China

In this briefing:

1. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance
2. Dali Foods (3799:HK): Short on Expected Cost Increases (Summary Note)

1. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance

CATL (A) (300750 CH) announced on Monday that it has signed a deal with Honda Motor (7267 JP) for jointly developing Li-ion batteries. This news comes to us as no surprise, given CATL’s effort in expanding market share globally by tying with leading automakers such as Nissan Motor (7201 JP), Daimler AG (DAI GR), and Bayerische Motoren Werke Ag (BMW GR). It seems that the Chinese battery leader is now targeting leading Japanese automakers alongside their focus on luxury automakers in Europe ( BMW to Invest in CATL: Chinese Battery Maker to Gain Exposure in Europe?).  Following Panasonic Corp (6752 JP)’s news about forming a Joint Venture with Toyota, we were under the impression that Panasonic would hit a deal with Honda as well. However, it seems that CATL has emerged as a first mover and secured a steady business by partnering with Honda, one of the leading automakers in Japan. Although Panasonic and Honda joined hands for developing a swappable battery system in Indonesia, the team hasn’t really gone ahead in developing Li-ion batteries. Honda’s battery sales are now for CATL, while Panasonic has lost a steady business deal unless the latter makes plans with Honda to develop new battery technologies such as solid-state batteries. In our opinion, Honda and CATL, being leaders in their respective industries, when joined together via this agreement should capture a strong position in the auto sector which is striding towards electrification. The effect of this news on CATL share price cannot be really seen as the markets are closed for ongoing holidays in China. Panasonic, however, opened -5.1% low on February 5th, mainly due to its disappointing 3QFY03/19 earnings and could be partly due to this news.

2. Dali Foods (3799:HK): Short on Expected Cost Increases (Summary Note)

Chinese snack food and non-alcoholic beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts. Fully 18 of twenty analysts (including all four of the ‘bulge bracket’ investment banks who cover it) rate the stock ‘Buy’ or ‘Overweight’, and only one analyst gives the shares an ‘Underweight’ rating.

The ‘bull’ case for Dali Foods includes continued strong revenue growth and further margin expansion over the next few years. In contrast, we believe revenue growth is already moderating and that core margins will soon come under pressure due to rising raw materials costs. As a result, our forward earnings estimates are substantially below consensus expectations.

Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods is HK$4.18, about 23% below its HK$5.41 closing price on February 1st. We suggest investors Short Dali Foods; current holders should consider exiting their positions, in our view.

A longer note that includes company and industry background, plus financial statements and forecasts for Dali Foods, can be found elsewhere here on Smartkarma using the company’s ticker.

In this briefing:

1. Pinduoduo (拼多多) Placement – Not a Good Sign
2. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019
3. Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness
4. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)
5. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend

1. Pinduoduo (拼多多) Placement – Not a Good Sign

Pinduoduo (PDD US) is looking to raise about US$1.5bn in its follow-up offering. The placement is a mix of primary and secondary selldown.

The deal scores poorly on our framework due to its large deal size and expensive valuation relative to peers. We find that the timing of the placement to be peculiar and the large overhang post-offering is a worry. Banyan’s selldown in this placement suggested that principal shareholders may progressively look to exit their stakes contrary to our previous assumption and their shares will add pressure to the share price in the near-term.

2. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019

Increasing risk apparent

• Q4-2018 Small-Mid Cap High-Risk screen ( Screening the Silkroad: Small-Mid Cap – High-Risk Names To Avoid Q4 2018 ) delivered a market cap average share price decline of 4.5%. This compares with the MSCI Asia Pacific Index appreciating 4.2% over the same period. 
• Our screen looks for high valuation multiples presented by candidates, with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. 
• The Risk to this screen: The Financial and Utility sectors are not covered in this screen. Moreover, “risk is not a number, it is a concept or notion”, as James Mortiner cited during his time at Société Genéralé. Hence, some stocks due to their business model being realigned to a more profitable approach may appear on this screen, whilst also be a member of more positive value or quality screens.
• 26-stocks appear in our Q1 2019 screen. Eight (8) of which are new, namely from Korea, Japan and Taiwan. Singapore remains absent from the screen for the third quarter running, whilst New Zealand has only presented one candidate in Q4 2018.

• Our screen suggests that risk is increasing amongst the small-mid cap universe, as the Alman Z average score slips to 1.14 in Q1 2019 from 1.16 in Q4 2018 and 1.38 in Q3 2018. Moreover, our average stock in the list has a ranking of 42.3, compared to 54.9 in Q4 2019. 

