The yields on Australian bank hybrids are lowest they've been in the past seven years. Some obvious alternatives for institutional investors offer lower risk and higher return. Retail investors have fewer options, but can still get better returns. 
 

​A quarterly report by FTSE Russell provides insights into the China bond market, including performance of the FTSE Russell China Bond Indexes.

REITs typically take on debt to fund capital-intensive acquisitions. To help Singapore REITS better compete against private capital and their foreign peers, MAS is considering raising the current leverage limit of 45%.
 

Equity markets have been rallying on the decisively dovish turn in Fed's and ECB's positioning and the optimism about the macro rewards it can bring. But a mismatch between market expectations and incoming economic signals persists.

As ECB President Mario Draghi expresses concerns about the slowdown in the Eurozone, what lessons can the ECB learn from Japan's experience and what scope is there for further quantitative easing?

Sea Pearl Beach Resort & Spa Limited is a five-star resort and hotel in Bangladesh operating businesses in Cox’s Bazar. EBL Securities Ltd offers a detailed analysis of the company, as it makes a debut on the Dhaka Stock Exchange.

SGX lists 34 REITs, seven stapled trusts and three property trusts with a combined market cap of more than S$100 billion. S-REITs was the top net buy sector in January-June 2019, drawing net institutional inflows of S$396.3 million.

Asian equity markets gained in June on improved market sentiments, and MSCI Singapore Free Index (SIMCSI) was the top performer. Private home prices in Singapore have reached a 5-year high. 

In 1H19, Singapore’s 30 most actively traded manufacturers (non-food) produced 20% average total returns, outpacing STI gains. Their total returns stocks were more consistent than in recent years.

SGX lists 34 REITs, seven stapled trusts and three property trusts with a combined market cap of more than S$100 billion. S-REITs was the top net buy sector in 6M2019, drawing net institutional inflows of S$396.3 million.
 

The food and beverage (F&B) industry is generally correlated with the general economic outlook and the increasing affluence in a country. Rising popularity of online food ordering and delivery services is a new factor shaping the industry.
 

Ongoing process of implementation of Basel III, an extension of the deadline to adjust advance-deposit ratio and highest ever amount of non-performing loans have made the beginning of 2019 a challenging period for Bangladesh banks.
 

Clearbridge Health is a pan-Asian integrated healthcare company with a focus on precision medicine. Its approach combines data-driven clinical initiatives, collaborations with best-in-class technology providers, and direct access to consumers.

SGX-listed Excelpoint Technology is a leading regional distributor of electronics components with presence in over 40 cities, in more than 10 countries. The company believes that "internet of things" and other innovations will drive its growth. 
 

China’s economy has slowed in the wake of the China-US trade war, as industrial output and manufacturing activity declined. The government has unveiled measures to boost spending and investment, but the sentiment in Chinese equities has been hit.

A new semi-parametric prepayment prediction model of China's residential mortgage-backed securities (RMBS) incorporates the country's market and mortgage characteristics. Many factors have highly non-linear effects on the prepayment rates.

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A new model for pricing OTC derivatives allows for collateral posting adhering to bankruptcy laws and can back out the market price of a collateralized contract. This framework is very useful for valuing outstanding derivatives. 

SGX-listed Excelpoint is a business-to-business platform that provides components, engineering and supply chain management services to electronics manufacturers in Asia Pacific.
 

SGX-listed Jinjiang Environment is the first private waste-to-energy operator in the People's Republic of China, with the largest waste treatment capacity in operation. It operates 20 WTE facilities with the total capacity of 28,280 tonnes/day. 

The market appears to have priced in the base case of the trade war, but the probability of the risk scenario is rising, skewing the expected payoff lower. We continue to hope for the best, while preparing for the worst.

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MindChamps PreSchool holds the top position in the premium range preschools market in Singapore, with a market share of 38.5%. It also runs premium preschools and enrichment centres in Australia, Abu Dhabi, Dubai, and Philippines.

SGX-listed Everbright Water is an environmental protection company focusing on water environment management. Its direct controlling shareholder is HKEx-listed China Everbright International Ltd. 

 

China Sunsine is a key player in the natural rubber industry supply chain. The specialty chemicals company is the world's largest producer of rubber accelerators used in production of tyres. With 20% market share, it is China's biggest producer of insoluble sulphur.
 

SLB develops and sells residential, mixed-use, industrial and commercial properties, mostly in Singapore. Its portfolio includes five residential and mixed-use developments and three industrial properties.

Namit Arora, Managing Partner, IndGrowth Capital, discusses competencies, entry requirements, roles, career paths and opportunities in India's private equity market. (Video: 1 hr 15 min)

Runner Automobiles Limited made a debut on the Dhaka Stock Exchange on 21 May 2019, after a successful IPO in the later part of 2018, EBL Securities Limited offers a detailed analysis of the company.

SGX lists eight pharmaceutical stocks, all of which are constituents of the iEdge SG All Healthcare Index. Typically viewed as a defensive segment, the healthcare sector is poised for multi-year growth. 

The escalating trade conflict between China and the US is a high-stakes game that has the potential to change the trajectory of economic cycle and reshape the world order.

This research appears on WeiXin's blog "Hong Hao China Strategy" on 14 May 2019.

特朗普的博弈边缘策略理论上反而更有可能促成协议。我们对协议仍然保持乐观，但短期风险资产技术图形很熊。从短期风险控制来看，我们也不得不做好两手准备。

Established in 1996, Boustead Projects is a leading industrial real-estate solutions provider, with core engineering expertise in the design-and-build and development of industrial facilities for multinational corporations and local enterprises.

This research appears on WeiXin's blog "Hong Hao China Strategy" on 6 May 2019.

假如风险越高，回报越大，那么为什么，这世界上每一个人不都承担选择最高的风险，去敛尽这世上所有的财富？为什么，这世界上贫富悬殊如此严重，而且日渐恶化？为什么，财富总量的曲线分布倾斜向右，而贫穷人数的分布倾斜向左 - 鲜有钟型正态分布的？难道这就是那所谓的左右倾的区别？简单地说：如果风险和回报的关系是显性而线性的，那么为什么，这世上许多人放弃了显而易见的致富机会？

The 20 largest capitalised Consumer Staples stocks on SGX have a combined market cap of more than S$80 billion, and are well-diversified – both in terms of product range as well as geographical spread. 

In 1Q19, information technology was the best-performing sector on SGX with a total return of 28.6%, after registering a total return of -16.3% in calendar year 2018. It was also among the top net buy sectors for the quarter.

Singapore’s 10 largest-capitalised stocks that report majority revenue to China have all gained in 2019 YTD, following China’s recent economic reports noting that China’s economy in 1Q19 has been steady with some positive changes.

SGX lists more than 200 stocks in the industrials sector. The 20 largest capitalised Industrial plays on SGX that report more than half their group revenues to the ASEAN region have a combined market cap of more than S$150 billion.
 

SGX-listed real estate developers (excluding REITs) was the third best-performing sector in March, with a total return of +2.7%. March was also the third straight month of positive returns for the sector.
 

The World Gold Council said in January that increased market uncertainty, expansion of protectionist policies, and the Fed's more neutral monetary policy stance will make gold increasingly attractive to investors.

交银国际董事总经理研究部负责人洪灏，CFA 认为，不应再怀疑中国重振经济的决心。周期已回暖，但周期性板块尚未完全参与本轮行情。这是一个被忽略的要点。市场这种对复苏将信将疑的情绪预示着后市还有高点。基本面改善和股市表现将正反馈。 ​​​

This research appears on WeiXin's blog "Hong Hao China Strategy" on 14 April 2019.

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Epic money and credit growth suggests the resolve of China's central bank to reflate the economy. Recent data confirm a cyclical upturn, but cyclicals have not participated in the revival and should soon outperform. 

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Over the first 12 weeks of 2019, key regional SGX small cap indices have outperformed large cap indices, a significant contrast to their less competitive performance between 2016 and 2018.  

Esquire Knit Composite Limited made a debut on the Dhaka Stock Exchange on 8 February 2019. The company produces and sells ready-made garment products for export. EBL Securities offers a detailed analysis.

Singapore has significant roles to play in China’s Belt and Road Initiative (BRI) through its status as a financial hub for Southeast Asia. Several SGX-listed companies have cited BRI as a growth impetus in their latest annual reports. 
 

No Signboard Holdings operates a chain of seafood restaurants, a beer distribution arm and a ready meals business. The group was listed on the Catalist board of Singapore Exchange on 30 November 2017.

NetLink NBN Trust designs, builds, owns and operates the passive fibre network infrastructure of Next Generation Nationwide Broadband Network, which delivers ultra-high-speed internet access in Singapore and connected islands.

SGX-listed Memories Group is a leading tourism company in Myanmar providing customized travel experiences. It operates boutique hotels and resorts, luxury yachts and a hot air baloon business.
 

In March 2019, 27 SGX primary-listed stocks repurchased as many as 50 million shares with a total consideration of S$54 million. This was up from S$32 million in Feb 2019 and down year-on-year from S$222 million in March 2018.
 

Fortress Minerals is a producer of high grade mineral ore in Malaysia. Strong iron ore demand in China, coupled with growth policies such as the “One Belt One Road” initiative will continue to fuel iron ore demand. 

Malaysia Smelting Corporation, in business since 1887, is one of the world's leading integrated producers of tin metal and tin-based products.

Established in Singapore in 1997 and listed on the Catalist Board in February 2009, Japan Foods is one of Singapore's leading Japanese restaurant chains. The group has expanded to Malaysia, Vietnam, Indonesia, Hong Kong, and China.

Listed on SGX in August 2014, IREIT Global invests principally in a portfolio of income-producing real estate assets in Europe, used primarily for office, retail and industrial purposes.

The FTSE Value-Stocks ASEAN Index consists of 50 quality value stocks of ASEAN companies listed in Indonesia, Malaysia, the Philippines, Singapore, and the Thailand. Ten of them are listed on SGX.

This research appears on WeiXin's blog "Hong Hao China Strategy" on 7 April 2019.

这篇随笔酝酿了许久，但却难启笔。皆因每每看到有人写这个宏大的主题，一种莫名优越感时常溢于纸面。的确，卖方研究是一个很好的职业生涯。至少曾经如此。在这行里，如果能够脱颖而出，你将有机会成为自己时间的主人，相对自由地计划每天的工作。更勿论薪酬待遇、社会地位等。这些或都是现在金融、经济毕业生泛滥，年轻人前仆后继跑步入行的原因吧。然而，在义无反顾地投身于研究洪流的同时，卖方研究行业正经历着剧变。这行里，一切皆将归原 - 不论资历深浅。此将无佛处，谁人为尊？（以下，“研究”通指“卖方研究”，“卖方研究”同“券商研究”。）

Singapore Exchange lists 35 offshore supply vessel (OSV) players. These companies provide support services to offshore drilling rigs, pipe laying and other oil-producing assets. As the crude oil prices rise, the stocks follow.
 

Analysts have noted revived investor interest in S-REITs since late last year, driven by a flight to safety amidst the uncertain outlook for US-China trade negotiations, the hunt for higher yields, and as global equity markets remained volatile. 

Listed on Singapore Exchange since 2010, Cache Logistics Trust is a real estate investment trust (REIT) that invests in quality income-producing industrial real estate used for logistics purposes, as well as real estate-related assets in Asia-Pacific.

NetLink NBN Trust designs, builds, owns, and operates Singapore’s nationwide Next Gen NBN passive fibre network infrastructure, over which ultra-high-speed internet access is delivered to homes and non-residential premises.

Hyphens Pharma International is a Singapore-based specialty pharmaceutical and consumer healthcare group with a strong presence across 5 ASEAN countries and distribution networks in Asia and Middle East.

Arcelik A.S, Turkey’s industry leader in white goods, built-in appliances and air-conditioners, has recently acquired the Singer Bangladesh's holding company. EBLSL presents an in-depth assessment of the potential impact of the acquisition deal.

In Chinese equities, valuation expansion explains stock returns better than earnings growth, and timing is more important than stock selection. For now, foreign buying has hit the trading limit, and the A shares are pausing.

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交银国际董事总经理研究部负责人洪灏, CFA 认为，CPI波动性>PPI，企业定价能力弱。估值扩张比盈利增长更能解释中国股票回报，择时比选股重要。历史上，MZM增速低点对应A股的重要拐点。随着美联储转鸽，这次拐点的确认和《峰回路转》对上证2450重要性的讨论一致。尽管筑底一波三折，长期趋势仍重于短期波动。

This research appears on WeiXin's blog "Hong Hao China Strategy" on 21 March 2019.

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The iEdge SG MOE Index consists of 12 companies: shipyard operators, shipping companies, and providers of port and offshore services. The industry has been battered by a slump in oil prices over the past few years.
 

Trading of SGX-listed REITs surged in the first two months of 2019, with the STI Reserve List components delivering solid returns. 
 

SGX lists 10 stocks that provide infrastructure for water, wastewater treatment and supply services. They have a combined market capitalisation of nearly S$10 billion. Utilities was the second-best performing sector on SGX in February. 

In the early 2019, the three largest capitalised, best-performing constituents of the iEdge SG Oil&Gas Index were averaged a total return of +21.1%, having recovered in line with recent crude gains.

Reclaims Global, a Singapore-based eco-friendly integrated services provider, made its debut on SGX Catalist on March 11, 2019. How does it stack up against other construction and engineering companies on SGX?
 

Two technology stocks, Hi-P Int and Silverlake Axis were the strongest among mid-cap stocks with capitalisation between S$1bn and S$2bn in the early 2019.
 

January’s broad risk rally continued in February, as the Fed’s more dovish stance, better-than-expected US Q4 earnings and easing trade tensions buoyed risk appetite. Watch Philip Lawlor, managing director of Global Market Research at FTSE Russell. (Video: 4 min.)

交银国际董事总经理研究部负责人洪灏, CFA 认为，短期监管对于杠杆态度难以明确，形成投机窗口。香港杠杆资金经陆股通入深沪，青睐科技和创业板。虽市场短期受阻，但长期趋势重于短期波动。由于交易周期不一致而相互矛盾的市场信号将逼出短期持仓。强弱手之间换岗势必导致市场波动，并暂时扭曲风险与回报。

This research appears on WeiXin's blog "Hong Hao China Strategy" on 10 March 2019.

Recent volatility in China equities suggests a prevalence of margin trading. The article analyses the buying behaviour of strategic investors, margin traders, the Stock Connect Schemes and ETFs and predicts more volatility in the near term. 

There are almost 100 companies listed on the Singapore Exchange that are headquartered or have their principal place of business in mainland China. Some of them delivered stellar returns in the early 2019.
 

The 18 healthcare service providers listed on SGX significantly outperformed, on average, the exchange's broad equity index in the early 2019. Which companies did best?
 

Share buybacks by SGX-listed companies have decreased in 2019, following high buyback volumes in 2018. Which companies are still buying back their shares?
 

Singapore’s 10 largest technology stocks have made a strong start to 2019, with average total returns of 25.2% in the first two months of the year on a soaring combined trading turnover and large institutional inflows.
 

Sim Leisure Group, owner of Malaysian ESCAPE theme parks, listed on SGX Catalist on 1 March. SGX provides a look at the company's business and valuation.
 

There are more than 40 companies listed on SGX, which are headquartered in Malaysia or have core operations there. How did the best of them performed in early 2019?
 

SGX lists over 20 companies headquartered or with core operations in Indonesia. How have the best of them performed so far in 2019?
 

SGX's update on the ten largest transport-linked stocks listed in Singapore. They include airline, bus, subway and taxi operators, shipping companies and those that provide operations support. 
 

The FTSE ST Consumer Goods & Services Liquid 20 Index generated a 9.9% total return in the first month of 2019, a turnaround from its 9.2% decline in 2018.
 

Consumer staples and consumer discretionary stocks listed in Singapore saw high demand in the early 2019, second only to REITs. Which companies performed best?
 

IT companies were the the second-best performing sector among Singapore stocks at the beginning of 2019. Which companies did best?
 

China-related REITs and developers listed in Singapore delivered high returns in the beginning of 2019, following excellent performance of the sector at the end of 2018. Which companies did best?

Five best performing SGX-listed China stocks have delivered average returns of 18% in the first two months of 2019. Over the last three years, however, China stocks listed in Singapore underperformed the STI benchmark. 
 

Singapore's big utility stocks have made a firm start to 2019, with average total returns of 17%, rebounding from a decline of 31% in 2018. Utilities led other sectors in market cap weighted performance in December 2018 and January 2019. 

FTSE Mid Cap Indices outperformed their large-cap and small-cap peers in Singapore, Hong Kong and Sydney in January 2019. The report shows the performance of SGX-listed mid-cap stocks. 

Share buybacks by SGX-listed companies slowed down in early 2019, as the market rose. The report summarizes share buybacks in January 2019 and names new mandates.
 

The report assess the systemic importance of China’s banks by applying a fundamental multi-factor methodology to evaluate the risks any given bank might pose to the financial system.

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市场价格与基本面严重背离；保证金交易在市场成交占比逼近历史经验值高点，市场也将遭遇阻力。虽成交量趋势确认2450为底部，但现在加仓风险资产的回报已远不如一月时。关注监管对融资和房地产的态度。如监管放松，2015年“伟大的中国泡沫”将再现。

This research appears on WeiXin's blog "Hong Hao China Strategy" on 28 February 2019.

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China's equity market has bottomed out, but fundamentals remain weak and as margin trade turnover nears its ceiling, the bull run is likely to encounter resistance.

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This concept paper proposes a principle-based accounting framework for the recording and presentation of the cost of incentive options in the financial statements, making explicit the item that is usually reflected only in footnotes.

As Genex Infosys Limited makes a debut on the Dhaka Stock Exchange on 6 February 2019, after a successful IPO in the later part of 2018, EBL Securities Limited offers a detailed analysis of the company. 

Despite concerns over slowing global growth, Singapore’s tourism sector has enjoyed consistent growth in international arrivals over the past four years. Nevertheless, 15 largest SGX stocks with exposure to the tourist industries lost 10.7% on average in 2018.

Singapore’s healthcare service providers have pursued international expansion plans in recent years, with operations and assets spanning multiple geographies outside Singapore, allowing investors to participate in the structural Asian healthcare theme.
 

Singapore’s largest capitalised developers and REITs with a strong Singapore focus have made a firm start in the early 2019. The largest capitalised construction stocks have also performed similarly to the developers over the past two years.

Six of the seven poorest performing STI stocks in 2018 were amongst the STI’s 10 strongest stocks in the early 2019. The six stocks, which averaged 30% declines in total return in 2018, have averaged 11% gains over the first three weeks of 2019.
 

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This research appears on WeiXin's blog "Hong Hao China Strategy" on 31 January 2019:

In this report series, we demonstrate the similarity and simultaneity of fluctuations across various macro-economic variables and across countries, and oscillation of cycles rhythmically around an underlying trend. 

There is no beginning, nor end to economic cycles. The fall of the last cycle is impregnated with the rise of the next – as is now. 


