Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

OFAC Clarifies The Clarifications of Its Clarifications

MSCI and FTSE Give Investors One Day To Sell The China Telcos

MSCI China Telcos Exclusion - Higher Capital Inflow into Korean Equities

Trump's Executive Order on Chinese Military Companies

OFAC Makes a Longer List of Trump Names of China Military Cos

MSCI Joins the Index Crowd on Trump China Military Names and SMIC (981) Rocked

FTSE Announces Measures for Trump Exec Order on Chinese Military Companies

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> along with their ADRs (<a href="https://www.smartkarma.com/entities/china-mobile-ltd-spon-adr" target="_blank" data-smartkarma-citation="entities:16398:1" rel="noopener">China Mobile Ltd Spon Adr (CHL US)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-adr" target="_blank" data-smartkarma-citation="entities:1017:1" rel="noopener">China Telecom Corp Ltd (Adr) (CHA US)</a>, and <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-adr" target="_blank" data-smartkarma-citation="entities:1000:1" rel="noopener">China Unicom Hong Kong (Adr) (CHU US)</a>) present a very strange problem. The Trump <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-securities-investments-finance-communist-chinese-military-companies/" target="_blank" rel="noopener">Executive Order</a> (Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) is something of nuisance. It doesn’t sanction most of the names on the Defense Department Qualifying Entity list but it makes it so that US Persons and those that invest US Person money cannot invest in the securities of these companies and in certain subsidiaries. But the list of Communist Chinese Military Companies includes the parent companies of the three Chinese mobile telephony companies, and those three companies, along with many Chinese companies, have underperformed peers in other markets since the Executive Order was announced.The new FAQs published by the Treasury Department OFAC (discussed in <a href="https://www.smartkarma.com/insights/ofac-makes-a-longer-list-of-trump-names-of-china-military-cos" target="_blank" data-smartkarma-citation="insights:46704" rel="noopener">OFAC Makes a Longer List of Trump Names of China Military Cos</a>) suggest all 50% subsidiaries or ‘entities determined to be controlled by one or more Communist Chinese military company(ies) identified in or pursuant to EO 13959’ will be covered under the Executive Order but also says that the deadline for not transacting in such names would be 60 days after the OFAC adds the specific name to the list. <blockquote>The initial prohibitions pursuant to section 1(a)(ii) of E.O. 13959 would go into effect beginning 9:30 a.m. eastern time on the date that is 60 days after such subsidiary is added to OFAC’s new list to further implement E.O. 13959. <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/857" target="_blank" rel="noopener">FAQ 857</a></blockquote>The three HK-listed telecom stocks are subsidiaries of QEs but they have yet to be listed, and the US-listed ADRs have also yet to be listed on the OFAC list. That means the NYSE <a href="https://ir.theice.com/press/news-details/2020/NYSE-to-Commence-Delisting-Proceedings-in-Securities-of-Three-Issuers-to-Comply-with-Executive-Order-13959/default.aspx" target="_blank" rel="noopener">decision</a> to delist the stocks was somewhat precipitous, and I expect there may have been political pressure to delist prior to the 11th when the deadline for the first set of stocks arrives at their initial 60-day deadline.Saturday, China's Commerce Ministry warned of "necessary countermeasures to resolutely safeguard the legitimate rights and interests of Chinese companies" in response to the NYSE announcement but there were no details, and in announcing the criticism, saying that the NYSE's actions would "greatly weaken all parties' confidence in the US capital markets", the Chinese Commerce Ministry was effectively saying that retaliation would greatly weaken all parties' confidence in Chinese capital markets. One can't have it both ways, and it must be noted that given the SEC's <a href="https://www.sec.gov/corpfin/disclosure-considerations-china-based-issuers" target="_blank" rel="noopener">guidance</a> at end-November on Chinese ADRs in the US is really a matter of time given China's Securities Law. Yesterday, the CSRC <a href="http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/202101/t20210103_390002.html" target="_blank" rel="noopener">responded</a> with a measured comment, and today, in what has to be seen as an embarrassing walk-back, the NYSE has <a href="https://ir.theice.com/press/news-details/2021/NYSE-Updates-Guidance-on-Delisting-Determination-for-Securities-of-Three-Issuers-in-Relation-to-Executive-Order-13959--/default.aspx" target="_blank" rel="noopener">walked back their decision to delist the three ADRs</a>. This was accompanied by further clarification from OFAC in the form of FAQ 862, which notes that nothing requires that US Persons actually sell their holdings, just that they might be restricted from doing so if they do not do so in the period between the 60 day deadline and the subsequent exemption period end.The three names have popped sharply in Hong Kong, more than making up for yesterday's smaller fall in price.That leaves investors with another issue.Discussion ensues below.

China Mobile (941 HK), China Telecom Corp Ltd (H) (728 HK), and China Unicom Hong Kong (762 HK) along with their ADRs (China Mobile Ltd Spon Adr (CHL US), China Telecom Corp Ltd (Adr) (CHA US), and China Unicom Hong Kong (Adr) (CHU US)) present a very strange problem. The Trump Executive Order (Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) is something of nuisance. It doesn’t sanction most of the names on the Defense Department Qualifying Entity list but it makes it so that US Persons and those that invest US Person money cannot invest in the securities of these companies and in certain subsidiaries. But the list of Communist Chinese Military Companies includes the parent companies of the three Chinese mobile telephony companies, and those three companies, along with many Chinese companies, have underperformed peers in other markets since the Executive Order was announced.The new FAQs published by the Treasury Department OFAC (discussed in OFAC Makes a Longer List of Trump Names of China Military Cos) suggest all 50% subsidiaries or ‘entities determined to be controlled by one or more Communist Chinese military company(ies) identified in or pursuant to EO 13959’ will be covered under the Executive Order but also says that the deadline for not transacting in such names would be 60 days after the OFAC adds the specific name to the list. The initial prohibitions pursuant to section 1(a)(ii) of E.O. 13959 would go into effect beginning 9:30 a.m. eastern time on the date that is 60 days after such subsidiary is added to OFAC’s new list to further implement E.O. 13959. FAQ 857The three HK-listed telecom stocks are subsidiaries of QEs but they have yet to be listed, and the US-listed ADRs have also yet to be listed on the OFAC list. That means the NYSE decision to delist the stocks was somewhat precipitous, and I expect there may have been political pressure to delist prior to the 11th when the deadline for the first set of stocks arrives at their initial 60-day deadline.Saturday, China's Commerce Ministry warned of "necessary countermeasures to resolutely safeguard the legitimate rights and interests of Chinese companies" in response to the NYSE announcement but there were no details, and in announcing the criticism, saying that the NYSE's actions would "greatly weaken all parties' confidence in the US capital markets", the Chinese Commerce Ministry was effectively saying that retaliation would greatly weaken all parties' confidence in Chinese capital markets. One can't have it both ways, and it must be noted that given the SEC's guidance at end-November on Chinese ADRs in the US is really a matter of time given China's Securities Law. Yesterday, the CSRC responded with a measured comment, and today, in what has to be seen as an embarrassing walk-back, the NYSE has walked back their decision to delist the three ADRs. This was accompanied by further clarification from OFAC in the form of FAQ 862, which notes that nothing requires that US Persons actually sell their holdings, just that they might be restricted from doing so if they do not do so in the period between the 60 day deadline and the subsequent exemption period end.The three names have popped sharply in Hong Kong, more than making up for yesterday's smaller fall in price.That leaves investors with another issue.Discussion ensues below.

China Mobile (941 HK): Probably Too Cheap