Our screening styles

For those that follow us, you will know our Stock Ranking system from our Notes from the Silk Road: Setting Out Our Small-Mid Cap Lemonade Stand  For newcomers to our notes, it is merely a tool for identifying favourable and unfavourable stocks. In addition, to add more depth to our selection process we also monitor a series of “style categories” namely:

■ Growth, 
■ Value, 
■ Quality,
■ Momentum, 
■ Deep Value, 
■ Income,
■ Underperformance.

Within these style categories, we drill down further through a series of alpha momentum screens allowing us to differentiate and identify stock picks. 

3. Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness

When one is looking for something in an economy it is usually not difficult to find corroborating evidence, any economy and at any time. Economists and analysts are masters of massaging data to suit their own agendas. China’s car sales in 2018 are a case in point.

4. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)

Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock ‘Buy’ or ‘Overweight’.

In contrast to the consensus ‘bull’ view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.

Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods’ shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st. 

5. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend

Tracking Traffic/Chinese Tourism is the hub for all of our research on China’s tourism sector. This monthly report features analysis of Chinese tourism data, notes from our conversations with industry participants, and links to recent company news and thematic pieces. Our aim is to highlight important trends in China’s tourism sector (and changes to those trends).

In this issue readers can find:

Although we remain positive on the long-term growth of Chinese tourism, it’s clear that near-term demand growth has slowed, and that Chinese tourists are generally staying closer to home and probably spending less than they were a year ago. 

Happy New Year (of the Pig)!

In this briefing:

1. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)
2. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
3. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance
4. Dali Foods (3799:HK): Short on Expected Cost Increases (Summary Note)
5. Baidu: Time to Swoop In, with NAV Discount Widening Substantially

1. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)

Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock ‘Buy’ or ‘Overweight’.

In contrast to the consensus ‘bull’ view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.

Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods’ shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st. 

2. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend

Tracking Traffic/Chinese Tourism is the hub for all of our research on China’s tourism sector. This monthly report features analysis of Chinese tourism data, notes from our conversations with industry participants, and links to recent company news and thematic pieces. Our aim is to highlight important trends in China’s tourism sector (and changes to those trends).

In this issue readers can find:

Although we remain positive on the long-term growth of Chinese tourism, it’s clear that near-term demand growth has slowed, and that Chinese tourists are generally staying closer to home and probably spending less than they were a year ago. 

Happy New Year (of the Pig)!

3. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance

CATL (A) (300750 CH) announced on Monday that it has signed a deal with Honda Motor (7267 JP) for jointly developing Li-ion batteries. This news comes to us as no surprise, given CATL’s effort in expanding market share globally by tying with leading automakers such as Nissan Motor (7201 JP), Daimler AG (DAI GR), and Bayerische Motoren Werke Ag (BMW GR). It seems that the Chinese battery leader is now targeting leading Japanese automakers alongside their focus on luxury automakers in Europe ( BMW to Invest in CATL: Chinese Battery Maker to Gain Exposure in Europe?).  Following Panasonic Corp (6752 JP)’s news about forming a Joint Venture with Toyota, we were under the impression that Panasonic would hit a deal with Honda as well. However, it seems that CATL has emerged as a first mover and secured a steady business by partnering with Honda, one of the leading automakers in Japan. Although Panasonic and Honda joined hands for developing a swappable battery system in Indonesia, the team hasn’t really gone ahead in developing Li-ion batteries. Honda’s battery sales are now for CATL, while Panasonic has lost a steady business deal unless the latter makes plans with Honda to develop new battery technologies such as solid-state batteries. In our opinion, Honda and CATL, being leaders in their respective industries, when joined together via this agreement should capture a strong position in the auto sector which is striding towards electrification. The effect of this news on CATL share price cannot be really seen as the markets are closed for ongoing holidays in China. Panasonic, however, opened -5.1% low on February 5th, mainly due to its disappointing 3QFY03/19 earnings and could be partly due to this news.

4. Dali Foods (3799:HK): Short on Expected Cost Increases (Summary Note)

Chinese snack food and non-alcoholic beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts. Fully 18 of twenty analysts (including all four of the ‘bulge bracket’ investment banks who cover it) rate the stock ‘Buy’ or ‘Overweight’, and only one analyst gives the shares an ‘Underweight’ rating.

The ‘bull’ case for Dali Foods includes continued strong revenue growth and further margin expansion over the next few years. In contrast, we believe revenue growth is already moderating and that core margins will soon come under pressure due to rising raw materials costs. As a result, our forward earnings estimates are substantially below consensus expectations.

Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods is HK$4.18, about 23% below its HK$5.41 closing price on February 1st. We suggest investors Short Dali Foods; current holders should consider exiting their positions, in our view.