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Regional small cap indices were amongst the stock market’s worst performing segments in 2018 due to the rising US Dollar, trade tensions & decelerating growth outlooks. However, in the first three weeks of 2019, they regained a third of last year's loss.
 

Singapore stocks account for 0.84% of the FTSE All-World High Dividend Yield Index, double the 0.42% weight that Singapore stocks maintain in the FTSE All-World Index.

In a challenging market environment, S-REITs were among the best-performing sectors on SGX in November and December 2018. The interest in S-REITs was driven by a flight to safety amidst rising risk-aversion. 

As SS Steel Limited makes a debut on the Dhaka Stock Exchange on 17 January 2019, after a successful IPO in the later part of 2018, EBL Securities Limited offers a detailed analysis of the company. 

Bridgestone Corporation, headquartered in Tokyo, manufactures and sells tires and rubber products worldwide. It currently trades below corporate averages for the sector, implying bearish expectations for the company's stock.

 

This research explores the causes of stock return predictability in New Zealand, focusing on price, book-to-market ratio, price momentum, volatility and volume. Two of these factors are found to be statistically significant. 

This paper has been submitted for presentation at the 23rd Annual (2019) New Zealand Finance Colloquium.

The FTSE Value-Stocks ASEAN Index was amongst the strongest FTSE regional indices over the three years ending 2018. Its total return of 42% in USD terms outpaced 37 other regional indices published by FTSE Russell.  
 

In the second half of 2018, Singapore's healthcare sector saw six consecutive months of net inflows by institutional investors, following increased risk aversion on the back of higher market volatility and persistent US-China trade tensions.
 

Singapore's four food retailer companies delivered on average a 10% return in 2018, outperforming their sector peers in the Asia Pacific region.
 

Last year, SGX’s industrials sector was the second best-performing segment with a market cap-weighted average total return of 1.0%, following the Materials Sector’s market cap-weighted average total return of 30.1%.

In December 2018, 32 SGX stocks listed on SGX repurchased 97 million shares for a total consideration of S$78 million. Overall, 100 stocks conducted buybacks in 2018, and the value of the buybacks was triple that of 2017.
 

In the past ten years, the STI generated average annualised total returns of 9.2%, one-fifth higher than the regional Asia Pacific benchmark, and in line with the FTSE ASEAN 40 Index. Which stocks delivered the highest returns?

What are the key drivers that will shape the course of Indonesian property market in 2019? CreditSights provides a credit outlook for the Indonesian property market and individual company recommendations.

IFRS15 requires companies that enter into long-term contracts with customers, such as telecoms or membership services, to report revenues from such contracts separately from other revenues. Effective since 1 January 2018, the regulation requires a change in reporting practices.

Nahee Aluminum Composite Panel Limited debuted on Dhaka Stock Exchange in December 2017. It manufactures and sells aluminum composite panel (ACP) products in Bangladesh's domestic market. EBL Securities Limited offers an updated equity analysis report on the company.

Venture, Dairy Farm and Genting are among stocks included in Singapore's Straits Times Index that have experienced the biggest increase in trading turnover in 2018. 
 

Market expectations are for Uniform ROA to remain muted, while management has concerns about market trends, raw material costs, and operating income.

In November, 29 SGX-listed stocks repurchased 40 million shares for a total consideration of S$109 million. This was up from S$60 million in buyback consideration in October, and S$39 million in November 2017.
 

In the 2018 YTD, the STI has generated a total return of -6.8%. This compares with YTD total returns of +0.2% for the Nikkei 225, -5.1% for the ASX 200, -6.7% for the Hang Seng Index, and -19.5% for the Shanghai Composite Index.
 

BBS Cables Limited debuted on Dhaka Stock Exchange in July 2017. It is a manufacturer, dealer, distributor and seller of electrical cables in the local market in Bangladesh. EBL Securities Limited offers an updated equity analysis report on the company.

Larry Cao, Director of Industry Research at CFA Institute, talks about the promises and challenges of deep learning, and how artificial intelligence finds application in the investment industry, in an interview for MioTech.
 

Al-haj Textile Mills Limited (AL-HAJTEX) is engaged in manufacturing and sales of cotton yarn in Bangladesh. EBL Securities Limited offers an updated analysis on the company's business operations.

H.R.Textile Mills Limited (HRTEX) is engaged in manufacturing and export of knitwear products. EBL Securities Limited offers an updated analysis on the business operation of H.R.Textile Mills Limited.   

In a quarterly report, Frontier Research focuses on government policy responses to recent developments in the microfinance sector in Sri Lanka, and their likely impact. 
 

In its Banking Quarterly Report for Q2 2018, Frontier Insights focuses on mobile money in Sri Lanka. The report analyses how mobile money will impact the financial industry. Is it a threat to brick-and-mortar banks or will it have a positive effect?

Investor interest in Singapore REITs has revived recently, driven by a flight to safety amidst rising risk-aversion, as the US - China trade tensions continue to simmer. Sentiment has also been boosted by improving fundamentals in the domestic office and hotel property segments.
 

Ten largest listed real estate development companies in Singapore, with a combined market capitalisation of S$56 billion, have averaged a 6% price rebound from their 12-month minimum. 

For the second time in October, the STI has opened at least 1% lower from the previous day close, on the back of an overnight sell-offs in US equities. The overnight moves coincided with a significant focus on safeguards for consumer data privacy in the US.

Statistics show that global coal consumption and production has picked up for the first time in 2017, after several years of declining growth, driven by increased consumption from Asian countries: India, Japan and China.

Industrials were amongst Singapore’s three best performing sectors in September 2018. The 10 largest capitalised industrial stocks averaged a 7.1% total return for the month, and followed with 1.2% average gains for the first two sessions of October.

In September, 35 SGX companies repurchased 32 million shares for a total consideration of S$94 million. The buyback has brought the total consideration over the first nine months of 2018 to S$1.3 billion, which is three times the total in 2017.

The four SGX-listed retail S-REITs have outperformed the STI benchmark index in the first three quarters of 2018. Despite growing risk-averse sentiment, investor expectations of a downside were fairly subdued, underpinned by the sector's strong earnings profile and its perceived defensive nature.

Singapore’s healthcare sector, typically viewed as a defensive segment and poised to enjoy multi-year growth prospects, has benefited from rotational fund flows recently, as investors took refuge in haven assets following a rise in risk-aversion. 

This research appears on WenXin's blog "Hong Hao China Strategy" on 19 November 2018.

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China’s economic cycle is nearing the bottom, as a broad deceleration of economic activities becomes palpable. However, a strong recovery remains elusive. Meanwhile, the US short-term economic cycle has peaked. 

This research appeared on WenXin's blog "Hong Hao China Strategy" on 19 November 2018.

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We encourage CFA Institute members to login to the CE tracking tool to self-document these credits. 
 

As Kattali Textile Limited makes a debut on the Dhaka Stock Exchange on 12 November 2018, after a successful IPO earlier this year, EBL Securities offers a detailed analysis of the company. 

Intraco Refueling Station Limited made its debut on Dhaka Stock Exchange on 17th May 2018. The company is planning to use the IPO proceeds to establish an LPG bottling plant in Patenga, Chittagong, changing the project's intended location from Gojaria, Munshigonj. EBL Securities Limited offers an updated analysis on the business operation of Intraco Refueling Station Ltd.   

EBL Securities analyses the Q3 2018 earnings update of BRAC Bank, a private commercial bank in Bangladesh focused on small and medium enterprises.
 

Unchanged policy stance, continuing sales momentum, slowing land acquisitions, steady growth of property funding, improving working capital efficiency and declining leverage are the main factors in a forecast for China's property sector. 

China has undertaken urgent measures to boost its declining stock market. Will they work?

This research appears on WenXin's blog "Hong Hao China Strategy" on 29 October 2018.  

Market expectations for Japan Tobacco Inc. are for declining Uniform ROA, while management has concerns about volume, industry headwinds and the vapor product Ploom TECH.

Market expectations for Kao Corporation (4452:JPN) are for record-high uniform ROA, but management has concerns about their initiatives, baby diapers, and human health care.

New players in the aircraft leasing business, such as commercial banks and insurance companies are adding to the geographic diversity of funding sources. This paper analyses new trends and the roles of the newcomers in the sector.

SGX looks at companies listed in Singapore whose primary business includes traditional and online retail as well as e-commerce operations. It examines which companies have best adapted to the growth of the e-commerce industry.

An overview of the capital-raising activities of healthcare companies listed on the Singapore Exchange between 2013 and 2018. The 31 companies constituting the SGX All-Healthcare Index raised US$1 billion during that period, through primary and secondary activities.

As initial coin offerings (ICOs) explode in popularity in the startup world, they are surrounded by controversy. The response of market practitioners and regulators has varied, from enthusiasm to outright bans. Li and Mann offer an economic analysis of the role of ICOs in development of platforms. They analyze economic efficiency to pinpoint when token sales create value. Their findings have implications for regulators and practitioners in the booming ICO market.

We provide a dynamic asset-pricing model of cryptocurrencies/tokens on platforms and highlight their roles on endogenous user adoption. Tokens facilitate transactions among decentralized users and allows them to capitalize future growth of promising platforms. Tokens thus can accelerate adoption, reduce user-base volatility, and improve welfare. Token price increases non-linearly in platform productivity, users’ heterogeneous transaction needs, and endogenous network size. The growth of user base starts slow, becomes explosive and volatile, and eventually tapers off. Our model can be extended to discuss platform token supply, cryptocurrency competition, and pricing assets under network externality.

Simtex Industries Ltd. (SIMTEX) is engaged in the manufacturing and exporting of sewing thread.
Principal products of SIMTEX are Sewing Thread, Poly Poly Core Spun and Filament Thread. The company operates business as 100% deemed exporter.

The Indian debt market has grown to USD 1.5 trillion over the past decade, largely due to the issuances from the central and state government. The ratio of government securities to corporate issuances is about 75 to 25, reflecting the subdued state of corporate bond markets in India. With a lack of participation, the Indian debt market remains smaller than the equity market—an anomaly among other global markets. 

The mid-cap space has often been described as the “sweet spot” of equity investing—and with good reason. Mid caps tend to offer a balance between the high growth (and high risk) offered by small caps and the stability (but slower growth) of large caps. In addition, the Australian midcap segment has a more diverse sector representation than both large-cap and broad-market Australian benchmarks, which are dominated by banks. Over the long term, these unique characteristics have helped the Australian mid-cap segment outperform all other size categories on both an absolute and risk-adjusted basis.

Despite these characteristics, the mid-cap segment of the Australian stock market is often overlooked and underappreciated. Pure mid-cap investing is not common, and often, mid- and small-cap companies are lumped together for investment purposes, diluting the unique characteristics of midsized companies. 

M.L. Dyeing Ltd. (MLDYEING) is engaged in dyeing and finishing of acrylic and cotton yarn and providing them to 100% export oriented sweater industries in Bangladesh.
The company has undertaken a project to expand its capacity by around 19.61%. For this purpose, they are raising fund of BDT 200mn through IPO.

Riding on growing economic activity and favorable policy interventions by BB,  Listed Banks’ profitability improved in Q2’18 than Q1’18 but profit growth was not so high while comparing with Q2’17.

We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of derivatives in order to gain exposure to an index and/or market factors that may be not directly tradable. Among our results, we establish a general tracking condition that relates the portfolio drift to the desired exposure coefficients under any given model. We also derive a slippage process that reveals how the portfolio return deviates from the targeted return. In our multi-factor setting, the portfolio’s realized slippage depends not only on the realized variance of the index but also the realized covariance among the index and factors. We implement our trading strategies under a number of models, and compare the tracking strategies and performances when using different derivatives, such as futures and options.

Serious concerns have been raised that false positive findings are widespread in empirical research in business disciplines. This is largely because researchers almost exclusively adopt the "p-value less than 0.05" criterion for statistical significance; and they are often not fully aware of large-sample biases which can potentially mislead their research outcomes.  This paper proposes that a statistical toolbox (rather than a single hammer) be used in empirical research, which offers researchers a range of statistical instruments, including  alternatives to the p-value criterion and cautionary analyses for large-sample bias. It is found that the positive results obtained under the p-value criterion cannot stand, when the toolbox is applied to three notable studies in finance.

Central Securities LLC introduces the equity valuation report of Gobi JSC. 

This research appears on WenXin's blog "Hong Hao China Strategy" on 3 September 2018.  

This research appears on WenXin's blog "Hong Hao China Strategy" on 3 September 2018.

This article qualifies for 0.5 CE under the guidelines of the CFA Institute Continuing Education Program. 
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits. 
 

• Singapore lists six stocks with a market capitalisation above S$1 billion that maintain a significant Agriculture business. Swings of the six stocks in recent years have coincided with swings of international agriculture commodity prices.
• Institutions have been net buyers of four of the six stocks over the first seven months of 2018. Overall the six stocks were together subject to net buy inflows totalling S$81 million, led by inflows into Wilmar International, Japfa and Olam International.
• In the 2018 YTD, the six stocks averaged 4% gains compared to the global agriculture benchmarks generating marginal declines. Four of the six reported net profit growth in 2QFY18 & Japfa’s stock performance is the strongest of the six in the 2018 YTD.

• SGX lists close to 100 stocks with market cap above S$1 Billion and a ROE of above 10%. Over the last 12 months, Banks and Consumer stocks were the strongest play among the list of highest ROE billionaire stocks compared to the benchmark Straits Times Index (STI).
• Amongst the list, seven are trusts (REITS, Stapled Trusts or Business Trusts) and the remaining 32 are companies spanning across multiple industries including Banks, Consumer, Technology and Property Developers.
• The five companies with the highest ROE include StarHub (44.6%), Singapore Exchange (34.1%), M1 Limited (29.1%), Sheng Siong Group (26.8%) and Dairy Farm Int’l (25.7%).
• Over the last 12 months, the five best performers were DBS (+30.9%), Sheng Siong Group (+24.4%), UOB (+19.4%), Venture Corp (+19.1%) and Dairy Farm Int’l (+17.1%). Collectively, these five stocks produced an average 1 year total return of +22.2%.

Strong Buyback Momentum Continued into Mid-August

For the first 12 sessions of August 2018, share buyback consideration has exceeded S$100 million. This is the seventh successive month the S$100 million threshold has been crossed, with buyback consideration in excess of S$1 billion for the 2018 YTD. The 23 stocks that have conducted share buybacks in the August MTD have bought back a total of 17.7 million shares for a consideration of S$116.5 million. The buyback consideration was led by DBS Group Holdings, United Overseas Bank and CapitaLand. The August MTD has also seen fresh buyback mandates commence for City Developments, Hi-P International, Singapore Shipping Corporation, Ban Leong Technologies, Japan Foods Holding, Maxi-Cash Financial Services Corporation & Star Pharmaceutical.

Taking Stock of Singapore’s Recent Manufacturing Growth

Singapore’s Manufacturing sector grew by a robust 10.2% YoY in 2Q18, extending the 10.8% YoY growth in 1Q18 and 10.1% YoY expansion in 2017. Manufacturing has been a keen driver of Singapore’s GDP growth which has been on trending higher since the end of 2015. ST Engineering, Yangzijiang Shipbuilding, Venture Corp, Sembcorp Marine and Haw Par Corp are amongst Singapore’s five biggest manufacturing plays excluding F&B manufacturing. Since the end of 2015, the five stocks have averaged a 51% total return. The five stocks have also recently reported their 2QFY18 and 1HFY18 earnings, with four stocks reporting net profit growth. These four stocks averaged 2QFY18 net profit growth of 40% YoY and 1HFY18 net profit growth of 35% YoY.

Largest ASEAN Value Stocks Edged Ahead of Region Over Past 12M

The FTSE Value-Stocks ASEAN Index has generated a 12% total return in SGD terms over the past 12 months, outperforming both the FTSE/ASEAN 40 Index with a 10% total return and FTSE ASEAN All-Share Index with a 3% total return The FTSE Value-Stocks ASEAN Index is comprised of the largest capitalised stocks of the FTSE Global All Cap Index that meet three sets of value-investing screening criteria, namely Contrarian, Quality & Valuation screenings which are then ranked by lowest P/E Ratios. Singapore’s 10 constituents of the FTSE Value-Stocks ASEAN Index have averaged a 9% total return over the past 12M, ranging from -12% for Jardine C&C to 30% for DBS Group Holdings. In May 2018, two stocks, A-REIT and Venture, re-joined the Index.

his research appears on WenXin's blog "Hong Hao China Strategy" on 13 August 2018 

Dividends Boost Average YTD Returns of Jardine Companies to 8%

SGX lists Jardine Matheson Holdings and Jardine Strategic Holdings, in addition to four companies held by Jardine Strategic Holdings – Hongkong Land, Dairy Farm International, Mandarin Oriental and Jardine Cycle & Carriage. Four of the stocks represent approx. 13% of the STI and approx. 7% of the MSCI Hong Kong Index. Jardine Matheson, Jardine Strategic and Hongkong Land are in both indices, while Jardine Cycle & Carriage is in the STI and Dairy Farm International is in the MSCI Hong Kong. The six stocks have averaged a 5.9% price gain in the 2018 YTD, with dividends boosting their SGD total return to 7.6% (both in SGD terms). Five of the six stocks are secondary listings and traded in USD, with the primary listed Jardine Cycle & Carriage traded in SGD.

This article qualifies for 0.75 CE under the guidelines of the CFA Institute Continuing Education Program. 
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits. 

We examine whether analysts utilize information in well-known stock return anomalies when making recommendations. We find results contrary to common intuition that analysts are sophisticated information intermediaries that help improve market efficiency. Specifically, analysts tend to make more favorable recommendations to stocks classified as overvalued, which have particularly negative abnormal returns ex-post. Moreover, analyst whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts’ biased recommendations could be a source of market frictions that impede the efficient correction of mispricing.

• 'Wow Philippines' was an early tourism slogan for the Philippines.  In our view, the country's macro picture warrant some eye-catching features.   
• A robust macro story.  The Philippines is forecasted to have one of the strongest GDP growth in Asia, with the ADB expecting 6.8% in 2018 and 6.9% in 2019.  The government has stated a target of 7% to 8% growth for 2018, with an intention to maintain growth at this level in subsequent years. 
• A resilient domestic economy.   The Philippine economy continues to be fueled by the twin engines of Overseas Filipino Workers (OFW) remittance and Business Process Outsourcing (BPO).  Despite risk to growth for both factors, remittance and BPO revenues are expected to account for roughly 10% of GDP.  
• A second leg to its growth is investments, which had historically lagged but now offers promise.  Infrastructure spending is trending higher.  A facet of the Philippine economy worth noting includes the strong provincial growth of the country.  
• Macro concerns doesn't derail the growth story.  Areas of macro concerns for the Philippines include its current account deficit and falling gross international reserves.  Inflation has been higher than expected, and the peso has been the weakest Asian currency against the USD this year.  Interest rates are on the rise as a result, and expected to trend higher.  Still, these factors will not derail the country's expected economic growth, which is slated to be one of the fastest in Asia.  

