Tag: Finance

MSCI China A Shares Inclusion (1): 234 -> 226 -> 236 Large-cap

One thing I found very odd when doing some research on the recent inclusion of China’s A-shares into MSCI’s indexes – there is even no easily-accessible and “readable” list…

“Lists” I saw are in the format of pictures.. not usable, considering the number of stocks are in hundreds.

(Really don’t understand why a simple list is protected… and available in uneditable form…)

And there is no consistent track of inclusion/exclusion of stocks publicly available.

Given that, I created excel lists [MSCI China A Shares List] of tickers proposed by MSCI with a history of different versions in 2018.

[For 2019 versions, please see the next post]

In this post, three versions are shared:

  1. 5/15/2018 version with 234 stocks ->
  2. 5/31/2018 version with 226 stocks (8 are removed due to reasons like suspension of trading, lack of buying opportunity, etc.) ->
  3. 8/31/2018 version with 236 stocks (10 are added)

From 1 to 2, the 8 deleted stocks are:

  • 002310 东方园林 (停牌原因)
  • 600170 上海建工 (调出沪股通标的)
  • 601390 中国中铁 (停牌原因)
  • 600369 西南证券 (调出沪股通标的)
  • 002450 ST康得新 (停牌原因)
  • 000825 太钢不锈 (停牌原因)
  • 601118 海南橡胶 (调出沪股通标的, 停牌原因)
  • 000063 中兴通讯 (停牌原因)

From 2 to 3, the 10 added stocks are:

  • 600760 中航沈飞
  • 601088 中国神华
  • 600050 中国联通
  • 600795 国电电力
  • 600346 恒力股份
  • 600406 国电南瑞
  • 000100 TCL 集团
  • 000063 中兴通讯
  • 600588 用友网络
  • 601966 玲珑轮胎

China’s New Nasdaq-style “Technology Innovation Board”

Although China’s economy and stock market size has been growing fast, the underlying capital market mechanisms are not as advanced.

China has made several efforts to modernize its stock market, but mostly remained in the previous framework or didn’t become a game-changer.

This time is different.

Regulatory approvals are replaced by general registration processes (guidance and regulations still there). Any company that fulfills certain requirements can go public.

Pre-profit companies can go public. Previously, the stock market was heavily leaning towards sectors with profits like banking.

Different share structures are allowed. Super voting power is allowed.

Lock-up period is higher than NASDAQ’s.

—

Attached is a presentation from a major investment bank in China.

20190302.pdf

Too Low The Value For Bristol Shareholders

The $74 billion merger between Bristol and Celgene was an uncertain one, opposed by Wellington (more than 8% of BMY) & Starboard (recently added position of less than 0.5% of BMY).

The merger in assets actually makes sense to me and should make sense to many investors. But the question of BMY-only shareholders, who don’t own much CELG stocks, is that the benefits are probably captured unevenly by Celgene.

Suppose the base case for Celgene stock price without acquisition is $75 and the merger price is $50 cash + 1 BMY share ($52 value) + $9 option ($3 value) -> $105 per share – when it was traded at $90/share, the market suggested a probability 50% of a successful merger. [75*(1-p) + 105*p = 90]

When CELG was traded at $84, the market suggested a success rate of 30%. [75*(1-p) + 105*p = 84]

(Yes, the market just take simple numbers… )

Wellington/Starboard might just want to add more negotiation power to get some other benefits (special board treatment e.g.) or to load up some CELG…

BMY alone probably won’t perform very well, they should understand that.

 

JPM Coin…

So JP Morgan has created its coin… JPM Coin

Three early applications:

  • Cross-border payments. The cryptocurrency will enable Chase to settle international payments between clients in real-time, and at any time of day (which does not happen today).
  • Securities transactions. Rather than relying on wires to buy a debt issuance–which would create a time gap between when a transaction settles and when investors get paid–institutional investors can use the token to generate instant settlements.
  • Transaction consolidation. Clients of  J.P Morgan’s treasury services business will be able to replace the dollars they hold in subsidiaries across the world, enabling them to move money to subsidiaries around the world with greater fluidity.