A longer note that includes company and industry background, plus financial statements and forecasts for Dali Foods, can be found elsewhere here on Smartkarma using the company’s ticker.

5. Baidu: Time to Swoop In, with NAV Discount Widening Substantially

• Our stub valuation analysis reveals that Baidu Inc (ADR) (BIDU US) attractively trades at near 2 SD below its 3-yr average of NAV discount.
• Fundamentally, BIDU’s core business (Baidu Core) has grown healthily, with strong cash flows generation.
• China consumption slowdown is likely to mean modest sales growth deceleration (not a “sales falling off the cliff” scenario) for BIDU in 2019E.
• Implied in the current ADR price, the market is unjustifiably valuing Baidu Core (11.2x 2019E PE) as an “Old economy” company with little to no growth prospect, in our opinion.
• Our PT for next 3-6 mo, assuming 10% holdco discount to NAV, works out to be US$224/ADR, representing a 27% upside potential.   

In this briefing:

1. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
2. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies

1. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors

With the shares hitting all-time highs, Pinduoduo (PDD US) announced a follow-on public offering to raise net proceeds (potentially of $1.1 billion) from the sale of 37 million ADS along with the placing of 14.8 million ADS from existing shareholders (post-lockup expiry).

2. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies

Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies.  This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .

In this briefing:

1. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
2. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain

1. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

2. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain

• Koolearn updated its IPS prospectus and posted operating losses for 1H2019 (ended Nov. 2018).
• The company spent significantly on online promotion, but we believe that online promotion is not useful.
• We also believe online marketing expenditures are not a productive use of the Company’s cash, as Koolearn’s brand was already well known among consumers due to its parent company, New Oriental.

In this briefing:

1. Baidu: Time to Swoop In, with NAV Discount Widening Substantially
2. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
4. Wilmar: China Listing at ~20x Might Prove Too Optimistic.
5. Koolearn: Losses in Full View

1. Baidu: Time to Swoop In, with NAV Discount Widening Substantially

• Our stub valuation analysis reveals that Baidu Inc (ADR) (BIDU US) attractively trades at near 2 SD below its 3-yr average of NAV discount.
• Fundamentally, BIDU’s core business (Baidu Core) has grown healthily, with strong cash flows generation.
• China consumption slowdown is likely to mean modest sales growth deceleration (not a “sales falling off the cliff” scenario) for BIDU in 2019E.
• Implied in the current ADR price, the market is unjustifiably valuing Baidu Core (11.2x 2019E PE) as an “Old economy” company with little to no growth prospect, in our opinion.
• Our PT for next 3-6 mo, assuming 10% holdco discount to NAV, works out to be US$224/ADR, representing a 27% upside potential.   

2. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors

With the shares hitting all-time highs, Pinduoduo (PDD US) announced a follow-on public offering to raise net proceeds (potentially of $1.1 billion) from the sale of 37 million ADS along with the placing of 14.8 million ADS from existing shareholders (post-lockup expiry).

3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies

Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies.  This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .

4. Wilmar: China Listing at ~20x Might Prove Too Optimistic.

INVESTMENT VIEW:  Management sounded confident that they could list its China operations at ~20x PER and unlock value in Wilmar International (WIL SP) shares by 1) paying a special dividend from the listing proceeds, and 2) investors using the SOTP valuation to see deep value in the ex-China portion of the business.  However, our review of Wilmar-China’s listed A-share peers highlights significant vulnerability in management’s key assumption on its potential listing multiple.  We recommend investors take profits from the recent rally in the shares and expect them to trade back towards the lower end of its recent trading range. 

5. Koolearn: Losses in Full View

When we previously argued that the Koolearn IPO was ‘hurtling towards losses’, its latest PHIP update provided little reprieve to our postulation.  Further analysis on the latest update can be found below the fold. 

In this briefing:

1. Koolearn: Losses in Full View
2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
3. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain
4. China’s FX Gaps Ahead of Lunar New Year
5. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

1. Koolearn: Losses in Full View

When we previously argued that the Koolearn IPO was ‘hurtling towards losses’, its latest PHIP update provided little reprieve to our postulation.  Further analysis on the latest update can be found below the fold. 

2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

3. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain

• Koolearn updated its IPS prospectus and posted operating losses for 1H2019 (ended Nov. 2018).
• The company spent significantly on online promotion, but we believe that online promotion is not useful.
• We also believe online marketing expenditures are not a productive use of the Company’s cash, as Koolearn’s brand was already well known among consumers due to its parent company, New Oriental.