Non-Monotonic NPV Function Leads to Spurious NPV and Multiple IRR Problems: A Critical analysis using a modified capital amortization method that Resolves These Problems

This analysis is conducted using some popular non-normal net cash flow (NNCF) investment data available in public domain and other hypothetical NNCF data. The methodology is mainly based on capital amortization schedule (CAS) and modified CAS (MCAS) methods along with a comparison of the results with the common DCF method. The findings are summarised here:

a. The problem of multiple IRR is caused by reinvestment income and the resultant non-monotonic NPV function. The CAS methods clearly indicate whether there is any reinvestment. Non-monotonic NPV function of NNCF investment leads to multiple IRRs or spurious IRRs, NPVs and MIRRs. With non-monotonic NPV functions the DCF estimated criteria are all spurious.

b. The MCAS method eliminates the reinvestment thereby leads to monotonic NPV function and resolves the problem of reinvestment, spurious NPVs, MIRRs, IRRs and or multiple IRR.

c. Neither the NPV nor the MIRR could resolve the problem of multiple IRR. With normal NCFs and some of the NNCFs also, there are no reinvestment at IRR or at hurdle rate as wrongly asserted in many published works.

d. It is normal for the estimated IRR to be either ‘nil or zero or negative’ when the sum of net benefits or NCF is zero or negative. Such IRRs are consistent with NCF or net benefit. IRR of ‘zero or negative or no’ is not a weakness or problem but it reveals the real or consistent return.

e. MCAS is an appropriate method to estimate the rate of return (IRR and NPV) for both normal NCF and NNCF and resolves the multiple IRR problem and eliminates spurious NPVs and MIRRS. The estimated IRR and NPV by MCAS method are consistent with NCF.

f. Ultimately, IRR and NPV, estimated by MCAS, are the best criteria available to investment, project and cost-benefit analysis.

In summary, NPV and IRR estimated by MCAS method are equally appropriate and therefore one cannot be the best substitute for the other. The multilateral and bilateral organizations and corporate managements may wish to revisit their recommendation to use the NPV only and not the IRR while dealing with multiple IRRs associated with NNCF investments.

HONG KONG, 3 August 2018. Pengyuan International (“PENGYUAN”) has today released its  Industry Credit Guidelines for the Chinese Homebuilders and Property Developers for public consultation.

 

These criteria will be effective immediately on the date of final publication. We intend to complete a review of all affected ratings, if any, within the next six months. We expect no impacts on our current rating portfolio. We would appreciate comments on these draft criteria from investors and other market participants. The request-for-comment versions of these reports are available via the links below.

 

 

Our Industry Credit Guidelines: Chinese Homebuilders and Property Developers describe our analytical approach to assessing the credit risks of companies that have more than 50% revenue generated from China homebuilder and property developer industry. These criteria are developed within the framework of PENGYUAN’s General Corporate Rating Criteria and are supplementary to our General Corporate Rating Criteria. In addition to the credit ratios that are used in the Corporate Rating Criteria, PENGYUAN considers specific credit factors that capture the risks from China homebuilder and property developer industry, which are assessed to derive a company’s indicative credit score. 

HONG KONG, 3 August 2018. Pengyuan International (“PENGYUAN”) has today released its Government-Related Entities (GRE) Rating Criteria for public consultation.

 

These criteria will be effective immediately on the date of final publication. We intend to complete a review of all affected ratings, if any, within the next six months. We expect no impacts on our current rating portfolio. We would appreciate comments on these draft criteria from investors and other market participants. The request-for-comment versions of these reports are available via the links below.

 

Our Government-Related Entities Rating Criteria set forth PENGYUAN’s approach to rating GREs in the corporate (including project finance), financial institution, insurance and public finance sectors globally. In our opinion, an issuer’s affiliation with the government may have a positive, negative or neutral impact on its overall creditworthiness. One of our primary considerations in analyzing a GRE is whether its credit profile may be enhanced by potential extraordinary support from the government in the event of financial distress, or conversely, impaired by potential extraordinary adverse interventions from the government should the government experience financial difficulties.

Aman Cotton Fibrous Limited (ACFL) is engaged in manufacturing, marketing and selling of cotton yarn in the domestic market of Bangladesh. Aman Cotton Fibrous Limited was incorporated as a private limited company on 28 December 2005. Corporate office of this company is located at Uttara, Dhaka and the factory is in Gazipur.

• There are nearly 200 companies listed on SGX that have a market cap range of S$100 million to slightly above S$2 billion. Based on classifications by the FTSE ST Index series, these stocks fall into the small-cap category.
• Within this universe of 200 small-cap stocks, more than 30 of them derive 50% and above of group revenues from China. They are categorised to the Real Estate, Consumer, Industrials, Materials, IT, Utilities, Energy, Health Care, and Financial sectors.
• Among these small-cap China plays, the five best performers are: Techcomp (+143.9%), Delong (+115.1%), China Sunsine Chemical (+76.2%), Weiye (+40.2%), and Memtech International (+33.5%). They have averaged a total return of 81.8% in the YTD, bringing their 12-month and three-year average total returns to 122.9% and 252.5% respectively.

• There are 18 healthcare service providers listed on SGX that operate patient care services and facilities in Singapore and globally. These facilities include laboratories, hospitals, and clinics that offer treatments ranging from family medicine, dentistry, endoscopy and TCM, to aesthetics, gynaecology, oncology, orthopaedics and ophthalmology.
• In the July MTD, the five best-performing healthcare service providers were: Aoxin Q & M Dental (+11.6%), Raffles Medical (+10.8%), Q & M Dental (+7.8%), TalkMed (+4.9%), and Singapore O&G (+4.4%). These five healthcare plays have averaged a MTD total return of 7.9%, bringing their YTD and one-year total returns to -2.4% and -8.5% respectively.
• Thomson Medical, one of the latest additions to the healthcare plays on SGX, is Singapore’s second-largest healthcare services provider with a market capitalisation of more than S$2 billion. Previously known as Rowsley Ltd, it began trading on SGX Mainboard under its new name on 30 April 2018.

SGX’s 10 Largest Restaurants Stocks Offer Local & Overseas Exposure

Of the 13 Restaurant stocks listed on SGX, the 10 largest have a combined market capitalisation of close to S$2.0 billion. Most of these companies have businesses outside of Singapore or overseas expansion plans. These SGX-listed Restaurant stocks provide investors opportunities to invest in overseas F&B markets through their expansion plans. Stocks such as BreadTalk Group, Jumbo Group and Japan Foods have outlined notable international expansion plans. The 10 largest Restaurants stocks have an average dividend payout ratio of 62.2% and average dividend yield of 2.5%. Recently listed Restaurant stocks in the past year have also indicated on their IPO prospectuses or offer documents intentions to distribute dividends to shareholders.

FTSE ST Small Cap Index Constituents With Highest ROE Levels

The FTSE ST Small Cap Index is a free float-adjusted, market capitalisation-weighted index, which represents the performance of small-capitalised companies that trade on SGX Mainboard. The Index comprises 65 constituents with an average market capitalisation of S$750 million. The 10 constituents of the FTSE ST Small Cap Index with the highest ROE levels, based on their most recent full-year financial results, have averaged an ROE of 30%. These 10 stocks are categorised to the industrials, consumer, energy, materials, information technology, and healthcare sectors. The five constituents among the 10 with the highest ROEs are: COSCO Shipping International (62.0%), Best World (50.6%), Sheng Siong Group (26.7%), Geo Energy Resources (26.4%), and UMS Holdings (25.7%).

This is the presentation on the research report prepared by the National Winner of the CFA Research Challenge in India -Indian Institute of Management - Tiruchirapalli (India) on Hero MotoCorp Ltd

This is the research report by the National Winner of the CFA Research Challenge in India - Indian Institute of Management - Calcutta (India) on Asian Paints Ltd

This is the research report by the National Winner of the CFA Research Challenge in India -Indian Institute of Management - Ahemdabad (India) on Interglobe Aviation Ltd (Indigo)

This research appears on WenXin's blog "Hong Hao China Strategy" on 23 Jul 2018.

This research appears on WenXin's blog "Hong Hao China Strategy" on 23 July 2018.

This report contains a comprehensive analysis of the annual and quarterly financial performance of Licensed Finance Companies (LFC) categorised under Group A. The report also includes a focus titled “Spotlight on the Microfinance Sector”. The report also includes relevant charts and company-wise KPI tables.

Small Cap Index’s Five Best-Performing Constituents Avg 36% YTD Return

Half the STI Constituents Averaged 1.5%+ Daily Trading Ranges in 1H18

The non-weighted average 90 day volatility of the 30 STI constituents increased by a third over the first six months, rising to an annualised 22.5% at the end of June, up from 16.7% at the end of 2017. As many as 15 STI stocks averaged daily trading ranges over 1.50% in the first six months of the year, ranging from UOL Group & Wilmar’s 1.52% to Yangzijiang Shipbuilding’s 3.24%. These 15 stocks averaged 21.4% intraday volatility over the six months. The five STI stocks with the highest intraday volatility for the six months were YZJ Shipbuilding, HPH Trust, Genting Singapore, Venture & ComfortDelGro, averaging 27.5% intraday volatility. The STI stocks with the least intraday volatility were OCBC, SingTel, UOB, SGX and Hongkong Land.

Big Healthcare Plays a Key Market Highlight of 1H18

Four of the five biggest weights of the SGX All Healthcare Index have gained in the 2018 YTD leading the Index to a 6% total return for the period. Top Glove Corp Bhd has been the strongest performer with a 56% total return. The Healthcare Sector was also the strongest of the Sectors in Singapore in June. While the Sector saw net institutional outflow of S$0.4 million in June, it was one of just two Sectors that had booked inflow for each of the three preceding months of March through May. With trailing supply & growing regional demand of healthcare services, expansion of quality healthcare services, operational scale and applications of frontline technologies provide potential growth drivers for healthcare that go beyond its defensive sector foundations.

The European Commission(EC) published consultation ”Fitness Check” asking people with comprehensive view for the fitness of the EU reporting framework for public company to EU strategy of enhancing environmental investment. Recently EU issued a report which discusses sustainable finance by "High-level experts group(HLEG)" and announced its’ action plan.
This consultation is one of them. It asks people to possibility to amend IFRS 9 FV measurement for long-term investment. This is not issue only for EU. We discussed this consultation and summarize what we learned.

Analysis of the legal and valuation aspects of differential voting rights (DVR) shares in India

Toyota Motor Corporation (7203:JPN) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 19.8x Uniform P/E. At these levels, the market has muted expectations for the firm, while management has concerns about sales, operating income, and guidance.

Specifically, management may be downplaying concerns about their declining consolidated vehicle sales, and may be concerned about their operating income, driven by concerns about their ability to continue offsetting higher raw material costs through their cost-reduction efforts. Additionally, they may be concerned about the impact of their sales incentives on operating income, and may lack confidence in their ability to meet their North American growth guidance.

Three Best-Performing, Indonesia-Focused Stocks Avg 29% YTD Return

SGX lists two trusts and more than 20 companies that derive more than half their group revenues from Indonesia. Among them, three of the best performers in the 2018 year-to-date were: Samurai 2K Aerosol (+60.2%), Japfa (+22.8%) and Moya Holdings (+3.3%). The three, with a combined market capitalisation of S$1.59 billion, have averaged a total return of 28.8% in the YTD. Indonesia’s 1Q 2018 GDP expanded 5.06% YoY, slower than the 5.19% growth seen in 4Q 2017, due to lower household spending, government expenditures and net exports. However, investment growth continued, rising to 7.95% in 1Q versus 7.27% in 4Q and 4.77% a year ago.

Key SGX Transportation Plays Cruised Through Recent Swings

Singapore Airlines, ComfortDelGro & SBS Transit have all gained in the 2018 YTD, averaging 8.0% total returns, compared to a 3.1% decline for the FTSE ST All Share Index. Since the end of April, the trio averaged 1.6% total returns, compared to 8.2% declines for the benchmark. Amidst fuel prices advances, the trio have been expanding their operational landscapes with SIA’s digital innovation blueprint and new fleet & product offerings, ComfortDelGro stepping up the pace of M&A activity and SBS Transit expanding rail and bus services. The key transportation trio have averaged 9.5% annualised returns over a the past five years, led by SBS Transit which has also consistently increased its dividends per share over the period. The trio currently average an indicative dividend yield of 3.7%.

A Quarterly financial analysis of the listed hospitals in Sri Lanka. 

Trading Activity in Technology Stocks Soars

The 19 June trading session saw Venture as the fifth most actively traded company with S$91M in turnover. AEM Holdings, Hi-P International, UMS Holdings, Creative Technology & Valuetronics also ranked in the top 40 companies by turnover. These stocks make up six of the 10 largest capitalised Technology stocks listed on SGX that generated a median decline of 8% in the 2018 YTD, following median gains of 93% over 2017. The SIPMM Electronics Cluster PMI is now at 52.3, down 0.9 from the end of 2017. Technology is earmarked as a key driver of U.S. growth. The Trump Administration estimates 5G will potentially create up to 3 million new American jobs and generate US$500 billion a year in economic growth. This is akin to a 2.5 percentage point increase in U.S. GDP.

Supermarkets Generate 12% Defensive Performance in 2018 YTD

The two listed supermarket plays - Dairy Farm International and Sheng Siong Group - have averaged 2.9% gains since the end of April. This has taken their average 2018 year-to-date total return to 12.3%. Dairy Farm International joined the MSCI Singapore Index effective 1 June. For the 2018 year through to 15 June, Dairy Farm International was the recipient of overall institutional net inflows totalling S$26.4 million while Sheng Siong Group was the recipient of net institution inflows of S$62.4 million. The five largest capitalised Restaurant stocks - BreadTalk, Kimly, Jumbo Group, Old Chang Kee and Japan Food Holdings have averaged 1.7% gains between 30 April and 18 June, bringing their average year-to-date total return to 6.6%. Note this does not include ABR Holdings which has comparatively inactive trading.

A review of the quarterly performance of the Banking Sector in Sri Lanka for March 2018.

• Contrary to the trend of lower QoQ loan growth during the first quarter of a financial year, private sector banks recorded an aggregate QoQ growth of +5.3% in 1Q18 compared to +4.9% in 4Q17
• ROE and ROA contracted on the back of reduced sector profits, while NIMs improved marginally from 4.47% in 4Q17 to 4.56% in 1Q18
• Both Gross and NPL ratios deteriorated in almost all banks during the quarter, while also recording significantly higher impairment charges

Five Stocks on the STI Bench Average 10% Gain over Past 12M

The STI benchmark consists of the 30 largest and most active stocks traded on SGX. The next five largest and most active stocks make up the STI Reserve List. This list is used in the event one or more STI constituents are deleted before the next quarterly review. The current STI Reserve List stocks are Suntec REIT, Sembcorp Marine, Mapletree Commercial Trust, Keppel REIT & Mapletree Logistics Trust. The list has changed completely from the end of2013, with four of the five then STI Reserve stocks since joining the STI. The current five STI Reserve stocks have averaged 10% total returns over the past 12 months, taking their average five year return to 29%. Four of the five stocks are REITS that currently maintain an average indicative dividend yield of 5.7%.

Five Stocks with Manufacturing Focus Amongst Biggest Intraday Movers

For the three months spanning March, April & May, non-STI stocks that consistently ranked amongst the biggest intraday tick ranges, with daily price ranges of more than 2.5%, included AEM Hldgs, Memtech Intl, Creative Technology, Best World Intl & Delong Holdings. The five stocks averaged daily price ranges of 4% and together represent businesses with manufacturing-related activities. Manufacturing businesses span handling & test solutions, component solutions, consumer electronics, health products & HRC Steel. Another manufacturing stock, Hi-P International ranked amongst the 10 non-STI stocks with the biggest intraday tick ranges for two of the months, while generating average daily price ranges of 5%.

To demonstrate that higher-quality companies, regardless of the definition of quality, on average earn higher risk-adjusted returns than lower-quality companies, we used the S&P 500® Quality Index, which is a composite measure of ROE, accruals, and leverage, as an example. 

Key Drivers of the Semiconductor Industry in 2018

Following comparatively strong performances in 2017, the 10 largest capitalised stocks that operate in, or maintain a service focus to semiconductor businesses have been more mixed in the 2018 YTD, averaging a 4% decline. This has brought the average 12 month total return of the 10 stocks to 19%, which compares to a 12% gain for Bloomberg Asia Pacific Semiconductors Index. The strongest of the 10 stocks over the past 12 months were AEM Holdings and Micro-Mechanics. Key drivers relevant to the industry include increased memory demand and proliferation of digital technologies. At the same time more complex application, increased industry competition and trends to cut costs provide industry challenges.

Five Stocks with Manufacturing Focus Amongst Biggest Intraday Movers

For the three months spanning March, April & May, non-STI stocks that consistently ranked amongst the biggest intraday tick ranges, with daily price ranges of more than 2.5%, included AEM Hldgs, Memtech Intl, Creative Technology, Best World Intl & Delong Holdings. The five stocks averaged daily price ranges of 4% and together represent businesses with manufacturing-related activities. Manufacturing businesses span handling & test solutions, component solutions, consumer electronics, health products & HRC Steel. Another manufacturing stock, Hi-P International ranked amongst the 10 non-STI stocks with the biggest intraday tick ranges for two of the months, while generating average daily price ranges of 5%.

Asia’s Largest Global REIT Hub

More than 75% of Singapore REITs & Property Trusts own and manage overseas assets across Asia Pacific, Europe and the United States. This growing trend within the REIT Sector has seen trusts with Singapore and overseas exposure rise from 18 in 2012 to 33 in 2018. Of Singapore’s 10 most recent REIT Sector listings, nine are exclusively managing properties located outside of Singapore. These nine REITs maintain a combined market capitalisation of S$8.3 billion and have averaged 13.8% total returns since their IPO. REITs with international property assets bring diversification benefits to investors, in addition to increased risks which include foreign exchange exposures. REITs generally seek to borrow in the same currency as the underlying assets, hence mitigating some of the currency risk.

Appollo Ispat Complex Limited (AICL) was incorporated on December 31, 1994 as a private limited company. In March 30, 2010 AICL has been converted into a public limited company. The company started its commercial operation in its 1^st Continuous Galvanizing Line (CGL) in July 1997, 2^nd CGL in early 2000 and in Cold Rolled Manufacturing Unit in January 2005. The registered office of the company is located at Tejgaon, Dhaka and the factory is situated at Shiddirgonj, Narayongonj.