“The JPM Coin will be issued on Quorum Blockchain and subsequently extended to other platforms. JPM Coin will be operable on all standard Blockchain networks.” — JPM

Here is what others are saying/reporting…

“In trials set to start in a few months, a tiny fraction of that will happen over something called “JPM Coin,” the digital token created by engineers at the New York-based bank to instantly settle payments between clients.” — CNBC

“For years, Chase–by itself and with the other big banks–has invested in reducing its reliance on legacy payments networks. Coin, like previous endeavors such as clearXchange, appears to be another example of that strategy to directly control the manner and method by which payments activities flow. If successful, Coin and the Chase Quorum blockchain could find many other uses.” — Charles Potts, Managing Director, First Performance

“It’s a competitive approach by Jamie Dimon to compete directly with Western Union in the $600 billion remittance market where Chase holds the #2 spot and Bank of America is on their heels. Ripple has done all the hard work by paving the way for a blockchain coin network. Our US payment systems are proprietary and not interoperable–the only way to seriously compete is a syndicate like Early Warning with Zelle and The Clearinghouse.” — Travis Dulaney, CEO, PayFi

“It’s an ecosystem play pure and simple. It’s about reducing costs and securing market share.” — Bradley Leimer, Co-Founder, Unconventional Ventures

“It really isn’t an ‘end run’–it’s more like creating a whole new playing field. It’s an acceleration of the continuing erosion of money fiefdoms. Due to margin pressures, money movement will eventually become a free utility. What the JPM Coin starts to enable is the elimination of the payment rails–which is really just a connection of ledgers–because with blockchain, there’s just one ledger. Once you have that shared ledger, the applications go beyond institutional payments to any payment type like remittances.” — James Wester, Research Director, Worldwide Blockchain Strategies, IDC

“The bank is also running a blockchain payments trial launched in conjunction with Australia’s ANZ and the Royal Bank of Canada. As reported, the three banks set up the project in October 2017, aiming to slash both the time and costs required for interbank payments using traditional methods. Called the Interbank Information Network (IIN), the platform is also built on Quorum – which itself may eventually be spun off into its own enterprise.” — CoinDesk

A data/IT system named with “coin”

Think about Gold and US Dollar in the history – Congress acted on Hamilton’s recommendations in the Coinage Act of 1792, which established the dollar as the basic unit of account for the United States; 1900, with the passage of the Gold Standard Act, US government guaranteed the dollar as convertible to gold

Read More On…

The Race in Aerospace – Positions of Private Equity Firms

~$40bn Apollo acquisition – GE Capital Aviation Services (GECAS), GE’s aircraft leasing operations

  • Bidder: Apollo, an offer as much as $40 billion according to Bloomberg & Reuters
  • GECAS has a fleet of more than 1,900 planes, which it provides to airlines under long-term leases.
  • 1/4/2019

~$1bn KKR investment – Altavair, focusing on the acquisition of new and used commercial aircraft for leasing to passenger airlines and cargo operators

  • Investor: KKR, $1 billion capital commitment to acquire commercial aircraft in partnership with Altavair + a 50% interest in Altavair; Altavair will be KKR’s partner for aircraft leasing investments going forward
  • Since its inception in 2003, Altavair has completed over $8 billion in commercial aircraft lease transactions with over 40 airline customers in 27 countries representing over 200 individual Boeing and Airbus aircraft
  • 1/3/2019, KKR Commits to Invest $1 Billion with Altavair

~$5bn Carlyle acquisition – StandardAero, largest independent maintenance, repair and overhaul (MRO) providers