4. China’s FX Gaps Ahead of Lunar New Year

China has essentially shut down for Chinese New Year, but we want to take a look at FX markets and the relationship between the USD and RMB. Another reason to keep this at the forefront is that the trade talk deadline is on the other side of Spring Festival. We anticipate FX to be impacted by trade speculation ahead of the deadline.

5. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

• Poland: Could be a beneficiary of Brexit if Poles return to boost domestic demand. Unemployment of 5.5% provides room for workers.
• Brazil: Congress returning to discuss market-friendly policies from Bolsonaro – Pensions are top of list for reform
• Malaysia: Extremely dependent on external trade Malaysia has done well recently but may face headwinds if global growth slows.

In this briefing:

1. Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst
2. Big Flows in China Bonds as Bloomberg Barclays Global Aggregate Index Adds
3. Huawei/Trade Talks/ Foreign Investment/Profit Warnings/QFII & RQFII

1. Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst

Maoyan Entertainment was priced at HKD 14.8/share and will start trading today. We summarize the latest information with updates on our valuation in this short note, prior to the trading debut. Our recent studies on the movies slotted to launch during the Chinese New Year period suggest that the box office during the CNY period could be a positive catalyst to Maoyan, which lists right before the CNY. 

2. Big Flows in China Bonds as Bloomberg Barclays Global Aggregate Index Adds

On 31 January 2019, Bloomberg confirmed that local Chinese RMB bonds would be included in the Bloomberg Barclays Global Aggregate Index (methodology) (and the Global Treasury Index and EM Local Currency Government Bond Index), which covers roughly US$54 trillion of outstanding bonds. RMB would become the fourth largest weighted currency in the index after USD, euro, and JPY with a pro-forma 6.03% weighting as measured a week ago against a total basket of elibible securities of roughly US$3.26trln. 

The inclusion will start in April 2019 and will take 20 months, as described in the original March 2018 press release. At that time, there was still work to be done to improve the infrastructure, including implementation of delivery vs. payment settlement, ability to allocate block trades across portfolios, and clarification on tax collection policies. 

The phase-in period will include a scaling factor of 5% to be implemented incrementally over the 20 months trough December 2020. 

Bloomberg will create ex-China versions of all three indices starting in April for investors who wish to continue without China exposure in the benchmark. 

This creates flows. And I like to look at flows.

The basic flows are easy enough to calculate. But those flows aren’t the only flows to consider. Flows beget flows, and the universe of bonds is not static.

Are you prepared for US$30bn a month of foreign inflows by end 2020?

3. Huawei/Trade Talks/ Foreign Investment/Profit Warnings/QFII & RQFII

China News That Matters

• Caught red-handed? US charges Huawei
• DC talks await leaders’ summit
• Still lovin’ it? Beijing serves new law for foreign investors 
• Slowdown sparks profit warnings
• Luring foreign lolly with combined schemes

In this briefing:

1. Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst
2. Big Flows in China Bonds as Bloomberg Barclays Global Aggregate Index Adds
3. Huawei/Trade Talks/ Foreign Investment/Profit Warnings/QFII & RQFII
4. Follow The Money
5. Quick Take: Asian LNG Spot Prices Fall Below the UK NBP Gas Price

1. Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst

Maoyan Entertainment was priced at HKD 14.8/share and will start trading today. We summarize the latest information with updates on our valuation in this short note, prior to the trading debut. Our recent studies on the movies slotted to launch during the Chinese New Year period suggest that the box office during the CNY period could be a positive catalyst to Maoyan, which lists right before the CNY. 

2. Big Flows in China Bonds as Bloomberg Barclays Global Aggregate Index Adds

On 31 January 2019, Bloomberg confirmed that local Chinese RMB bonds would be included in the Bloomberg Barclays Global Aggregate Index (methodology) (and the Global Treasury Index and EM Local Currency Government Bond Index), which covers roughly US$54 trillion of outstanding bonds. RMB would become the fourth largest weighted currency in the index after USD, euro, and JPY with a pro-forma 6.03% weighting as measured a week ago against a total basket of elibible securities of roughly US$3.26trln. 

The inclusion will start in April 2019 and will take 20 months, as described in the original March 2018 press release. At that time, there was still work to be done to improve the infrastructure, including implementation of delivery vs. payment settlement, ability to allocate block trades across portfolios, and clarification on tax collection policies. 

The phase-in period will include a scaling factor of 5% to be implemented incrementally over the 20 months trough December 2020. 

Bloomberg will create ex-China versions of all three indices starting in April for investors who wish to continue without China exposure in the benchmark. 

This creates flows. And I like to look at flows.