SGX Real Estate Index’s Five Best Performers Average 7% YTD Gain

• In the 2018 YTD, the five best-performing constituents of SGX’s Real Estate Index were Yanlord Land (+11.1%), United Engineers (+8.4%), Ho Bee Land (+6.0%), Hongkong Land (+4.9%), and Ocean Sky (+4.3%).
• The SGX Real Estate Developers & Operators Index comprises 25 constituents with a combined market cap of over S$70 billion. The component stocks with the five biggest weights are Hongkong Land (10.6%), UOL Group (9.8%), CapitaLand (9.8%), City Developments (9.2%) and Yanlord Land (9.0%).
• This year, Singapore's property market is expected to extend its recovery. In 1Q18, private residential property prices jumped 3.9% QoQ, surging the most since 2010, and building on the previous quarter’s 0.8% rise, URA data showed. Analysts are forecasting a 5%-10% recovery in domestic home prices in 2018.

Singapore’s Insurance Trio Averages 9% YTD Return

• Singapore lists three stocks that make up the Insurance Sector - Great Eastern Holdings, United Overseas Insurance and Singapore Reinsurance Corp. The three stocks have a combined market value of S$15.5 billion.
• Together the three stocks have averaged a 8.6% total return in the 2018 YTD, bringing their average 12M return to 31.4%. By comparison the MSCI World Insurance Index has gained 1.8% in the YTD, bringing its 12M total return to 10.5% in SGD terms.
• While intensified competition and economic uncertainty provide challenges, the insurance industry is expected to further diversify distribution channels while exploring and engaging digital innovation.

COVERAGE INITIATION Maple Leaf Cement Factory (MLCF) We initiate our coverage on Maple Leaf Cement Factory with a HOLD stance on the scrip, offering an upside potential of 6.05% including 3.37% of dividend yield. MLCF is currently trading at a trailing and forward P/E multiple of 8.43x and 11.73x respectively. Demand is Intact Demand for cement is to remain upbeat on the back of increased activity in government and private sector housing scheme, rising urbanization, CPEC related infrastructural projects, construction of motorways, water reservoirs and various hydel power projects and with election just around the corner, we believe demand for cement to remain sturdy during the remainder of the current fiscal year. KATAS RAJ - Blessing in Disguise It is highly plausible that the company may be given green light by the Supreme court while other companies in the negative zone will have to search for other alternatives or cede expansions. This is likely to bode well for MLCF in setting strong foot hold in the region. Brownfield Expansion – Effort to Retain Market Share In order to retain its market share MLCF has also announced a brownfield expansion project (line-3) to be setup at its existing site, thereby taking total capacity to 7.3 MT. The project is worth PKR 23Bn, financed through 48% debt and 52% of equity out of which 19% was raised through issuing 12.5% right shares. Energy Mix is All Set to Get Efficient The Installation of 40MWcoal fired plant will further lower its dependence on national grid and thus will eventually make MLCF self-reliant on captive power plants. The risks to our target price includes devaluation of PKR, hike in interest rates, lower than anticipated demand, surge in coal prices, price war, delay in commencement of new plant.

CFA Institute and PRI survey on ESG integration in Asia
 
In 2017, CFA Institute and the PRI agreed to undertake an ESG investing study that entails a survey, a series of workshops and the release of four reports: one case study report and three regional reports. The aim of the study is: 

1. to understand the current state of ESG investing in listed equity and fixed income across the AMER, EMEA and APAC regions; 
2. to analyse the drivers, barriers and solutions of ESG investing.

We would like you to help us by responding to the survey: https://start.yougov.com/refer/vXwDHpNl4ZBrY2

The results of the study and the feedback from the workshops will be published in the regional reports. There will also be regional and country guidance and case studies on how investors are integrating ESG issues into their investment analysis and decisions. These reports will be readily available for all CFA members and PRI signatories.
 
The survey contains two sets of questions that should take roughly 8 – 10 minutes to complete. It covers the impact of ESG investing at the financial market level and firm level. It is being completed by participants across seventeen countries.
 
If you like to fill out the survey, please do so by 15 June. We appreciate your response.

______________________________________________________________________________


ESG Integration Explained: An Alpha-Generating and Risk-Reducing Tool

The term “ESG integration” is often used when talking about ESG investing. Practitioners new to ESG investing are sometimes uncertain what ESG integration is and how it is performed—so much so that they may not realize they are already performing integration techniques informally.

One definition of ESG integration is “the explicit and systematic inclusion of ESG issues in investment analysis and investment decisions.” Put another way, ESG integration is the analysis of all material factors in investment analysis and investment decisions, including environmental, social, and governance (ESG) factors.

What does that mean? It means that leading practitioners are:

• analyzing financial information and ESG information;
• identifying material financial factors and ESG factors;
• assessing the potential impact of material financial factors and ESG factors on economic, country, sector, and company performance; and
• making investment decisions that include considerations of all material factors, including ESG factors.

What does that not mean? It does not mean that

• certain sectors, countries, and companies are prohibited from investing;
• traditional financial factors are ignored (e.g., interest risk is still a significant part of credit analysis);
• every ESG issue for every company/issuer must be assessed and valued;
• every investment decision is affected by ESG issues;
• major changes to your investment process are necessary; and, finally and most importantly, 
• portfolio returns are sacrificed to perform ESG integration techniques.

This research appears on WenXin's blog "Hong Hao China Strategy" on 21 May 2018.

This article qualifies for 0.5 CE under the guidelines of the CFA Institute Continuing Education Program. 
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits.

HONG KONG, 23 May 2018. Pengyuan International has today released its Chinese Local Government Rating Criteria for public consultation. These criteria will be effective immediately on the date of final publication, and we intend to complete the review of all affected ratings, if any, within six months thereafter. We expect no impact on our current rating portfolio.

We would appreciate comments on these draft criteria from investors and other market participants. The request-for-comment version of the Criteria and analyst contact details are available via the following link:

Chinese Local Government Rating Criteria: http://www.pyrating.com/Methodology/Index/10008.html

Our Chinese Local Government Rating Criteria describe our top-down approach to assessing the credit risks of all local governments (LGs) and assigning issuer credit ratings (ICRs) and issuance credit ratings to LGs in China. We explain how we assess the key rating factors (namely a LG’s economic strength, budgetary strength, debt burden, liquidity, and governance and financial management) that together drive a LG’s relative credit strength compared to peer LGs reporting directly to the same higher-level government. We combine the relative strength score of the LG with the rating on its higher-level government and our other analytical considerations to determine ICR on the LG. 

 

 

ANALYST CONTACTS	MEDIA CONTACT	OTHER ENQUIRIES
Chief Analytics Officer Tony Tang tony.tang@pyrating.com +852 3615 8278	media@pyrating.com	contact@pyrating.com
Sovereign and Public Finance Liang Zhong liang.zhong@pyrating.com +852 3615 8341

习近平总书记在第五次全国金融工作会议上宣布设立国务院金融稳定发展委员会（以下简称“金稳会”），这标志着我国现行“一行三会”的监管架构开始按照“统筹协调监管、有力有效”的要求进行方向性调整。2017年11月8日金稳会首次会议召开，明确五项主要职责。下一步，应立足我国国情、借鉴国际经验尽快做实金稳会，使其有序运转，依法履职，有效防控系统性金融风险。具体看，一是在厘清定位的基础上明确金稳会的权限；二是确定人员组成，细化金稳会下设日常支持型组织的具体架构和运转机制；三是优化运作机制。包括确立定期会议和不定期会议相结合的工作机制，信息收集、保密和透明度安排，问责机制等；四是尽快启动与金稳会相关的立法修法工作；五是按照急用先行原则，以加强资管产品监管协调和提升金融数据标准作为下一步金稳会的工作重点。

Recent Expansion of a Key Group of Singapore’s Health Care Stocks

• Asia Pacific lists some 500 stocks that represent the Health Care Equipment & Services Industry Group within the GICS® Health Care sector. This key segment of the region’s Health Care Stocks has seen its combined market cap grow fourfold over the past 10 years.
• Coinciding with burgeoning Health Care demands & comparatively less services than OECD averages, regional expansion of the Health Care Equipment & Services capitalisation has well outpaced that of the World,  and was led by expansion in Asia’s Developing markets.
• Singapore’s biggest Health Care Equipment & Services stocks averaged 8% returns in the 2018 YTD, bringing their 12M average total return to 15%. Like the region, returns were mixed with 2018 YTD performances ranging from -17% for SOG to +125% for TechComp Hldgs

ESG-integration provides downside protection. Since it is a desirable trait, rational investors are willing to accept a higher price for ESG-investment products than comparable conventional-investment products. ESG-investing is likely to under-perform their counterparts in terms of ex-ante rate of return, and outperform their counterparts when ESG-events trigger financial losses. If ESG-investing is expected to provide the same return as conventional investing, the value of downside protection of ESG-investing is likely to be mispriced.

We have seen cases where information necessary for analysis are not disclosed in the breakdown of operating expenses, and a big number is disclosed, without its breakdown table in the footnote, as accounting item named "other“, in the IFRS financial statements.
There is a disclosure option in expenses disclosure in IFRS, and companies think that they can choose one. By Function and By Nature, or their mixed, disclosed as one detailed table from the sum of SGA. In this case, it becomes difficult to understand detailed table, and "the other" becomes big number. We sent an opinion that threshold should be introducedto make disclosure more granular, and specific accounting items should be addedon IAS 1, to IASB before. 
But this time, we discussed at the same time, some investors believe that most important disclosure should be focused on what is material for company, not threshold, not certain items.

Mistake #9: Not properly fading return on invested capital
 
Check out the video to learn more about Mistake #9 and how to avoid it.

Mistake #8: Choosing an unreasonable cost of equity
Check out the video to learn more about Mistake #8 and how to avoid it.

Mistake #7: Valuing a stock using the calculated Beta

A common mistake is valuing a stock just using whatever historical beta you find in Bloomberg or your data provider. Also failing to realize that valuation is made to infinity, hence, your beta is a forecasted beta and that forecast is to infinity. Past betas tend to regress towards 1.00x. The Beta you use for valuation is to infinity. To avoid error we use three betas: High risk: 1.25x, Average risk: 1.00x, low risk: 0.75x. If you use a beta outside of this range you have a higher obligation to justify.

Check out the video to learn more about Mistake #7 and how to avoid it.

Mistake #6: Underestimating working capital investment

Net working capital (NWC) is difficult to forecast because it’s a result of five separate forecasts: accounts receivable; inventory; other current assets; accounts payable; and other current liabilities. Unlike in accounting, in valuation we exclude cash and short-term borrowing from net working capital. Changes in NWC are volatile because that change results from five separate forecasts. NWC is a small but volatile investment item. Large deviations from past trends usually are a mistake, so explain them carefully.

Check out the video to learn more about Mistake #6 and how to avoid it.

Mistake #5: Forecasting drastic changes in cash conversion cycle

I've analyzed 17,414 companies across the world to try to understand how assets break down. Avoid huge changes in working capital items, except in rare cases of product mix or management policy. Focus much of your attention on inventory. If you forecast big changes, explain your reasons.

Check out the video to learn more about Mistake #5 and how to avoid it.

Mistake #4: Confusing growth CAPEX with maintenance CAPEX

I've looked at the largest 500 companies in Asia and their CAPEX spending in their cash flow statement. CAPEX should be roughly the same as depreciation. The starting point for overall CAPEX forecasting is 100% of annual depreciation charge and that additional growth CAPEX depends on how fast you expect the firm to grow.

Check out the video to learn more about Mistake #4 and how to avoid it.

Mistake #3: Growing fixed assets slower than revenue

Analysts often underestimate fixed asset growth. A rule of thumb is that fixed asset growth should roughly match revenue. Use the asset turnover ratio to prevent this error. It can help you see when you're unrealistic.

Check out the video to learn more about Mistake #3 and how to avoid it.

Mistake #2

In this video, Dr. Andrew Stotz, CFA talks about how underestimating expenses, causing unrealistic profit as one of the most common valuation mistakes.

It covers:
- Analyzing and forecasting 17,000 companies around the world over a 15-year period.
- Defining the value of the gross profit margin in forecasting.
- Providing real examples based on his own coffee business, CoffeeWORKS, and IKEA, etc.
- Giving other sound advice, including the idea from the fantastic book: Understanding Michael Porter.
- The idea is that to forecast changes in gross profit margin, an analyst should study the supply chain.
- Looking at some common valuation mistakes in the academic-style research.
- ABC analysis and valuation.
- Evaluating the accuracy of net profit and net profit margin forecast analysts in Asia, based on the result of 540 of the largest companies in Asia.
- Presenting expenses with the highest variability in the net profit margin.

In the first of a series of nine videos examining valuation mistakes, award-winning equity analyst and former President of CFA Society Thailand Dr. Andrew Stotz, CFA, looks at why investors should be wary of overly optimistic revenue forecasts. 

 

From this video you will learn: 

 

• Questions to ask when forecasting a company’srevenue, for example, can it increase both profit and growth margins over time?

 

• How to understand a company’s marketing, branding, products, and services – in addition to its sales process, delivery, and after-sales service

 

• That if revenue forecasts are wrong, valuations will be too 

 

• How to curb your enthusiasm.

 

Watch Andrew Stotz here:https://youtu.be/9jkfAPcDomY

 

• Chinese banks and corporates have now released their full FY17 financial statements, following preliminary results in March.  The reports revealed how China's clampdown on leverage is starting to affect individual issuers in different ways.
• Chinese banks' FY17 operating metrics showed the larger banks (the big six and larger joint stock banks) emerging stronger than the smaller banks from the government's deleveraging campaign, in terms of profitability and asset quality.   Because larger banks have been net interbank lenders, profitability has benefited from higher interbank rates. Asset quality also showed positive trends with special mention loan ratios falling and NPL (non-performing loan) classification actually becoming more conservative. On the other hand, the weaker joint stock and city commercial banks have seen profitability take a hit due to more expensive interbank funding costs. Their deteriorating asset quality shows them as being disproportionately affected by China's deleveraging campaign. 
• Asset growth showed broad moderation at the banks in FY17, though growth rates were still higher at the smaller ones. The big six banks reported broadly lower asset growth rates compared to FY16. This trend can be extrapolated to the joint stock and city commercial banks, though here the picture was more mixed, with a few still seeing expansion. Slower asset growth was driven mainly by investment receivables, which fell as a % of assets at many banks. Banks' exposure to shadow loans should continue to shrink this year given the emphasis on fighting financial risks; we expect more regulations targeted at these items. 
• Chinese real estate firms' liquidity weakened during FY17, despite robust contracted sales.  Slower mortgage approvals amid China's credit tightening delayed the companies' cash collections.  Undeterred, the developers continued heavy land acquisitions and most surpassed their FY17 land purchase budgets. All of the developers we cover aside from Greenland Hong Kong posted negative free cash flow last year. We see more bond supply risk from the China property sector as the developers plug their funding gaps with fresh onshore and offshore debt. The authorities do not seem to be clamping down heavily on developers' funding sources: onshore bond issuance among the Chinese high yield developers we track soared by 76% up to 20 April this year, compared to the same period in 2017. Offshore bond issuance has also remained steady, although rising risk aversion among $ bond investors is crimping appetite for Chinese property bonds and prompting more issuance of short-dated paper.
• The Chinese industrial companies we track posted solid FY17 results overall, with companies ranging from car maker Geely Auto, piped gas provider China Oil & Gas and infant formula provider Health & Happiness reporting improving operations and stable or stronger credit metrics. With more prudent capex plans than the property developers, funding needs are generally lower. But regulatory approval for bond issuance seems to be on a case-by-case basis and issuers from overcapacity industries may find it harder to gain approval. Aluminium producer China Hongqiao, for instance, issued a 363-day bond in April, suggesting that investors were taking a cautious view of Hongqiao's long-term credit outlook, or that the company struggled to obtain an issuance quota from China's National Development and Reform Commission (deals of under 1 year maturity are not subject to NDRC approval). Yet the authorities are also supporting new funding channels selectively, presumably to ease the impact of credit tightening. West China Cement reported that it enjoys tax-free income from its new finance lease business, for instance.
• We expect China will continue to tweak credit restrictions selectively, in order to rein in excessive leverage without causing a credit crunch.  Regulatory approval can be forthcoming to fund projects that are in line with government policies. For example, despite the general credit tightening, Chinese developers can obtain large quotas for China's new 'Rental Apartment Special Bonds' (长租公寓REIT), as the government tries to tackle the problem of housing affordability.  Amid the deleveraging campaign, it seems that not all debt is bad after all.

Equity Research Report on Hero Motocorp performed by IIM Trichy Team.

Contributors: Bharat Singh, Saurabh Rakheja, Shivansh Namdeo

Banks, Telcos & Consumer Staples Led Sectors in April​

• The STI continued to outperform the region in April with Bank-led gains driving the STI’s total return to 7.1% over the first four months of 2018. This compared to an average decline of 0.1% for the benchmarks of Japan, Hong Kong and Australia.
• The three strongest sector segments in April included Banks, with capitalisation-weighted gains of 10.7%, followed by Telecommunication Services and Consumer Staples, both with capitalisation weighted returns of 4.0%.
• M1 led the performances of the largest Telecommunication Services stocks in April with a 7.6% total return, whilst Thai Beverage PCL and Sheng Siong Group led the largest Consumer Staples stocks with 9.6% and 9.7% respective returns.

Dutch Bangla Bank is a 2nd generation bank that provides conventional banking services. Their Mobile Financial Service i.e. ‘Rocket’ is the number 2 MFS in BD.

HONG KONG, 25 Apr 2018. Pengyuan International has today released its Sovereign Rating Criteria for public consultation. These criteria will be effective immediately on the date of final publication, and we intend to complete the review of all affected ratings, if any, within six months thereafter. We expect no impact on our current rating portfolio. 

 

We would appreciate comments on these draft criteria from investors and other market participants. The request-for-comment version of the Criteria and analyst contact details are available via the following link:

 

Sovereign Rating Criteria: http://www.pyrating.com/Methodology/Index/10008.html 

 

Our Sovereign Rating Criteria describe our analytical approach to assessing the credit risks of all sovereigns and assigning issuer credit ratings (ICRs) and issuance credit ratings to sovereigns. We explain in detail how we assess the key rating factors (namely a sovereign issuer’s debt burden, stage of economic development, economic fundamentals, institutions and policies and distinctive movers of underlying liquidity risk) that together drive a sovereign’s indicative credit score (ICS). We also outline our other analytical considerations, which, together with the ICS, will determine an entity’s Issuer Credit Rating.  

For these criteria, we define a sovereign as a member state of United Nations or a state that runs its own government, enjoys fiscal independence and determines its own monetary regime.

MEDIA CONTACT
media@pyrating.com
 
OTHER ENQUIRIES
contact@pyrating.com

Regional Healthcare Stocks Leading the World in 2018 YTD​

• The SGX All Healthcare Index has gained 4.6% in the 2018 YTD, similar to the MSCI AC Asia Pacific Health Care Index returns of 4.7%, and higher than the MSCI World Health Care Index decline of 2.1.
• The five largest capitalised stocks of the SGX All Healthcare Index include IHH Healthcare Bhd, Top Glove Corp Bhd, Haw Par Corp, Raffles Medical Group and Tianjin Zhong Xin Pharm Group. All five stocks have gained in the YTD, with average total returns of 11.6% and median total returns of 5.7%.
• Of these five stocks, the strongest two stocks both in the 2018 YTD and past 12M maintain a strong product focus – Top Glove Corp, with a product presence in virtually every corner of the globe, and Haw Par Corp, with a global consumer base for its Tiger Balm products.

