Brief China: ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century and more

In this briefing:

1. ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century
2. EM Equity Strategy: Cyclicals Leading, China Surging
3. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
4. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
5. Tesla’s New Plan – Buy Before You Try

1. ECM Weekly (2 March 2019) – Futu, Tiger Brokers, China Risun, China Tobacco, Zhejiang New Century

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 72.2% for IPOs and 63.7% for Placements 

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

New IPO filings

• ESR Cayman (Hong Kong, ~US$1.5bn)
• Jinshang Bank (Hong Kong, ~US$500m)
• China Everbright Water (Hong Kong, >US$100m, dual-listing)
• Up Fintech/Tiger Brokers (the US, >US$100m)

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

• Global Switch Picks Banks for Over $1 Billion IPO
• Warburg Pincus-backed ESR files for Hong Kong IPO of up to $1.5 billion
• Ping An plans IPO of fintech unit in HK at $1.35b
• Starbucks’ China rival Luckin Coffee taps 3 banks for US IPO

Smartkarma Community’s this week Analysis on Upcoming IPO

• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
• China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End
• China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
• Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

2. EM Equity Strategy: Cyclicals Leading, China Surging

Broadly speaking, RS for MSCI EM is currently exhibiting some mild deterioration vs. MSCI EAFE following four months of clear outperformance. Nonetheless, the MSCI EM index is bottoming and remains attractive from a price perspective.  In today’s report we offer a technical appraisal of major EM markets, and offer a host of technically attractivec bottoms-up stock ideas across the EM universe.

3. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal

4. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

5. Tesla’s New Plan – Buy Before You Try

Buried in the lede is that Tesla also is initiating additional price cuts across the board, including for Models S and X. It’s moving to an online-only sales strategy and closing hundreds of stores which will trigger additional layoffs.

Oh, and the first quarter will not be profitable after all, according to CEO Elon Musk on the conference call today to discuss Tesla’s announcements.

So is Telsa pursuing a new, evolving strategy for the future or is it being pushed to retrench?

Read on for Bond Angle analysis.