  • Bidder: Carlyle, for more than $5 billion (Reuters) from Veritas
  • Veritas acquired StandardAero from Dubai Aerospace Enterprise Ltd (DAE) for $2.1 billion, including debt, in 2015
  • Carlyle first acquired StandardAero in 2004. In 2007, DAE simultaneously purchased StandardAero and Landmark Aviation, also an aircraft maintenance services company, from Carlyle in a transaction valued at $1.8 billion, including debt.
  • 12/18/2018, The Carlyle Group to Acquire Leading Aircraft Engine MRO Provider StandardAero from Veritas Capital

~$15bn Apollo acquisition – Arconic (ARNC), aluminum products used around the world by aerospace manufacturers

  • Bidder 1: Blackstone, Carlyle, Onex and Canada Pension Plan Investment Board
  • (winning) Bidder 2: Apollo, seems winning with a potential acquisition price of $22; also considered is a spin-off of its cladding operation with potential liability from the Grenfell Tower fire of two years ago.
  • 10/8/2018, early report on bidders
Arconic in 2018 | Source: Bloomberg

Tough Year for Stock Markets, Okay for Wine and Art

US Equity in 2018

S&P 500 -6.2%

Dow Jones Industrial Average -5.6%

Nasdaq Composite -3.9%

In the fourth quarter specifically, the S&P 500 and Nasdaq plunged 13.97 percent and 17.5 percent, respectively, their worst quarterly performances since the fourth quarter of 2008. The Dow notched its worst period since the first quarter of 2009, falling nearly 12 percent. (CNBC)

Meanwhile, assets like fine wine and art are gaining

Liv-ex Fine Wine 1000 index – 2018 | Source: liv-ex.com

According to The Liv-ex Fine Wine 1000 index, which tracks 1,000 wines from across the world, the price has been on a steady rise since May 2016.

People who put money into art at the beginning of the year saw an average gain of 10.6% by the end of November, according to Art Market Research’s Art 100 Index. (WSJ)

And in December’s Art Basel in Miami Beach, one of the world’s preeminent art fairs, things seemed going smooth. In a detailed report, owners of Mark Rothko’s Untitled (Yellow, Orange, Yellow, Light Orange) (1955), a painting purchased at Sotheby’s in 2014 for $36.6 million, was asking $50 million for the painting and said was on reserve later on. “The price tag is high even for the elite Art Basel franchise of fairs.”

In a summary…

Luxury Goods Outperform as Markets Swoon | Source: WSJ

 

Canada Housing Problems

Talks around Canada’s housing market have been surging – about its booming prices and about its looming risks.

The price side – directly shown by its pricing index from Statistics Canada – plotted below from Jan. 2006 – Oct. 2018.

Canada Housing Price Index | Source: Author, Statistics Canada

Toronto’ prices are the most wild in among Canada’s housing markets – nearly doubled in 39 month from Jan. 2014 to Apr. 2017.

Toronto home prices 2014 – 2017 | Source: Financial Post

The price itself is not actually something to worry about. But as FT argued, “House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.” Similarly on Huffpost, “Toronto’s house price index doubled between 2011 and 2017, even as household incomes grew by single percentage points.”

And let’s take a look at the housing debt level – the risky side.

Bank of Canada said the two trillion dollars of debt is around 170% of disposable income.

I double checked with OEDC data here.

Here is a historical comparison –

and housing debt versus GDP – just passed 100% for 2017 Q2.

The regulator took actions to cool down the market.

The short-sellers/investors took theirs too.

Home Capital is at the center, Canada’s largest provider of home loans to the newly arrived and self-employed.

Home Capital Stock Price (C$) | Source: Bloomberg

In Jun. 2017, Warren Buffett’s investment vehicle Berkshire committed to acquire a 38.39% stake as part of a rescue package (C$2.4 billion, including C$400 million equity and C$2 billion credit line with 9% interest rate). The first tranche of equity investment acquired a 19.99% ownership.

However as the second tranche of equity investment wan’t approved, now in Dec. 2018, the updates came as Buffett would sell most of its stake and reduce ownership level to less than 10%.

Home Capital is under control and stabilized now.

A single crisis is easier to solve than a systematic problem between housing prices and local income.