Advent Pharma Ltd (ADVENT) is engaged in manufacturing, importing and marketing of animal health care drugs, nutritional supplements and feed additives for livestock. The company manufactures products in the form of powder, bolus and liquid dosage. ADVENT produces both Non-Biological and Biological products. ADVENT manufactures 32 products likely electrolyte, vitamins & minerals, multivitamins, zinc supplement, calcium supplement, stomachic, anticoccidial, antibiotic, anthelmintic, analgesic, appetizer for both poultry and dairy. 

SGX-Listed Stocks & ETFs with Exposure to Fast-Growing Malaysia

• Malaysia’s economy is expected to grow by 5.3% in 2018, with BNM citing favourable income and labour market conditions, spending on new and ongoing infrastructure projects and sustained capital investment by firms in manufacturing and services sectors.
• Singapore’s 10 largest capitalised stocks that report the majority of their revenue to Malaysia have averaged a 4% gain in the 2018 YTD. The 10 stocks span six Sectors, with the 2018 YTD gains taking their average 12M average total return to 20%.
• Over the past 12M, Sunright led the performances of the 10 stocks, with a 136% total return. As one of the world’s largest independent providers of burn-in and test services, it reported 1HFY18 (ending 31 Jan) PBT YoY growth of 25%, building on PBT YoY growth of 75% in FY17.

While firms often use pension return assumptions to manage earnings, they may also use high return assumptions to signal lower pension contributions to increase internal cash flows available for profitable investments. Benefits of such internal funding can overweigh forgone tax benefits. Our cross-sectional evidence suggests that pension return assumptions can exert real effects beyond earnings management, as they predict significant increases in operating cash flows, fixed capital investments, and R&D expenditures. The stock market places significant values on pension return assumptions beyond the valuation of management forecasts of earnings, especially among firms with low profitability or large pension underfunding.

 

This research appears on WenXin's blog "Hong Hao China Strategy" on 26/03/2018 

This research appears on WenXin's blog "Hong Hao China Strategy" on 26/03/2018

We use Rajan’s (2012) theory of entrepreneurial firms to develop testable hypotheses and to empirically analyze how venture capitalists (VCs) help to standardize the corporate governance and management of family firms prior to an IPO. We find that VC-backing causes family members to depart more from top management positions and causes family control rights, cash-flow rights, and the separation between them to drop more relative to non-VC-backed family firms. Further, these effects are stronger when VCs have greater bargaining power or board representation. The above changes in management and governance yield correspondingly higher IPO firm valuations and post-IPO operating performance.

The market systematically underweights price-relevant information in high-quality analysts’ forecasts and recommendations due to its fixation on the consensus, despite the persistently superior forecasting ability of these analysts. In particular, we find that only the high-quality analysts’ recommendation changes and forecast dispersion predict the firm’s stock returns and return volatility one month ahead. The PEAD phenomenon occurs only when high-quality analysts are relatively uncertain about the firm’s performance. The information provided by analysts at the firm level aggregates to the market level, so that high-quality analysts’ recommendation changes and normalized forecast dispersion predict future market returns and volatility, while the information provided by other analysts does not. Our findings conclude that the market’s focus on the consensus earnings forecast and its negligence in differentiating among analysts according to quality has significant negative economic implications.

Berger Paints Bangladesh Limited is the largest paint manufacturer and distributor in Bangladesh. Berger Paints manufactures world class paints for all kinds of substances and also provides different support services with more than 250 years of rich heritage. Louis Berger from Germany started dye and pigment making business in 1760. The company was introduced as Louis Berger & Sons Limited.  The company grew and expanded rapidly with a strong reputation for excellence in innovation and entrepreneurship. Production of dyes and pigments evolved into production of paints and coatings, which till today, remains the core business of Berger. Berger expanded globally by establishing branches all over the world and through mergers and acquisitions with other leading paint and coating manufacturing companies. Berger Robbialac, the flagship brand of Berger Paints, is the number one paint brand in Bangladesh. The product line of Berger Paints includes decorative, industrial, marine, power coating, adhesive, wood coating, textile paints and construction chemicals.

We examine the statistical properties and predictive power of an Implied Volatility Index derived from New Zealand Exchange (NZX) options on Whole Milk Powder futures. To construct the implied volatility index for the Dairy market (termed the DVIX) we follow an approach similar to the CBOE VXO methodology. The analysis of seasonalities in the DVIX reveals an annual seasonality with a decrease in the DVIX in the months of April, May and June. We further document an inverse return-volatility relationship which exhibits asymmetry, implying that positive moves in the WMP futures prices are associated with larger absolute changes in the DVIX than negative moves in the WMP Futures prices. In the in-sample forecasting exercise, we combine the GARCH model with implied volatility. The results strongly suggest that the DVIX has a high information content regarding conditional variance and that the historical information only marginally improves the information content provided by the DVIX. In the out-of-sample forecasting exercise, we formulate and test several hypotheses related to the information content of implied volatility relative to several alternatives (such as historical volatility or a forecast from GARCH-type models). While we find that the DVIX is not an unbiased estimate, it provides substantial information about the future realized volatility. We also document that a combination of historical volatility and the DVIX provides the best out-of-sample forecasts. 

Highlights of Heliconia’s Investments in Recent Listings

• Heliconia Capital Management, a wholly owned subsidiary of Temasek Holdings, is an investment firm that focuses on growth-oriented Singapore companies.
   
• Heliconia has been a shareholder of Kimly, Sanli Environmental, HRnetGroup and RE&S Hldgs which all listed in 2017. The investment firm has also been a shareholder of Jumbo Group which listed in 2015. These five stocks have averaged a 43% gain from their IPO dates.
   
• Three of these stocks are consumer-focused F&B plays - Jumbo Group, Kimly and RE&S Hldgs. Last year, Jumbo Group continued to expand its international network, Kimly organically expanded its shops and stalls in Singapore, and RE&S Hldgs opened new outlets.

This is discussion for role and future of DATA from financial statement. 
You may imagine that analysts read financial statements prepared by company, evaluate company’s value and compare with peer companies….BUT, in reality, financial statements are used in various ways. There are many quant analysts and passive investors using information as “data”, which is standardized in a database (DB), and they have become the majority of market participants globally. In such case, real time data distribution has important role on the impact on the stock price. Also, use of Artificial Intelligence (AI) in analysis and investment has become more common today. 
First, financial statements have to be converted into “Data” and then the data can travel through the market. 
We discussed how financial data are used, but from a different angle, and consider the role of future financial statements and accounting standards. 

 Insider Ownership and Acquirer Returns: Evidence from India

In this paper, an attempt has been made to examine the components and sources of investment performance in order to attribute it to specific activities of Indian fund managers. It also attempts to identify a part of observed return which is due to the ability to pick up the best securities at given level of risk. 

This research appears on WenXin's blog "Hong Hao China Strategy" on 6 Feb 2018 

• Asia’s accelerated ageing rates and the rise of lifestyle diseases will likely boost the region’s healthcare spending outlook in coming decades, while in supply terms, the region’s medical facilities, equipment and manpower will continue to trail the per capita averages of the 34 OECD member countries. SGX-listed healthcare plays that derive significant revenues from markets beyond Singapore have exposure to these robust demand-supply dynamics.
   
• Singapore’s listed healthcare sector, as tracked by the benchmark SGX All-Healthcare Index, consists of 30 companies and related trusts with a combined market capitalisation of more than S$34 billion. Seven of the 10 largest constituents of the Index report more than a third of group revenues to Asia Pacific ex-Singapore, namely Southeast Asia, North Asia and South Asia.
   
• Healthcare stocks posted a mixed performance in 2017, as funds rotated out of defensives into cyclical plays. However, the tide has turned over the last few weeks, making Healthcare the best-performing sector on a market capitalisation-weighted basis in the month of December, and positive momentum continuing into the New Year.

This research appears on WenXin's blog "Hong Hao China Strategy" on 6 Feb 2018 

The Financial Accounting Standards Board (FASB) had introduced the concept of Current Expected Credit Loss (CECL) and issued a new accounting standard—Accounting Standards Update (ASU) No. 2016-13, Topic 326, Financial Instruments – Credit Losses—on June 16, 2016. The introduction of CECL would present many banks and other lending organizations with significant model and data management challenges. The objective of this paper to decode the operational aspects of computation of “life-of-loan”, a key component of CECL calculation, and introduce a broader modeling framework which can be used by various stakeholders impacted by the ASU. Specifically, in this paper, we provide a framework for computation of CECL under the Probability of Default (PD)-based methodology and intricacies involved therein. The main focus of this paper is on different ways in which “life-of-loan” can be computed, which is an important component of the CECL computation. We also provide a framework to compute cumulative life time PD, which is used in conjunction with assumed loss given default (LGD) and exposure at default (EAD) to arrive at the CECL numbers. We also discuss the inherent limitations of cumulative PD-based approach. The PD model’s performance, assessed using industry-established measure, i.e., area under the receiver operating curve (ROC), is found to be satisfactory for both in-sample and out-of-sample data. The Aggregation model performance, assessed by comparing the actual losses with estimated CECL, is found to be reasonable, with further scope for improvement, which would be considered in our future work.

In Business world and Communities, the only accepted word is Performance. India has private, public and foreign banks are operating with a motive of performing better in terms of profits and services to the society. Off-Balance Sheet items are the major influencing factor affecting the performance and solvency of the banking sector, all over the world. To study the performance, OBS is a vital factor and we did research on the performance of the public and private sector banks with nonparametric method, called Data Envelopment Analysis (DEA). We found that OBS is the major influencing factor on the performance of public sector banks. Overall performance efficiency from 2012 to 2016 has not much changed.

The present study is intended to identify the factors affecting socially responsible behavior of Indian investors and the interrelationship between the factors identified in above objective has also been examined. The study has applied exploratory factor analysis in order to determine the important variables under one major construct. Further, in order to capture the experts’ opinion regarding importance of various factors, Decision Making Trial and Evaluation Laboratory (DEMATEL) technique has been used. The results obtained through EFA and DEMATEL have pointed out eight major factors defining the socially responsible investing behavior of Indian investors. The Environment Attitude, Materialism, Individual’s Risk Propensity, Collectivism, Individual’s Risk Affinity and Non-economic goals are the eight constructs obtained through the results of exploratory factor analysis. Out of these eight constructs, seven constructs have been found as causal effect on non-economic goals of individuals. The findings of the study can be of great interest to practitioners who are working in AMCs or developing various financial products for individuals. The results can help them to focus on the determinants of individuals’ behavior while selecting a responsible investment avenue.

 In this study our objective was to develop a scale for money attitudes and financial behavioural traits prevalent among Indians. While there have been several scales for measurement of such traits in the US and Britain, this is the first such study in India. The tri-component model viz., the affective, behavioral and cognitive components of attitude formation was used to generate the original scale that was developed in both English and Hindi. It was administered using an online survey as well as through collection of data in the field. The final data included 625 respondents from 20 villages in North India and more than 20 cities across India. Exploratory factor analysis of this data yielded 6 factors which were named as follows: (i) „Financial Prudence‟, (ii)„Extravagance‟ (iii) „Financial Knowledge‟, (iv) „Financial Anxiety‟, (v) „ Importance attached to Money‟ and (vi) „Financial Support Network‟. Confirmatory Factor Analysis (CFA) was conducted and the statistical fit of the CFA model was good. The findings of this study are of potential interest to social policy makers, NGOs engaged in helping people achieve financial well-being as well as agents of financial institutions trying to market insurance and investment products to the Indian customer.

Identifying and understanding the determinants of dividend payouts is an important issue in financial literature for a long period of time. Researchers have made an effort in identifying the determinants for nearly 60 years. Lintner's (1956) classic work initiated the discussion on dividend. However, despite extensive research, dividend continues to be a “puzzle with pieces that just don’t fit together”(Black, 1996). A vast amount of research has been carried out on dividend policy and various theories such as theory of dividend irrelevance, signaling theory, agency cost theory, and bird in the hand theory have emerged to answer the different questions relating to dividend policy.
It is clear from these theories that dividends are relevant and can be predicable in many ways. Therefore, identifying and understanding the key factors that motivate the managers to distribute dividends is important for investors.  These factor are grouped into three categories namely, firm characteristics, market characteristics and substitutions of payouts (Denis, Stepanyan, & Baker, 2007). The extant literature suggests that firm characteristics such as profitability, growth opportunities, size, leverage, maturity, and aspects of the firms’ corporate governance, among others, are the key variables in determining dividend policy. Among these characteristics, size, earnings, and growth are the major reasons for paying lower dividends by US firms (Fama & French, 2001).

Since fundamental characteristic varies across the firms and over time in systematic ways, determinants of dividends are expected to vary across the firms and over time. Majority of this research has been carried out with respect to developed countries, mostly the UK and the USA. There are only a limited number of empirical investigations on the dividend policy of companies in emerging economies like India. For instance, Mahapatra and Sahu (1993) found that cash flow and net-earnings were the major determinant of dividend, but current earnings were perceived as an important factor (Bhat & Pandey, 1994). Narasimhan and Vijayalakshmi (2002) opined that insider ownership did not influence on dividend behavior of Indian firms.

Nonetheless, there is no conclusive evidence on what fundamental characteristics that determines the dividend policy of Indian firms. Further, it is also important, because companies have started distributing a substantial amount of their earning to shareholders every year. This has been evidenced by the mint analysis, which found “BSE-100 companies’ dividend payment ratio, the share of net profits given as dividends, rose to 34.52% in 2014-15. This is the highest such figure since at least 2004-05”. There is a growth in the payment of dividend by the companies to shareholders for the past 10 years.

This motivates us to identifying the determinants of dividends. Additionally, the existence of non-linearity behavior in the dividend payout motivated us to use quantile regression procedure. This analysis follows least absolute deviations (LAD) method, which allows the estimation at different quantiles, in contrast to the ordinary least square (OLS) method. Overall, the objective of this study is to examine whether the determinants vary depending on the company’s level of dividends using quantile regression approach.

The results show that the quantile regression is useful in examining the determinants of dividends. The single value provided by the OLS estimation does not always coincide with quantile regression estimates. This notable difference occurs because either the significance of the variables changes (e.g. return on assets and market to book ratio) or because the magnitude of coefficients changes (e.g. size, return on assets and market to book ratio). For most of the variables, the estimated significance of the majority of the quantiles does not coincide with the OLS. Also, the sensitivity of the coefficients of quantile regression and OLS differs and the magnitude changes for different quantiles. This implies the heterogeneous effect of different variables on dividend at different levels.

Overall, the study contributes in two ways: this study adds to the extant literature by investigating various factors as the determinants of dividend policy of Indian firms, manufacturing firms in particular, in turn that helps the investors in predicting the dividend paying firms. Thereby investors who wish to have a regular income on their investments make decisions accordingly. Secondly, findings of this study would be useful to the mangers to concentrate and maintain/enhance their financial position to retain as well as attract the potential investors. Finally, to the best of our knowledge, no study has investigated the determinants of dividend policy using quantile regression in Indian context.

The study proposes a broad definition and examines the nature and consequences of political connections for India's mixed economic set-up. The study emphasizes over the effects of connections through different channels including Members of Parliament (MPs) and contributions to the national political parties. Using Standard & Poor's Bombay Stock Exchange (S & P BSE) Index for 500 firms, we find that political connections have a positive effect on firms profitability and access to credit which varies with the strength of connections. The firm contributing to multiple political parties
are benefited more in the decentralized structure of the Indian economy. We further
find that the degree of effect differs with the firm's size.

Using a large cohort of firms in India for the period 2005-2015, the study examines trends in earnings quality. The study finds earnings quality as measured by abnormal accruals in non-financial sector in India to be around 2 per cent of previous year’s total assets. This is substantially higher than the corresponding figure with regard to US indicating low earnings quality in India’s stock market indicating the prevalence of considerable information asymmetry in financial markets in India. But in recent years, the magnitude of abnormal accruals has slightly come down in India. Similarly, another indicator of earnings quality, viz., MScore which is an index of earnings manipulation was over its manipulation threshold indicating widespread earnings manipulation in India during the period of study. But this metric of earnings quality also has shown marginal improvements in recent years.

Cryptocurrencies have grown rapidly in price, popularity, and mainstream adoption. The total market capitalization of bitcoin alone exceeds $250 billion as at January 2018, with a further $400 billion in over 1,000 other cryptocurrencies. Over 170 “cryptofunds” have emerged, attracting around $2.3 billion in assets under management. What was once a fringe asset is quickly maturing.
 
The rapid growth in cryptocurrencies and the anonymity that they provide users has created considerable regulatory challenges, including the use of cryptocurrencies in illegal trade (drugs, hacks and thefts, illegal pornography, even murder-for-hire), potential to fund terrorism, launder money, and avoid capital controls. There is little doubt that by providing a digital and anonymous payment mechanism, cryptocurrencies have facilitated the growth of “darknet” marketplaces that trade illegal goods and services.
 
In a recent research paper, we quantify the amount of illegal activity that involves the largest cryptocurrency, bitcoin. As a starting point, we exploit several recent seizures of bitcoin by law enforcement agencies to construct a sample of known illegal activity. We also identify the bitcoin addresses of major illegal darknet marketplaces. The public nature of the blockchain allows us to work backwards from the law enforcement agency bitcoin seizures and the darknet marketplaces through the network of transactions to identify those bitcoin users that were involved in buying and selling illegal goods and services online. We then apply two econometric methods to the sample of known illegal activity to estimate the full scale of illegal activity.
 
We find that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin. For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity. The estimated 24 million bitcoin market participants that use bitcoin primarily for illegal purposes (as at April 2017) annually conduct around 36 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin.
 
To give these numbers some context, the total market for illegal drugs in the US and Europe is estimated to be around $100 billion and €24 billion annually. Such comparisons provide a sense that the scale of the illegal activity involving bitcoin is not only meaningful as a proportion of bitcoin activity, but also in absolute dollar terms. The scale of illegal activity suggests that cryptocurrencies are transforming the way black markets operate by enabling “black market e-commerce”. In effect, cryptocurrencies are transforming the black market much like PayPal and other online payment mechanisms revolutionized the retail industry through online shopping.
 
In recent years (since 2015), the proportion of bitcoin activity associated with illegal trade has declined. There are two reasons for this trend. The first is an increase in mainstream and speculative interest in bitcoin (growth in the number of legal users), causing the proportion of illegal bitcoin activity to decline, despite the fact that the absolute amount of such activity has continued to increase. The second factor is the emergence of alternative cryptocurrencies that are better at concealing a user’s activity (e.g., Dash, Monero, and ZCash). Despite these factors and numerous darknet marketplace seizures by law enforcement agencies, the amount of illegal activity involving bitcoin remains close to its all-time high.
 
