;">
<li>There were 80 recommendations last week. This was the first losing week on alpha in several. </li>
<li>The 34 short spread recommendations lost an average of 0.12%, underperforming the market as a whole (which saw the average spread widen 0.03%). That is negative alpha of 9bp after positive alpha of 48bp the previous week on 33 spreads.</li>
<li>The 46 long recommendations averaged losses of 4bp during the week, underperforming the market as a whole by 1bp (vs +46bp outperformance the previous week). The combined total package was up -0.07% for the week vs +0.27% for the prior week, with -10bp of cross-bias alpha (vs 92bp of alpha on the cross-bias the previous week).</li>
<li>There are nearly 80 recommendations this week (turnover remains low).  </li>
</ul>
</div>
<hr>
<div>
<div>
<h2>Consumer Sector</h2>
</div>
</div>
<div>
<p>The first sector discussed is Consumer, where most H-shares fell on the week </p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>Spreads were remarkably tame.</li>
<li>
<a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> ended the week down 1.1% after rising in the first four days, and the shares even fell Friday despite <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0304/2021030401545.pdf" target="_blank" rel="noopener">announcing</a> Thursday after the close that production was up 125%yoy in February, and sales +106%. BYD is down 20+% in four weeks. </li>
<li>
<a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> was only up small in sympathy, outperforming auto names, and significantly outperforming glass names across other sectors. Thursday saw significant selling of glass names. </li>
<li>Southbound was a net seller of nearly HK$585mm after selling HK$2bn in the previous two weeks. Only <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> saw decent Southbound buying on a net basis (+HK$190mm). BYD was the big net sell at -HK$673mm. </li>
</ul>
</div>
<div>
<div>
<div class="content-highlight">
<p>Last week, I recommended staying long the <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> H vs A, and short <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a>, and <a href="https://www.smartkarma.com/entities/fuyao-glass-industry-group-co-ltd" target="_blank" data-smartkarma-citation="entities:330:1" rel="noopener">Fuyao Glass Industry Group (3606 HK)</a> H vs A. </p>
<p>Those four trades lost an average of 0.16% last week in spread terms after gaining 3.58% the previous week.</p>
</div>
</div>
</div>
<div>
<section class="figure">
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/669/original/Screenshot+2021-03-07+at+7.38.39+PM.png?1615117130" class="editor-image img-responsive" data-smartkarma-image-id="192669"></figure>
<p></p>
</section>
</section>
</div>
<div>
<section>For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.</section>
</div>


Spreads were mixed this week with 48 out of 100 observed pair spreads narrower and 52 wider. The big winner on the week was Financials with spreads 119bp narrower on average. Banks and Big Insurance generally narrowed. 


Overall, it was a lackluster performance, and one cannot say spreads won't move wider, but at 40% discount (and an arithmetic average upside of 87% for each liquid H to reach parity with its A), this spreads are wide.






Sector


Last Week


Previous Week


3wks Ago


4wks Ago




Consumer


-  0.14%


-  1.65%


-  1.20%


+ 2.55%




Energy


-  0.36%


+ 0.67%


+ 1.43%


-  1.64%




Financials &amp; Real Estate


+ 1.19%


-  1.12%


+ 0.10%


+ 0.29%




Health Care &amp; Info Tech


-  0.54%


-  2.86%


+ 1.45%


-  1.52%




Industrials


-  0.42%


-  1.20%


+ 0.26%


-  0.62%




Materials


-  0.33%


-  0.84%


+ 3.08%


-  0.57%




Utilities


-  1.25%


-  0.14%


+ 0.99%


+ 0.25%




Sector Average


-  0.26%


-  1.02%


+ 0.87%


-  0.18%




All Market Average


- 0.03%


-  1.22%


+ 0.76%


-  0.33%









10-day cross-market spread volatility continues to be high at 26% annualised. This is down off highs in the low 30s a couple weeks ago, but the long-term average is quite a bit lower. 




The H/A Spread Market



The past week has seen H-shares come off sharply and spreads widen reasonably dramatically. 








The average discount appears not to want to tighten, still. The average spread has kept at around 40.0% for the past four weeks or so (despite that illiquidity-bump around LNY). 








Last Week's Recommendations



There were 80 recommendations last week. This was the first losing week on alpha in several. 
The 34 short spread recommendations lost an average of 0.12%, underperforming the market as a whole (which saw the average spread widen 0.03%). That is negative alpha of 9bp after positive alpha of 48bp the previous week on 33 spreads.
The 46 long recommendations averaged losses of 4bp during the week, underperforming the market as a whole by 1bp (vs +46bp outperformance the previous week). The combined total package was up -0.07% for the week vs +0.27% for the prior week, with -10bp of cross-bias alpha (vs 92bp of alpha on the cross-bias the previous week).
There are nearly 80 recommendations this week (turnover remains low).  





Consumer Sector



The first sector discussed is Consumer, where most H-shares fell on the week 



Spreads were remarkably tame.

BYD (1211 HK) ended the week down 1.1% after rising in the first four days, and the shares even fell Friday despite announcing Thursday after the close that production was up 125%yoy in February, and sales +106%. BYD is down 20+% in four weeks. 

Fuyao Glass Industry Group (3606 HK) was only up small in sympathy, outperforming auto names, and significantly outperforming glass names across other sectors. Thursday saw significant selling of glass names. 
Southbound was a net seller of nearly HK$585mm after selling HK$2bn in the previous two weeks. Only Fuyao Glass Industry Group (3606 HK) saw decent Southbound buying on a net basis (+HK$190mm). BYD was the big net sell at -HK$673mm. 





Last week, I recommended staying long the Great Wall Motor (2333 HK) H vs A, and short BYD (1211 HK), Hisense Home Appliances Group Co., Ltd. H (921 HK), and Fuyao Glass Industry Group (3606 HK) H vs A. 
Those four trades lost an average of 0.16% last week in spread terms after gaining 3.58% the previous week.












For this week's recommendations on Consumer, and discussion of the Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.


Quiddity Weekly H/A: Financials Outpace Everything Else: Marketwide 87% Upside to A-Share Parity

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

<p><br/> In this month's “In-Focus”, we update our study of agency ratings for Asian issuers, analysing ratings transitions for all issuers in the Lucror Asia HY index between January 2014 and the present.<br/><br/> The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market. <br/></p>

  In this month's “In-Focus”, we update our study of agency ratings for Asian issuers, analysing ratings transitions for all issuers in the Lucror Asia HY index between January 2014 and the present.   The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.  

Asia HY Monthly - Asian HY Ratings Transition Study - Lucror Analytics

China

Zoomlion Heavy Industry Science and Technology Co., Ltd.manufactures and markets construction machinery.  The Company's products include concrete machinery, cranes, road machinery, drilling equipment, and other heavy construction equipment.  Zoomlion also produces environmental machinery and satellite navigation products.

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

Zoomlion Heavy Industry S A (000157 CH)

Lonking (3339 HK): Rock Solid at 12.2% FY20 Dividend Yield, Still with Lots of Net Cash

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Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Lonking (3339 HK): Rock Solid at 12.2% FY20 Dividend Yield, Still with Lots of Net Cash

Lonking's good performance in 2H20 should extend into this year, and its net cash will accumulate to 33% of share price by end-FY21. Assuming the...

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