The basic flows are easy enough to calculate. But those flows aren’t the only flows to consider. Flows beget flows, and the universe of bonds is not static.

Are you prepared for US$30bn a month of foreign inflows by end 2020?

3. Huawei/Trade Talks/ Foreign Investment/Profit Warnings/QFII & RQFII

China News That Matters

• Caught red-handed? US charges Huawei
• DC talks await leaders’ summit
• Still lovin’ it? Beijing serves new law for foreign investors 
• Slowdown sparks profit warnings
• Luring foreign lolly with combined schemes

4. Follow The Money

• January data on investor positioning show a big improvement in risk appetite for Emerging Markets
• Two-year ahead returns from risk assets likely to be sizeable and positive
• However, not clear that we are yet definitely at the ‘bottom’
• Strongest convictions are to favour EM over US and China over India

5. Quick Take: Asian LNG Spot Prices Fall Below the UK NBP Gas Price

Asian LNG spot prices have dropped for a short time below the UK NBP gas price, reversing the established trend that sees Asian LNG offering a premium to the European LNG price benchmarks. This note takes a look at the latest trends in the LNG markets and the renewed plans unveiled by Qatar to challenge its competitors, in particular, those from the US.

In this briefing:

1. ECM Weekly (2 February 2019) – Maoyan, China Tower, Dexin, Chalet Hotels, Bharat Hotels, Wingarc1st
2. Semiconductor Memory Business Shrinking Fast
3. Netmarble Games + Tencent = The Most Likely Consortium to Acquire NXC Corp/Nexon?
4. The Dollar Is Already Dead

1. ECM Weekly (2 February 2019) – Maoyan, China Tower, Dexin, Chalet Hotels, Bharat Hotels, Wingarc1st

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72% for IPOs and 63.8% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Edvantage Group (Hong Kong, ~US$100m)
• Koolearn (Hong Kong, re-filed)
• Shangde Qizhi Education Group (Hong Kong, re-filed)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• China’s Sinochem Energy lets Hong Kong IPO application lapse
• India’s Cleartrip eyes IPO as it plans Gulf expansion
• Blackstone set to IPO inaugural $1 billion Reit before March
• Bursa Malaysia’s outgoing CEO says IPO pipeline for 2019 looks strong
• China to Scrap Price, Debut Gain Limits to Entice Tech IPOs

Smartkarma Community’s this week Analysis on Upcoming IPO

• Ebang IPO Preview: Balance Sheet Indicators Point to a Significant Slowdown
• Chalet Hotels IPO Review – Backed up into a Corner
• CStone Pharma IPO Preview: Mixed Prospects of Late-Stage Clinical Drug Candidates
• IPO Radar: KTB Securities, the Only Korean Broker in Thailand
• Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio
• Dreamtech: Trying for an IPO Again at a Lower Price
• Bharat Hotels Pre-IPO – Catching up with Peers
• China Tower Corp: Trading Idea Before Lock-Up Expiry
• Dexin China (德信中国) Pre-IPO – Related Party Transactions and Partial Asset Listing

List of pre-IPO Coverage on Smartkarma

2. Semiconductor Memory Business Shrinking Fast

Earnings have been announced for Intel, Samsung, SK hynix, and Western Digital, and the memory business is clearly undermining all of these companies’ earnings.  In this Insight I review each of the  companies to show where they are, and will explain what the future holds for them as today’s oversupply unfolds.

3. Netmarble Games + Tencent = The Most Likely Consortium to Acquire NXC Corp/Nexon?

Netmarble Games (251270 KS) officially announced on January 31st that it is interested in buying Nexon/NXC Corp. We believe that there is a growing likelihood of a potential consortium which includes Tencent and Netmarble Games to acquire NXC Corp/Nexon. Three major reasons why Tencent may want to partner with Netmarble Games to acquire NXC Corp/Nexon include the following:

• Avoid the cultural backlash from Korean gamers
• Among all the companies that Tencent has invested in Korea, Netmarble Games has become the biggest in amount. 
• Netmarble Games is more focused on games and has a stronger balance sheet than Kakao Corp, which has also shown interest in acquiring NXC Corp/Nexon. 

4. The Dollar Is Already Dead

The past year has all been about dollar strength. That is an accepted wisdom. But the truth of the matter is that the dollar averaged 93.6 on the DXY in 2018 (3 January 2018 to 31 December 2018) and, as we write, stands at 95.5. From 1 January 2015 to 1 July 2017 the DXY averaged 97.2. The dollar is not strong, even by recent history standards. Moreover, it is no longer as important as it once was in policy making terms – and neither is the Federal Reserve.