In shedding light on the dark side of cryptocurrencies, we hope this research will reduce some of the regulatory uncertainty about the negative consequences of cryptocurrencies. Hopefully, more informed policy decisions that assess the costs and benefits will contribute to these technologies reaching their potential. Our paper also helps understand the intrinsic value of bitcoin, highlighting that a significant component of its value as a payment system comes from its use in illegal trade. This has ethical implications for bitcoin as an investment. Third, the techniques developed in this paper can be used in cryptocurrency surveillance in a number of ways, including monitoring trends in illegal activity, its response to regulatory interventions, how its characteristics change through time, and identifying key bitcoin users, such as “hubs” in the illegal trade network.
 
For more information, download the paper at https://ssrn.com/abstract=3102645.

This research appears on WenXin's blog "Hong Hao China Strategy" on 31 Jan 2018

This research appears on WenXin's blog "Hong Hao China Strategy" on 30 Jan 2018.

Rising property values trigger an increase in prepayments of commercial mortgages as borrowers refinance to take out equity or sell their asset. However, property values are driven by fundamentals and irrational investor sentiment. We investigate sentiment as an explanation for prepayments of loans underlying CMBS. We employ Cox proportional hazard models to analyze a sample of 10,728 multifamily securitized loans for the period of 2001 to 2015. We find that, controlling for property market fundamentals, interest rates and prepayment penalties, irrational sentiment is able to explain the exercise of the prepayment option by borrowers. In particular, the more irrationally optimistic (pessimistic) investors are in the market, the higher (lower) is the prepayment propensity of commercial mortgage borrowers. The effect of irrational sentiment on prepayment hazard is robust to different models accounting for, amongst others, loan and deal characteristics.

The fact that disagreement (herding) affect asset returns is now well established in the literature. However, not much attention has been paid to the source of this disagreement. This article presents evidence that one such source is the _trust structure. The article establishes that trust level has a direct bearing on disagreement as measured through dispersion in analyst earnings estimates. Disagreement decreases as trust increases. Other way to put it is that herding increases as trust increases. The article also advocates that a new trust metric, called trust radius, has a significant bearing on disagreement.

A recent working paper from the IMF titled “Credit Booms – Is China Different?” provides a good summary of many of the key issues facing China’s economy. Rapid credit growth since the global financial crisis is record setting for both its total expansion and its duration. Credit is being poorly used with the most inefficient sectors and firms grabbing large shares of new debt. Banks have seen rapid growth in their size and complexity and when combined with a heavy reliance on short term funding this creates a major risk of a liquidity crisis.
 
Whilst using diplomatic language the working paper makes clear that China may be able to continue its current trajectory for the medium term but in the long term a downturn, likely accompanied by a banking crisis is inevitable. This paper reviews the key points from the IMF paper and adds commentary on issues that the IMF paper omits.

The S&P Pan Asia Bond Index, which seeks to track local currency bonds in 10 countries and is calculated in USD, reversed its loss in 2016 and delivered a total return of 7.86% in 2017. Meanwhile, its yield-to-maturity widened 123 bps to 4.64% YTD. The S&P Pan Asia Corporate Bond Indexoutperformed the S&P Pan Asia Government Bond Index and gained 8.30% over the same period. The size of Asia’s local currency bond markets, as measured by the S&P Pan Asia Bond Index, continued to expand and grew 17% to reach USD 12.1 trillion in 2017.

• Indian banks reported lower annualized aggregate profitability in 1HFY18 due to weaker net interest revenues and higher provisions related to RBI's two lists of accounts which are slated for insolvency resolution.
• The government's INR 2.1 tn recapitalization package is a game changer and has largely removed the capital uncertainty banks have been facing.
• For banks under our coverage, our rough calculation reveals a capital requirement that is ~64% of the total amount pledged (INR 2.1 tn) by the government under our scenario analysis which we think is reasonable but not especially harsh.
• Asset quality is already showing signs of stabilization and improvement but the recapitalization plan should also help support this picture into 2018 as banks find greater impetus to take haircuts and resolve NPAs on their books.
• The expectation of a substantial pick up in credit growth due to the capital pledge is logical but we remain skeptical as the plan will be spread over two years and risk aversion will also likely  take some time to abate.
• Removing capital concerns will help with bank valuations and in tandem with the recently introduced "Alternative Mechanism" (AM), should help with banking consolidation.
• IFRS 9 implementation should also be easier to swallow with with more capital and a phased implementation of the CET 1 impact. 

• Asian high yield is too expensive" lament many investors we meet. We agree. We propose a more defensive strategy next year. Current Asian high yield spreads offer little compensation for the incremental credit risk compared to investment grade, or to US high yield. We suggest a 'barbell' approach in terms of credit quality: combining a core portfolio of defensive names with a few higher-beta credits to boost returns. 
• Credit quality is generally improving or stable among the names we cover.  But this does not justify the extent of the Asian high yield rally. Technical factors - the imbalance between demand (large inflows into emerging markets and the fabled 'Chinese onshore bid') and supply (at record levels, but still not enough to dent demand) - have been the key reason.  As supply risk increases, we are concerned that the balance will tip away from the market's favour. 
• We highlight 8 themes that could drive the Asian high yield markets next year.  These include: 1) the effect of China's regulators and China's domestic bond markets on offshore bond supply; 2) LGFV issuance and maturity walls; 3) China's capacity cuts and their impact on commodity prices; 4) Asian high yield bond supply risk; 5) China's property market slowdown; 6) few distressed opportunities; 7) the reach for yield into frontier markets and riskier credits; 8) Fed surprise risk.  

SGX’s Indonesia-Focused Coal Plays Average 50.7% Gain YTD

• SGX’s three Indonesia-focused coal miners – Golden Energy and Resources, Geo Energy Resources and BlackGold Natural Resources – have averaged a price gain of 50.7% in the 2017 YTD, as Indonesia’s benchmark coal price surged to a 10-month high.
• In October, Indonesia's reference coal price, known as Harga Batubara Acuan (HBA), jumped 2.1% month-on-month to US$93.99 per metric tonne, after soaring 9.6% month-on-month in September, according to data from the country's Ministry of Energy and Mineral Resources. HBA is now at its highest since December 2016. 
• Coal is expected to remain a vital source in meeting Indonesia's growing domestic electrification needs. In 2015, Indonesian President Widodo unveiled an ambitious 35,000 MW program to boost the country's electrification ratio to 97% by 2019, with about 25,000 MW of capacity expected to come from coal-fired power plants.

Oil & Maritime Indices Veered on Global Growth

• Two key factors currently driving the price of oil price include an upcoming decision by OPEC on whether to extend production cuts (30 Nov), in addition to continued production growth of shale in the US.
• While price of WTI Crude Oil rallied +38% from 21 June to 8 Nov, this was largely a price recovery with the current price +3% higher than its end of 2016 level. This has coincided with downstream plays, more sensitive to global growth and trade, outperforming the oil & gas upstream plays.
• Since 30 June, the more-downstream SGX Maritime Index has gained +24%, led by performances of Cosco Shipping International (+110.9%) and Yangzijiang Shipbuilding (+42.0%), whilst the more-upstream SGX Oil & Gas Index generated a marginal gain.

Longer Term Drivers of SGX Agricultural Plays

• SGX lists eight Agricultural Products stocks with a combined market capitalisation of S$29 billion. In the 2017 YTD, these stocks averaged a -13.7% price change, compared to +16.7% in 2016. Global Palm Resources Holdings, which registered a price change of +15.4% in the YTD, was the best-performing stock in the sector.
• Zion Market Research has forecast the global palm oil market to grow at a CAGR of 7.2% between 2016 and 2021. Growth drivers include higher living standards, changing eating habits, growing demand for vegetable oil as a feedstock for biodiesel production as well as low prices compared to soybean and other vegetable oils.
• Palm oil prices for the rest of 2017 are projected to remain firm, given the seasonally strong fourth quarter, according to Bloomberg Intelligence. A further boost could come from weaker-than-expected output, as well as an anticipated cut in Europe's import tariffs for Indonesia's biodiesel.

Highlights of Gold Opportunities on SGX

• SGX offers investors opportunities to participate in the gold sector through three mining stocks – Wilton Resources, CNMC Goldmine and Anchor Resources – and one Exchange Traded Fund, the SPDR Gold Shares ETF.
• Spot gold has fallen over 4% since hitting a one-year high of US$1,349.22 on 7 September 2017, which reduces its YTD gain to 12%. Bullion's performance has been impacted by flagging investor interest after the recent surge in US equity markets, the focus on cryptocurrencies like Bitcoin, and as central banks began paring their stimulus policies.
• The World Gold Council has consistently flagged the diversification role of gold, noting that the commodity fulfils a classic role as a haven asset. A key motivation for including bullion in a portfolio has been the metal’s history of maintaining low correlations to most other asset classes, which helps to reduce overall portfolio risk.

The belief that economic growth is possible without lowering carbon emissions is becoming harder to sell by the minute.

This paper employs the autoregressive conditional jump intensity model, incorporating a forecast error, to investigate the relationships between the changes in the implied volatility and the relevant determinants in the Taiwan market. We further apply the orthogonality test to explore forecast error and content of information. The empirical results show that the changes in the implied volatility are affected by the contemporaneous returns, lagged returns, lagged changes in the implied volatility, contemporaneous daily changes in the realized volatility and lagged forecast error.

By comparing liquidity and price discovery effects, the market microstructure literature insists that in-the-money options (ITMs) are informationally inferior to out-of-the-money options. However, such an argument is at odds with the anecdotal point that ITMs may be more effective for hedging future volatility risk. ITMs are driven by institutional investors, who are considered to be informed traders, and can provide significant hedging benefits such that a hedging with ITMs requires fewer options and less frequent rebalancing.

This study investigates the role of corporate governance in the relationship between investment opportunities and dividend payouts. The study sample is divided into strong and weak governance regimes to investigate outcome and substitute effects, where the former stresses the negative relationship between investment opportunity and dividend payouts in a strong governance regime while the latter emphasizes the positive relationship between the two in a weak governance regime.

Share repurchases have become a popular means of paying out cash to shareholders, and one of their often cited motives is their signaling of undervaluation of repurchasing firms. Dividends are often viewed as signaling future earnings. However, in theory, signaling of current undervaluation should be closely related to signaling of future cash flows.

Hedge ratio stability is especially important because hedgers are likely to use the estimate of historical hedge ratios to hedge future positions of their portfolios. One main purpose of the present study is to examine hedge ratio stability during the Asian financial crisis and post-crisis, periods characterized by high price volatility, using the Nikkei 225, Hang Seng, and KOSPI 200 index futures contracts.

The minimum price variation on the Taiwan Stock Exchange reduced for most price categories on March 1, 2005. The present paper simultaneously examines the institutional and endogenous impacts of tick size changes on transaction costs, market liquidity, and trading activity. The empirical evidence suggests that following a reduction in tick size, uniform declines are discernible in transaction costs and market liquidity.

This research studies the dynamic relationship between equity returns and equity fund flows by incorporating nonlinear properties of the two variables. Nonlinear estimation based on a smooth transition autoregressive model reveals results different from those previously reported based on a linear relationship. Our empirical results find that there is significant mutual Granger causality between equity returns and equity fund flows.

Given the growing importance of the Taiwan stock market, the present study sets out to provide a comprehensive investigation of the intraday time series of the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX). We begin by exploring the intraday volatility patterns and then go on to examine their impact on intraday volatility forecasting.

This is a conference paper presented at the 2017 CSEAR North Asia Conference.

We question whether a new dimension of conflicts of interest exists for sell-side analysts due to a business group affiliation between asset management firms (AMFs) and brokerage firms. In family-controlled industrial conglomerates in Korea (chaebol), member firms keep close business ties and engage in mutual cross-debt guarantees with their fellow member firms. Interlocking ownership along with various business ties allows controlling families to exert substantial influences over all member firms of the same chaebol group. This study aims to investigate reporting incentives of affiliated analysts who are employed by a brokerage firm in a business group where the group holds both an AMF and a brokerage firm.
In the US, mutual fund families have multiple distribution channels for their funds such as direct sales, fund supermarkets, or institutional sales. However, similar to European countries Korean fund management firms are heavily reliant on large banks, insurance companies or brokerage firms for their fund sales. Brokerage firms, therefore, are one of the most important marketing channel for mutual fund managers. In turn, mutual fund managers use brokerage service to trade, which makes them vital clients to brokerage firms. Ideally, fund managers should use brokerage firms which provide the most accurate research reports and the most competitive brokerage fees, while brokerage firms recommend the funds managed by the best performing AMFs. The problem is that the business groups in Korea are allowed to retain substantial ownership in both brokerage firms and AMFs, making those separate independent entities, by law, to be under influence of the same controlling families. This institutional structure restricts the chaebol member firms from following the ideal process in finding their business partners for brokerage services and fund distributions. However, both a brokerage firm and an AMF in the same business group can benefit by closely working with each other. First, brokerage firms can secure a steady stream of commissions from their affiliated AMFs. By commissioning a majority of the transactions to a fellow member firm, the AMF can also prevent their investment strategies from being leaked to other competitors in the market. Secondly, AMFs can secure a well-established distribution channel to promote their mutual funds. Employees in chaebol brokerage firms are also put under pressure to sell affiliated funds.
In the presence of the group affiliation between a brokerage firm and an AMF, we conjecture two competing reporting incentives of affiliated analysts. On the one hand, to boost performance of affiliated fund management firm, analysts may give more optimistic opinions for affiliated stocks than other stocks. On the other hand, employees in the same chaebol can communicate more frequently via the internal media/portal services and through close business ties and employee movements between member firms. Therefore, affiliated analysts may utilize information advantages through the research pools provided by financial firms within the same chaebol and produce more accurate forecasts.
By using analyst reports and the mutual fund holding data from July 1, 2000 to February 28, 2008, we calculate relative recommendations and forecast accuracy of affiliated and non-affiliated analysts. Our results show that more accurate and less biased earnings forecasts issued by the affiliated analysts on affiliated stocks, consistent with information sharing. However, affiliated analysts make more optimistic recommendations for affiliated stocks when the funding amounts on those stocks are high, when higher asset management fees are charged on the funds including those stocks and when those stocks are newly included to the affiliated fund.
Our paper makes the following contributions to the extant literature. First, we investigate potential agency conflicts that analysts face caused by the business group affiliation between brokerage firms and AMFs. Our findings find that analysts become selectively optimistic to benefit affiliated mutual fund managers while maintain their reputation by providing more accurate forecasts for affiliated stocks in general. In addition, our findings contribute to the stream of literature on the investment strategies of mutual fund families. Mutual fund managers in US may face agency conflicts between their clients and mutual fund family that they belong to. The fund families are suspected to organize investment strategies across the member mutual funds to maximize the total group profit. Our study presents a special case where mutual fund managers strategically cooperate with affiliated analysts to maximize the total profits of their affiliated firms. Such tactical collaboration can also be used as window dressing purposes by mutual fund managers as we find the analyst recommendations are biased in favor of highly valuable stocks to affiliated fund managers.
 

This research appears on WenXin's blog "Hong Hao China Strategy" on 4 Dec 2017.

This research appears on WenXin's blog "Hong Hao China Strategy" on 4 Dec 2017.

Changing Landscapes in the Singapore Retail Property Market

• Singapore retail space vacancy rose to 7.7% in 1Q17 despite a 2.9% QoQ decline in price rentals. However, impact of retail headwinds may not be evenly felt across all malls.
• New supply of retail malls largely located in Outside Central Regions, in line with the government’s plan of decentralised business districts and growth of regional centres.
• SGX lists 12 Retail REITs & Property Trusts which have retail properties within their asset portfolios with a combined market capitalisation of S$30.9 billion. These 12 trusts have generated a market cap weighted average total return of 16.2% in the YTD and have an average dividend yield of 6.1%.

Recent Trends & Moves in Singapore’s Hospitality Trusts

• Hotel RevPar in 2016 fell 4.7% YoY despite an increase of 7.7% in tourist arrivals, with a slower rate of decline since 2017. Hotel occupancy rates remain at an 8 year average of 86%.
• New hotel room supply in 2017 stands at 3,400 rooms (URA 1Q17 data), 60% higher YoY, but supply is expected to ease in 2018 due to lack of supply of new land for hotel development.
• SGX lists one Hospitality REIT and five Hospitality Stapled Trusts with a combined market capitalisation of S$9.1 billion. These six trusts have generated a market cap weighted average total return of 19.0% in the YTD and have an average dividend yield of 6.5%.

Grameenphone Ltd. (GP) is the leading telecommunication service provider in Bangladesh. The immediate parent of GP is Telenor Mobile Communications AS and the ultimate parent is Telenor ASA; both the companies were incorporated in Norway. After launching 3G, data subscription in telecom industry has increased radically. GP is poised to launch 4G after obtaining required approval from the regulator by the beginning of 2018. We initiated a valuation on Grameenphone Ltd. based on Discounted Cash Flow and various other methods while assuming next 5-Years’ CAGR of revenue will be 8.1%.

FOREWORD


Although a relatively new phenomenon in Malaysia, crowdfunding has been greeted by the government and market alike as a part of disruptive financial technologies (FinTech) that add impetus to Malaysia’s move towards a 21st century digital economy. With the government’s policy commitment, financial assistance, regulatory supervision and other supportive measures, crowdfunding is expected to accelerate in the near future as a critical source of alternative financing for SMEs to create new employment, enhance social participation and help Malaysia adjust to the fast-shifting dynamics of the global economic and social landscape. In spite of its promising prospects, there are gaps in awareness of what crowdfunding is and the opportunities and risks it presents. There is a shortage of actionable information on: • the role of crowdfunding in the policy, business and financing environment for SMEs; • the level of understanding of crowdfunding among the public and small entrepreneurs; • their interest and willingness to participate in crowdfunded projects/activities; and • the effectiveness of the national ecosystem for crowdfunding. This report addresses these gaps to help realise the full potential of crowdfunding in Malaysia. It is based on a two-phase research study. The first consisted of a quantitative survey of the public and small entrepreneurs within the Klang Valley, and the second involved desk research and consultations with crowdfunding platform operators, national agencies/institutions, sophisticated investors and start-up entrepreneurs. The report describes a vibrant crowdfunding environment emerging in Malaysia following Bank Negara Malaysia’s policy support for alternative financing, and the Securities Commission Malaysia’s introduction of regulatory frameworks for equity crowdfunding (ECF) in 2015 and peer-to-peer crowdfunding (P2P) in 2016. Since crowdfunding continues to evolve rapidly around the world and is still at an early stage in the country, the insights offered by this report are an initial but comprehensive snapshot of the local crowdfunding environment and its future growth potential.

I investigate whether the documented relationship between disagreement and future returns is driven by negative correlation between disagreement and fundamentals (unexpected earnings). I posit a model in which negative skewness in fundamentals interacts with heterogeneous weights in adopting new signals, generating higher disagreement when the underlying fundamentals are low. Across a number of empirical tests, I find robust evidence of the model's predictions. Conditioning on the realized fundamental, the ability for disagreement to predict future returns is virtually completely attenuated. Additionally, consistent with my model and inconsistent with prior hypotheses, I find the negative correlation between monthly analyst dispersion and next-month returns is driven by a combination of positive serial correlation in dispersion and negative correlation between returns and contemporaneous dispersion. 

