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

China After School Tutoring Online Education Stocks Crushed - Investors Schooled

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Quiddity Advisors

Event-Driven

New Oriental Education & Techn / Event-Driven

<p>On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one <a href="https://www.bloomberg.com/news/articles/2021-07-20/china-aims-to-lower-child-expenses-in-effort-to-boost-birth-rate" target="_blank" rel="noopener">stories</a> which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.</p>
<p>This was discussed pre-US open in <a href="https://www.smartkarma.com/insights/china-after-school-tutoring-online-education-stocks-crushed-investors-schooled" target="_blank" data-smartkarma-citation="insights:54878" rel="noopener">China After School Tutoring Online Education Stocks Crushed - Investors Schooled</a>. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a>, <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a>, and <a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a> - was down 60% pre-open.</p>
<p>That wasn't enough as the basket closed 6% lower from there. </p>
<section class="figure">
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/220/370/original/Screenshot+2021-07-25+at+6.04.13+PM.png?1627207475" class="editor-image img-responsive" data-smartkarma-image-id="220370"></figure>
<p></p>
</section>
</section>
<p>It looks like even that may not have been enough.</p>
<h3>The NEW News</h3>
<p>On Saturday, the State Council followed up with a <a href="http://www.gov.cn/zhengce/2021-07/24/content_5627132.htm" target="_blank" rel="noopener">document</a><em>"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"</em></p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/220/382/original/Screenshot+2021-07-25+at+9.31.12+PM.png?1627219895" class="editor-image img-responsive" data-smartkarma-image-id="220382"></figure>
</section>
<p>The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. </p>
<p>There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. </p>
<p>If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. </p>
<p>Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. </p>
<p>But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.</p>

On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one stories which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.
This was discussed pre-US open in China After School Tutoring Online Education Stocks Crushed - Investors Schooled. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - TAL Education (TAL US), Gaotu Techedu (GOTU US), and New Oriental Education (EDU US) - was down 60% pre-open.
That wasn't enough as the basket closed 6% lower from there. 






It looks like even that may not have been enough.
The NEW News
On Saturday, the State Council followed up with a document"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"



The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. 
There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. 
If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. 
Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. 
But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?