In this paper, we consider several option pricing models with stochastic volatility
in the context of the generalized autoregressive conditional heteroskedastic (GARCH)
processes. We propose a globally risk-neutral valuation relationship (GRNVR) to derive
the model dynamics under risk-neutral measure and obtain the corresponding
closed-form pricing formula for the Chicago Board Options Exchange Volatility Index
(CBOE VIX). The parameters of the proposed models are then calibrated using the
S&P 500 returns data and the CBOE VIX. Based on the empirical pricing performances,
we observe that the proposed GRNVR generally performs better than the
locally risk-neutral valuation relationship (LRNVR). We also provide theoretical justi-
cation of the proposed GRNVR.

The conventional, risk-based view on liquidity beta is a dismal story for China: High liquidity beta stocks underperform low liquidity beta stocks by 1.17% per month in China. This striking pattern is robust to different weighting schemes, competing factor models, alternative liquidity measures, and other well-known determinants of cross-sectional returns. Further analyses suggest liquidity beta is a negative return predictor at the firm level, and the return differential between high and low liquidity beta stocks is more dramatic following high market liquidity periods. Finally, we propose a sentiment-based theoretical model to rationalize the reversed pricing pattern in China.

The Q&A session of public earnings conference calls represents a unique opportunity for stakeholders to interact with senior management. We examine buy-side analysts’ participation on these calls and the associated capital-market implications. Using 81,000 transcripts for 3,300 companies from 2007 to 2016, we find that buy-side analysts ask questions on approximately 18% of calls. Management prioritizes buy-side analysts, but discriminates against analysts from hedge funds when short interest is high. Relative to sell-side analysts, buy-side analysts’ interactions with management are shorter and less favorable. Buy-side appearances are also associated with increases in information asymmetry and reductions in sell-side activity.

 

Singapore Office Property Market Stabilising Despite Headwinds

• 1Q17 office space vacancy rates peaked at 11.6%, highest in five years. Office rental rates continue to decline and Grade A office rents stabilising QoQ, indicating signs of stabilisation in office rental rates.
• Office space supply is expected to peak in 2017 and taper off in the next few years. CBRE Research believes that sentiment has swung from pessimism to optimism as investors forecast a period of relatively modest supply over the next few years.
• SGX lists six Office REITs (GICS®) with a combined market capitalisation of S$12.8 billion. These 6 trusts have generated a market cap weighted average total return of 16.9% in the YTD and have an average dividend yield of 5.7%.

Green Shoots Emerge Despite Challenging Industrial Property Market

• Singapore’s industrial property market remains challenging as industrial space supply is expected to peak in 2017, before tapering off in the next few years.
• Green shoots in manufacturing activity data, and the Singapore government’s economic shift, coupled with its focus on higher value-added businesses, bode well for industrial property demand.
• SGX lists 11 REITs & Property Trusts which have industrial properties within their asset portfolios. These 11 trusts have generated an average year-to-date total return of 19.0%.

• The major Chinese banks generally delivered stronger earnings in 3Q17 with profits up YoY across all banks except for Citic where they were flat. 
• Net interest margins ticked up QoQ across banks but the drivers are different for the big four versus BoCom and the joint stock banks. For the big four, the NIM levels are higher than the previous year as lending rates especially on interbank assets have picked up. BoCom and the joint stock banks also saw NIM tick up QoQ in 3Q - due to a run off of deposits and a run-up in loan deposit ratios - but levels are still 20-40 bp lower than the previous year. 
• Gross NPLs and ratios have mostly stabilized, with the exception of Shanghai Pudong where loan quality worsened further in 3Q. Investment receivables, usually shadow loans, declined QoQ across the joint stock banks, though the books are still very large. Provision costs have moderated but the run rate of credit costs is still quite high and banks are rebuilding provision coverage. 
• Loan growth has slowed slightly among the big banks, due to an easing of mortgage loan growth, while at joint stock banks the loan growth is generally faster and trends are more mixed. 
• Liquidity remains stretched at BoCom and the joint stock banks where loan to deposit ratios, even when excluding shadow loans, have shot up to 90% or higher, from mostly below 80%, over the last two and a half years. 
• CET1 ratios are stable and relatively strong at the big banks and Merchants, but some joint stock banks are under pressure and have used convertible bonds or private placements to raise CET1 capital.  For example, Everbright Bank lifted its CET1 ratio slightly by issuing convertible bonds (not the same as AT1 prefs) which are partly accounted for as equity, with this portion also counting as regulatory CET1 capital. Minsheng and Ping An respectively plan RMB 50 bn and RMB 26 bn of similar convertible bond issuance. Separately Shanghai Pudong also improved CET1 via private placement of new shares.  These examples reflect banks finding creative solutions to capital raising while they remain restricted from public equity capital raising as their price/book multiples are still under 1x. 

In India, investors often use to the BSE Sensex index to keep a track of market valuations. Most investors interpret the movement of Sensex in different ways using valuation measures. Price to earnings (P/E) and Price to book value (P/B) ratios are predominantly used to analyse the Sensex movement. When these ratios are used they in fact convey different stories about S&P BSE Sensex. These ratios help the investor to understand whether the market is undervalued or overvalued. The price to earnings ratio is calculated by taking the ratio of Market price of the stock to its Earnings per share (EPS). A high price to earnings ratio indicate that the investors are expecting high earnings growth in the future when compared to low P/E. The price to book value ratio is used to compare a stocks market value to book value. A low P/B ratio could indicate that the market/stock is undervalued. The growth of the equity market in India has been phenomenal in the present decade. Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. One can identify and understand all the booms and busts of the equity market from the Sensex market. It has indeed emerged itself as one of the most prominent brands in the country.         
 

Singapore Private Property Market Shows Signs of Stabilising

• Singapore’s private property market appears to be stabilising as URA’s 2Q17 flash estimates show smallest QoQ price decline of private residential property prices since 4Q13. YTD average monthly primary private home sales volumes are also 74.6% higher YoY.
• Existing property cooling measures are likely to remain despite recent calibrated adjustments. In the medium term, MAS believes that Singapore’s property prices should be aligned with broader income trends in the local economy.
• SGX lists six Real Estate Management & Development (GICS®) stocks with market capitalisation above S$1 billion that have substantial exposure to the Singapore property market. These six companies have an average total return of 29.2% in the year thus far.

SGX Real Estate Index Returned 19.5% YTD on Positive Indicators

• The SGX Real Estate Index, a benchmark for Singapore’s Real Estate Sector, has returned 19.5% in the YTD. Domestic private home prices have shown signs of stabilisation in recent months, with a pick-up in primary transaction volumes.
• There are 104 Real Estate companies (diverse across assets) with a combined market capitalisation of almost S$190 billion listed on the SGX. Some key drivers for the sector include population growth, government cooling measures, land supply and interest rates.
• Post the YTD rally, sector valuations remain below their long-term historical average. Singapore property developer stocks are trading at PB ratio of 0.75x vs their long-term average of 0.83x.

Mapletree Greater China Commercial Trust (MGCCT) has recently announced its 1H FY17/18 earnings.

We take a look at its results to assess if MGCCT is a worthy candidate as an income play of any investor’s portfolio/.

Distribution Income

Income Available for Distribution is 7.1% higher at $49m for 2Q. As for first half 17/18, it increased by 4.1% to $104m.

Quarterly Distribution per Unit (DPU) increased by 5.8% over last year to 1.868c. For the first half of year 17/18, DPU increased by 2.9% to 3.714c. Do note that MGCCT’s distribution occurs on a semi-annual basis.

The increase in Income Available for Distribution is due to the higher rental rates for all 3 assets.

Source: MGCCT 1H FY17/18 Earnings Presentation

Revenue

2Q revenue stood at $88m, a 6.1% year-on-year rise. As for 1H 17/18, revenue showed a similar rise to $177m, a 5.4% increase.

Looking into the assets breakdown, we notice a broad-based revenue increase across all 3 assets. Gateway Plaza (GP) in Beijing showed the largest rise in revenue of 14.6%, followed by Festival Walk (FW) at 3%. Revenue for Sandhill Plaza (SP) remained stable.

Source: MGCCT 1H FY17/18 Earnings Presentation

Net Property Income (NPI)

Quarterly NPI stood at $70.9m, a 5.4% increase over last year. 1H 17/18 NPI likewise grew by 4.5% to $142m.

Looking deeper into each asset, both FW and GP showed an increase in NPI yield of 4.3% and 6.9% respectively.

Source: MGCCT 1H FY17/18 Earnings Presentation

We can calculate the NPI yield by dividing the NPI over revenue. This is an important figure that indicates REIT manager’s overall ability managing the properties well. I view it as the equivalent to net profit margin in a non-REIT company. A high NPI yield would likely give rise to a high distribution that enhances shareholders’ returns. Compared across REITs in the same asset class, NPI also allows us to assess managers’ competency.

MGCCT’s 2Q and 1H 17/18 NPI Yield is 80.5% and 80.7% respectively, a slight dip of 0.6% and 0.9%. Given the small decrease and the similar NPI yield in 2Q and 1H, I would not flag this as a cause of concern.

Occupancy Rate

MGCCT maintained a high Occupancy Rate of 98.2%, an improvement from 87.1% of the previous quarter. FW and SP continue to have full occupancy rate, while GP saw a small decrease.

Source: MGCCT 1H FY17/18 Earnings Presentation

Rental Reversion

In 2Q, all 3 assets under MGCCT enjoyed positive rental reversions, in particular, SP that had its rentals renewed at a 14% higher rate than previous lease cycle. It is quite clear that MGCCT assets were able to raise their rentals at a healthy rate over past 1 year.

Source: MGCCT 1H FY17/18 Earnings Presentation

Footfall and Tenant Sales

FW 4Q enjoyed higher footfall of 19.4m in 1H 17/18, a 2% growth over last year. Tenant sales also showed healthy growth of 2.5% to HK$ 2.37 billion.

Source: MGCCT 1H FY17/18 Earnings Presentation

Similar figures for GP and SP were not disclosed, as they were commercial properties with performance more directly impacted by economic activities and rental rates of offices. However, judging by the high occupancy rate and positive rental reversions, it is quite clear that GP and SP are healthy assets.

Balance Sheet

In terms of balance sheet strength, MGCCT’s gearing ratio stood at 38.5% at 2Q 17/18. Its interest cover ratio is 3.9 times. Both figures did not show large changes compared to previous year.

Source: MGCCT 1H FY17/18 Earnings Presentation

Portfolio Value

MGCCT’s total portfolio value is $5.96 billion in Q2, compared to $6.22 billion at end of year 16/17. The decrease is mainly due to translation loss arising from the weaker HKD against SGD.

Strength

Growing DPU

Investors usually buy into REITs as an income play, attracted by its high dividend returns. While REITs are required by law to distribute 90% of its returns to shareholders as dividends, on a longer term, quality of REIT assets and capability of REIT manager are the key factors in determining a growing DPU, hence a higher return for investors. MGCCT has done well in this area, as seen from its trend of rising Quarterly Distributable Income and DPU since IPO.

I personally have to hold MGCCT since 2014, and it has rewarded me reasonably well through regular dividends that grow steadily.

Based on a price of $1.17 on 31 Oct 17, and trailing 12-month dividends of 7.456 cents per share, MGCCT dividend yield is 6.37%

The stock markets around the world have been rallying in 2017. The Kuala Lumpur Composite Index is up about 4% year-to-date. The Singapore Straits Times Index has a much better performance till today at about 15% year-to-date. More impressively is the Hong Kong Hang Seng Index, which rallied about 30% since the beginning of 2017.

Much of the gains are coming from the boom in the technology sector globally. However, that does not mean that there is no value left in the non-tech sector. In fact, we have been able to score a great return over the past year on a simple, consumer businesses that we have invested in.

Here is the story of how we made about 87.2% return on a non-tech company within a year.

Boring Consumer Business
We have been watching Tingyi (Cayman Islands) Holdings Corp (HKG:322) since 2011. It is the largest instant noodle and Ready-to-drink tea producers in China. Their staple brand “Master Kong” is well-known throughout China.

In fact, the company owns about 44% of the market share of the instant noodle market and about half of the ready-to-drink tea (RTD) market in China. The company made more than USD9.1 billion in revenue back in FY2015 when we started getting interested in them.

This is because, in 2016, the company hit some setbacks regarding its succession plan and also some management error in expanding their business. These issues might have caused the company to see their share price dropped from close to HK$ 25.00 per share to about HK$6.50 per share from 2014 to 2016.

A Turnaround Situation

After the sharp drop in their share price, we decided to invest into the company as we saw that Tingyi Holdings might just be suffering from a temporary setback and was bound to return to its full potential after sorting out its problems.

The fundamentals of the company remained strong. For example, it is still the largest instant noodle and RTD tea producer in China. Moreover, it is the official Pepsi Cola partner in China and they have even won the rights to sell Pepsi Cola in Disneyland Shanghai, the only Disneyland in the world that is not distributing Coca-Cola.

It has the distribution network for the entire China. For foreign consumer companies wanting to distribute their products, Tingyi Holdings is the perfect partner for them.

At that moment, Tingyi Holdings was trading at least 50% lower than its intrinsic value based on our internal calculation.

Review on that Investment One Year On

We made an investment in Tingyi Holding back in the middle of 2016. Today, the stock has recovered and we have generated a return of about 87.2% for the past one year.

Tingyi Holdings is a classic example of a turnaround situation for us, where we look for high-quality businesses that have just hit a temporary roadblock in their business cycle.

10 Biggest US Exposure Plays Generated 35.6% YTD Weighted Returns

• US 3Q GDP will be released on Oct 27 (Fri). Focus will be on economic impact from hurricane Harvey and Irma, President Trump’s push for US tax reforms and decision on the Federal Reserve Chair replacement.
• The 10 largest capitalized stocks with at least 20% of their revenue from US have averaged a market capitalisation-weighted total return of 35.6% in the year to date. This compares with the Dow Jones Industrial Average and S&P 500 Index’s 13.2% and 9.2% respectively in SGD terms.
• The six non-inverse US equity ETFs listed on SGX have averaged a total return of 12.5% in the year thus far. There are 10 US ETFs listed on SGX. Seven track equity indices (including one S&P 500 Inverse Daily (-1x), two fixed-income assets, and one that tracks the money market.

S-REITs in a Rising Interest Rate Environment

• In the year-to-date, the SGX S-REIT Index has generated a 15.5% price gain and 21.2% total return (inclusive of dividends), compared to the benchmark STI’s 15.6% price gain and 19.0% total return. Singapore’s 3-month SIBOR has gained 16.2% in the same period.
• In theory, a rise in interest rates will lead to an increase in borrowing costs, which impacts the profitability of REITs and their ability to make acquisitions. However, gradual rate increases are also often associated with improving economic growth, which indirectly boosts REITs’ earnings.
• The SGX S-REIT Index maintains a median gearing ratio of 34.0%, below the 45.0% limit. In terms of valuation, yield spreads between S-REITs and 10-year government bonds are at 385bps, 39bps above the long term average of 346bps.

20 Largest China Plays Returned 27% in the YTD

• China’s 2017 GDP forecast was revised higher to 6.7% QoQ. Some of China’s growth drivers for the economy include its OBOR Initiative, supply-side structural reform, SOEs reform, growing middle-income class and domestic consumption, and the “Made in China 2025” new economy programme.
• Close to a quarter (or 180) of SGX-listed companies generate at least 20% of their revenue from China and 80% of these companies derive half or more of their revenue from China. These companies provide investors with revenue exposure to China’s growth story.
• Of the 20 largest capitalised stocks with at least 50% of their revenue generated from China, 16 saw positive YTD price returns. The five best performing stocks were Hi-P Intl (+165.7%), Elec & Eltek Intl Co (+66.4%), China Sunsine Chem Hldgs (+59.0%), Global Logistic Properties (+49.1%) and Yanlord Land Group (+25.0%).

FTSE ST China Index up 18% in 2017 YTD

• In the 2017 YTD, Singapore’s FTSE ST China Index has generated a total return of 17.9%, compared to a 14.9% return for the H-share Index in SGD terms.
• The FTSE ST China Index consists of FTSE ST All-Share Index constituents that report either at least half of their sales revenues from Mainland China, or report at least half of their operating assets in Mainland China.
• CWT, Hi-P International, Valuetronics Holdings and Geo Energy Resources will join the FTSE ST China Index on 18 September. This will take the number of constituents in the Index to 21. There are no Index exclusions following the recent review.
• These four pending FTSE ST China Index entrants have generated average price gains of 72% in the 2017 YTD, ranging from a 8.9% gain for Geo Energy Resources to a 172.6% gain for Hi-P International.

在2017年10月18日由CFA中国上海主办的量化金融分会中，来自国金证券资产管理分公司联席投资总监Stanley Ouyang,CFA 与现场观众分享了“A股选股模型从2.0到3.0的实践”的主题演讲。

Stanley Ouyang,CFA结合2017年当下的投资风格和策略，认为A股的选股模型正从 2.0 走到3.0 ，他预计到2018年，将会增加更丰富的数据模型与技术，“新数据将会有200+因子库，会增加聪明一致预期因子、新数据源构造的因子；而新模型中会增加预期收益方法增加随机森林，CART等非线性模型；新技术中可能会诞生新的机器学习方法选择因子、构造权重的技术”。

        在2017年10月18日由CFA中国上海主办的量化金融分会中，来自东方证券首席金融工程分析师朱剑涛先生在主题为“A股金融工程卖方学术研究漫谈”的圆桌论坛中分享了其对“价值投资理念在A股的可行性-质优股量化投资”的研究。
        什么是价值投资呢？说法不一样，巴菲特89年致股东的信里有一个说法，你以合理价格买一个好公司，远比高价格买一般公司要强，这句话是两个层面，一个是公司的质量，二是估值。
        朱剑涛先生分别从对价值投资与质优股投资、质量因子的定义、合成大类因子表现、质量因子稳定性、市场对质量因子的BP估值定价几个方面的研究，得出以下结论：
1.上市公司的质量可以从盈利、成长、财务稳健、公司质量四个维度衡量，大部分时间内优质股在估值和股价上相对劣质股都有溢价；
2.优质股+合理估值的价值投资方式在A股收益颇丰，可结合投机因子做增强，适合长线大型机构投资者；
3.质量因子可用于主动量化和Smart Beta 产品设计。

在2017年10月18日由CFA中国上海主办的量化金融分会中，来自华泰证券首席金融工程分析师林晓明先生在主题为“A股金融工程卖方学术研究漫谈”的圆桌论坛中分享了其对“周期三因子模型及资产配置”的研究。
 
林晓明先生主要分享的是其团队在过去一年中关于整个市场周期的研究。这个研究讲的是，如果想做一个自上而下的研究，能不能找到一个框架，把所有相关的宏观变量和资产价格拉到一个统一的框架里面进行建模。

林晓明先后从对全球/中国市场的周期三因子回测、股市与宏观经济关系、全球股票市场周期、统一周期假设、空间谱估计-2、中国和全球市场共同周期的实证检验、周期三因子资 产定价方程这几个方面阐述了他的观点。

        在2017年0月18日由CFA中国上海主办的量化金融分会中，来自兴业证券研究所总经理助理、首席定量分析师、定量研究团队负责人任瞳先生在主题为“A股金融工程卖方学术研究漫谈”的圆桌论坛中分享了其对“人工智能时代的大数据投资”的研究。
        任瞳先生首先从人工智能与量化投资的关系、人工智能维度下量化投资的部分成果、人工智能在量化投资领域应用前景几个方面阐述了两者之间的紧密联系。
        随后，任瞳先生重点介绍了其团队针对雪球网在大数据方面进行的研究。根据雪球网的用户大概有三种行为：讨论（用户的发帖行为）、 交易（用户的关注行为）、 调仓（投资组合调整行为） ，总共构建了三个选股因子，分别是关注度因子、价值变动因子和负面情绪因子。其团队根据这三个因子分别构建了一些投资策略（见PPT），证实因子还是非常有效的，包括负面情绪因子如果跟反转因子如果结合起来的话，效应会更强。
        最后，任瞳先生提到了机器学习，其团队是比较早开始相关研究的。首先第一步是做了很多常见算法跟多因子模型的结合，即在常见的机器学习的算法和多因子体系结合的情况。机器学习为量化投资提供了新的工具，初步研究结果显示相比传统方法其更灵活效果更好，应用前景十分广阔，但同时须对过度数据挖掘等问题保持警惕。 

China-Focused Materials Stocks Led Sector’s YTD Gains

• The Materials Sector has been Singapore’s second best performing Sector in the 2017 YTD with a market capitalisation-weighted average price gain of 31%. This compared to a 10% gain for the MSCI World Materials Index.
   
• The YTD median gain of Singapore’s 10 largest capitalised Materials stocks was 5%, with a much higher average gain of 54%. Meanwhile, Singapore’s 10 largest capitalised Materials stocks that report the majority of their revenue to China generated a YTD median gain of 44% and average gain of 87%.
   
• As many as seven of Singapore’s 10 largest capitalised Materials stocks with a China revenue focus reported 1HFY17 net profit growth. This ranged from +414% YoY net profit growth for Jiutian Chemical Group to +37.7% YoY net profit growth for Tat Seng Packaging Group.

ASEAN Plays Poised to Gain from China's Belt & Road Initiative (OBOR)

• With its geographical proximity and relatively low risk profile, ASEAN is expected to be a key beneficiary and bridgehead of OBOR as it sees more infrastructure developments and improvements, as well as increased trade and regional connectivity in the region.
• Singapore, being a member state of ASEAN, has significant roles to play in the OBOR initiative through its status as a financial hub. In addition, Singapore has established industries with the expertise to drive and support infrastructure development for OBOR in ASEAN.
• SGX lists 192 stocks (c.25%) with at least 20% of their revenue generated from ASEAN across the GICS® Industrials, Materials, and Utilities Sectors. Of the 20 largest capitalised stocks, 13 saw positive YTD price returns. The five best-performing stocks were Jardine Strategic (+25.5%), Straits Trading (+25.1%), Riverstone Holdings (+18.7%), SBS Transit (+17.9%) and Keppel Infrastructure Trust (+16.8%).

SGX: China Environmental Plays in Spotlight as China Goes Green

• Environmental protection and pollution control are becoming increasingly important in China’s policies, as the country strives to develop an ecological civilisation. During its journey to become a green economy, businesses with a focus on environmental utilities in China will likely play important roles.
• The Chinese government has stepped up efforts to boost environmental protection in recent years, launching several initiatives to promote a greener and cleaner economy, investing in renewable projects and increasing enforcement on pollution domestically.
• SGX has a cluster of 15 China environmental stocks with a combined market capitalisation of S$5.8 billion. The five biggest China environmental plays are CITIC Envirotech, SIIC Environment, China Everbright Water, China Jinjiang Environment and Sunpower Group.

In 1977, the late Tan Sri Dato’ Seri Lim Goh Tong has incorporated Asiatic Development Bhd. It commenced plantation activities with 13,700 hectares of estates in West Malaysia in 1980. Subsequently, in 1982, it was listed on Bursa Malaysia. In 2009, the listing name was officially changed to Genting Plantations Bhd, a name that is retained till today.

Since its listing, Genting Plantations Bhd has expanded its plantation assets to East Malaysia and Indonesia. 35 years later, Genting Plantations Bhd has become the third largest palm oil corporation listed on Bursa Malaysia in terms of market capitalization behind IOI Corporation Bhd and Kuala Lumpur Kepong Bhd currently.

In this article, I’ll cover 8 things you need to know about Genting Plantations Bhd before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: GENP / KLSE: 2291
Market Capitalization: RM 8.19 Billion (2 October 2017)

Share Price: RM 10.30 (2 October 2017)

Industry: Palm Oil

Syariah Compliant: Yes

#2: The Business

Genting Plantations Bhd has established an integrated business model that includes:

• Palm Oil Plantations

  Genting Plantations Bhd has maintained its portfolio size of its palm oil estates in Malaysia at 59,000 – 60,000 hectares. From which, these estates has consistently produced 1.1 – 1.4 million MT of fresh fruit bunches (FFB) a year over the last 10 years. 
  
  Genting Plantations Bhd had started its planting activities in Indonesia in 2007. Beginning with 1,716 hectares in 2007, Genting Plantations Bhd has enlarged its size of palm oil estates in Indonesia to 131,159 hectares in 2016. These estates had produced its first fruits in 2010. Since then, the amount of FFB production had grown from 1,151 MT in 2010 to 479,334 MT in 2016.

FFB Production in ‘000 Metric Tonnes

Year	2012	2013	2014	2015	2016
Malaysia	1,311	1,339	1,349	1,289	1,135
Indonesia	81	185	307	438	479
Total	1,392	1,525	1,656	1,727	1,614

Source: Annual Reports of Genting Plantations Bhd

• Palm Oil Mills

  Genting Plantations Bhd has 10 palm oil mills. 6 mills are located in Sabah. 3 mills are located in Indonesia and the remaining one is in West Malaysia. Combined, these mills have total milling capacity of 490 metric tonnes per hour. 

• Property Development

  Genting Plantations Bhd is engaged in property development activities through Genting Property Sdn Bhd. It is currently engaged in development projects such as Genting Indahpura at Kulai, Johor and Genting Highlands Premium Outlets. In 2016, the property division has contributed RM 125.6 million in revenues. It remains a small division to Genting Plantations Bhd as it accounted only 8.5% of the company’s group revenues in 2016.

In 1969, Tan Sri Dato’ Lee Shin Cheng has established Industrial Oxygen Incorporated Sdn Bhd. Eleven years later, the company was listed under Industrial Oxygen Incorporated Bhd. In 1995, the listing name was officially changed to IOI Corporation Bhd, a name that is retained till today.

Since its listing on Bursa Malaysia, IOI Corporation Bhd (KLSE:IOICORP) has expanded its plantation assets through acquisition of palm oil estates. In the 2000s, IOI Corporation Bhd has ventured into downstream palm oil manufacturing activities. As such, IOI Corporation Bhd has grown into one of the leading integrated palm oil conglomerates in the world.

In this article, I’ll cover 9 things you need to know about IOI Corporation Bhd before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: IOICORP / KLSE: 1691
Market Capitalization: RM 28.55 Billion (30 September 2017)

Share Price: RM 4.54 (30 September 2017)

Industry: Palm Oil

Syariah Compliant: Yes

#2: The Business

IOI Corporation Bhd has established an integrated business model that involves:

• Upstream Activities

  In 2017, IOI Corporation Bhd has 90 estates with a total planted area of 174,396 hectares of palm oil plantations. It operates 15 palm oil mills with a total milling capacity of 4.75 million tonnes of fresh fruit bunches (FFB) per annum. 
  
  IOI Corporation Bhd has achieved lower yields from its plantation estates. This has resulted in lower FFB productions in 2016 and 2017. This, in turn, has caused the fewer production of crude palm oil (CPO) and palm kernel (PK) over the last 2 years.
  
  Figures in ‘000 Metric Tonnes

Year	2013	2014	2015	2016	2017
FFB	3,409	3,507	3,542	3,145	3,156
CPO	708	752	782	697	691
PK	179	186	187	164	155

Source: Annual Reports of IOI Corporation Bhd

• Downstream Activities

  IOI Corporation Bhd has 3 business segments in its downstream activities. They are refining, oleochemical, and speciality oils & fats. 
  
  The refining segment receives CPO and PK from its CPO mills and would produce palm and palm kernel oil fractions. They will be sent to the company’s oleochemical and speciality oils & fats segment as feedstock. In 2017, the refining segment operates 4 palm oil refineries with total refining capacity of 3.3 Million MT per annum. 
  The oleochemical segment receives feedstock from its refineries to manufacture fatty acids, glycerine, soap noodles and fatty esters. These products are exported to over 60 countries worldwide. This segment operates plants in Penang and Johor with a combined production capacity of 740,000 MT per annum. 
  The speciality oils & fats segment receive feedstock from its refineries to manufacture fractionated oils & blends which are often used as ingredients in the processed food industry. This segment is carried out by IOI Loders Croklaan which has operations in the Netherlands, Malaysia, Canada, and the United States. These products are exported to over 85 countries worldwide. 
  Over the last 5 years, IOI Corporation Bhd has maintained its sales of oleochemicals and specialty oils & fats products at 500,000 – 600,000 MT and 700,000 – 800,000 MT per annum.

Figures in ‘000 Metric Tonnes

Year	2013	2014	2015	2016	2017
Refineries	3,052	2,707	2,591	2,427	2,415
Oleo	561	584	586	596	582
Oils & Fats	735	735	774	783	766

Source: Annual Reports of IOI Corporation Bhd

• Bumitama Agri Ltd

  Bumitama Agri Ltd is a 31.8%-owned associate company of IOI Corporation Bhd. Listed on the SGX, Bumitama Agri Ltd is one of the fastest growing palm oil companies in Indonesia. In 2016, it has 175,243 hectares of palm oil estates and 13 CPO mills. For more details, please click Bumitama Agri Ltd.

IOI Properties Group Bhd (KLSE:IOIPG) is among the largest property development corporations in Malaysia. Its roots can be traced back to 1984. In that year, the IOI Group began its venture into property development by acquiring Bukit Kelang Development Sdn Bhd, Rapat Jaya Sdn Bhd and Eng Hup Industries Sdn Bhd.

In 1990, IOI Properties had commenced the development of Bandar Puchong Jaya. Today, it is one of the most comprehensive self-contained township developments in the Klang Valley. Ever since, it has expanded its presence southwards to strategic locations in Negeri Sembilan, Melaka, Johor and even down to Singapore.

From 2009 to 2013, IOI Properties operated as a subsidiary and the property arm of IOI Corporation Bhd. Subsequently, on 15 January 2014, IOI Properties was demerged from IOI Corporation Bhd and is listed under IOI Properties Group Bhd (IOI Properties). In this article, I’ll share 8 things you need to know about IOI Properties before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: IOIPG / KLSE: 1635
Market Capitalization: RM 11.07 Billion (29 September 2017)

Share Price: RM 2.01 (29 September 2017)

Sector: Property

Syariah Compliant: Yes

#2: The Business

Presently, IOI Properties derives income from three main business divisions. They are:

• Property Development

  
  IOI Properties is positioned as a reputable township developer in Malaysia. It is capable of executing development projects where their land sizes are well beyond 100 acres. Its notable projects include Bandar Puchong Jaya, Bandar Putra Kulai, Bandar Putra Segamat, 16 Sierra, Bandar Putra Bangi and Bandar Putra Warisan. 
  
  In Singapore, IOI Properties is involved in high-end residential and integrated mixed developments. This includes Seascape and the Cape Royale in Sentosa Cove. Meanwhile, in China, IOI Properties has two projects. They are IOI Palm City and IOI Park Bay. Both projects are located in the Fujian Province, China. 
  
  This division is the largest income contributor to IOI Properties. In 2017, IOI Properties had derived RM 3.71 Billion and RM 1.18 Billion in revenues and operating profits from this division. 

• Property Investment

  
  This division derives income from seven key investment properties. They include IOI City Mall in Putrajaya, IOI Mall Puchong, IOI Mall Kulai, 4 Blocks of 12-storey & 21-storey office buildings in Puchong Financial Corporate Centre, IOI City Tower 1 & Tower 2, One and Two IOI Square, and IOI Boulevard. It is the second largest income contributor to IOI Properties as this division contributed RM 302.1 Million and RM 126.5 Million in revenues and operating profits in 2017. 

• Leisure & Hospitality

  This division derives income from six hospitality properties. They include Putrajaya Marriott Hotel, Four Points by Sheraton Penang, Palm Garden Hotel, Palm Garden Golf Club, Palm Villa Golf & Country Resort and Le Meridien Putrajaya. In 2017, this division has made RM 161.8 Million and RM 15.4 Million in revenues and operating profits, making it the smallest division of IOI Properties.

#3: The Financials

Overall, IOI Properties has achieved growth in sales and shareholders’ earnings over the last 5 years. This is attributed to continuous growth in all of its business divisions during the period.

Returns on equity (ROE) has dropped marginally as the growth in shareholders’ equity of IOI Properties had outpaced its growth in shareholders’ earnings during the period. This is mainly because IOI Properties had substantially increased its shareholders’ equity by completing two separate rights issue exercises on 9 February 2015 and 28 March 2017.

Figures in RM Million

Year	2013	2014	2015	2016	2017
Sales	1,158.7	1,454.4	1,906.4	3,024.9	4,185.3
Earnings	585.4	889.9	890.7	1,080.0	920.9
ROE	n/a	7.94%	6.63%	6.80%	5.05%

Source: Annual Reports

SGX’s 20 Biggest China-Related Enterprises Returned 39.8% in YTD

• 20 of the biggest and active stocks with a China head office have averaged a market capitalisation-weighted total return of 39.8% in the year to date. This compares with the Shanghai Stock Exchange Composite Index’s (SHCOMP) +8.0% (in SGD terms).
• The 20 biggest stocks maintain market capitalisation-weighted P/E and P/B ratios of 11.2x and 1.3x respectively, below 17.6x and 1.9x respectively for the SHCOMP. Nine of these stocks maintain higher ROEs than the SHCOMP’s 10.7%.
• The five best performers among the 20 stocks in the YTD are Delong Holdings, Yangzijiang Shipbuilding, China Sunsine Chemical Holdings, Yanlord Land and China Aviation Oil. They maintain an average ROE of 16.2%.

In this paper, we analyzed the performance of six single factors (small cap, value, low volatility, momentum, quality, and dividends) in the Hong Kong market from June 30, 2006, to Feb. 28, 2017.

Petroleum sector is considered the most sensitive sector of economy. Macroeconomic indicators are highly sensitive to the price of petroleum products.  The three  oil  distribution  companies  namely Padma  Oil  Company  Limited,  Jamuna  Oil Company Limited, and Meghna Petroleum Limited  procure,  store,  and  market petroleum  products  all  over  the  country from  their  main  installations.  The  price and  margin  of the  petroleum  products  is fixed by the Government on the basis of quantity sold. According to BPC, the demand  of  petroleum  products  in  our country  stood  at  5.26  million  MT  in  year 2015-16

Business Overview

Zhengzhou Yutong Bus Co., Ltd. is involved in the research and development, manufacturing and sale of large buses, namely urban buses, seat coaches, school coaches and other types of large passenger cars. The company also provides ground passenger transportation services. The company distributes its products both within China and in overseas markets, with its products sold in over 130 markets worldwide. It is the largest bus manufacturing company in the world. Its buses are typically used for public transportation, tour groups, and schoolchildren.

The company started as a bus repair ship in 1963, later moving into manufacturing in 1993 and going public on the Shanghai Stock Exchange in 1997. It is headquartered in Zhengzhou, the capital city of Henan province in China.

2016 revenues grew 14.9% YoY to reach RMB 35.8bn. Net profits grew 14.4% to reach RMB 4.04bn. 84% of its revenues are derived from domestic China sales, and the rest is derived from overseas sales.

Global competitors include BYD, Beiqi Foton Motor, and MAN SE. For comparison, Zhengzhou Yutong Bus sold 70,988 buses last year, compared to 39,800 and 15,000 for Beiqi Foton and BYD respectively.

Key Strengths

Largest player in China bus market

The company is the largest player in the bus market in China, with 33% market share for medium-sized and large conventional buses, and 26% for new energy buses. As a large player, it is more resilient to industry downturns and subsidy cuts, which tend to have a more dire impact on smaller players that are more dependent on subsidies.

Superior technology

Zhengzhou Yutong Bus Co. is a clear technological leader, devoting a significant amount of its budget to R&D expenses. It has been working on self-driving buses, having debuted its first product in 2015 in a 20-mile test run between the cities of Zhengzhou and Kaifeng, in Henan province.

Key Opportunities

Increasing demand for electric buses

Zhengzhou Yutong Bus is known for its electric buses that are used throughout the Chinese market. Given China’s difficulties with combating pollution and the government’s dedication to clean energy, public bus adoption of electric vehicles is progressing faster than that of passenger vehicles, and the company’s strength in this field should help power sales going forward. The company has also seen high demand in Europe as well.

Belt and Road Initiative

Zhengzhou Yutong Bus is benefiting from China’s Belt and Road Initiative, as export volumes to other developing countries rose by 56% YoY in the first quarter of 2017. The company received an order to sell 500 large buses to Myanmar. Buses have been sold to more than 40 countries included in the initiative, including Pakistan, Iran, Cuba, and Bulgaria. The company first began exporting products overseas in 2005 and its overseas business is a crucial part of the company’s strategy going forward. The company intends to compete in other developing markets as competition is less fierce than in developed markets.

Business Overview

Shandong Gold Mining Co., Ltd., better known as Shandong Gold, is a state-owned company that is involved in the exploration, mining and smelting of gold. The Company is also engaged in the purification, processing, manufacturing and distribution of precious metal, nonferrous metal products and gold jewelry. In addition, the Company is also engaged in the smelting of outsourcing gold.

The company was formed in 1996 and went public in 2003 on the Shanghai Stock Exchange. Today it is headquartered in Jinan city, located in Shandong province. It has 23,000 employees. In 2016 it produced 1.2mn ounces of gold, making it the second largest gold producer in China.

The company obtains nearly all of its revenues from gold products. Of its roughly RMB 50bn in 2016 revenues, approximately RMB 31bn was derived from the smelting of third-party gold; the rest was derived from gold that it mined itself, which carries a higher margin. 80% of its products are sold on the Shanghai Gold Exchange.

2016 revenues increased 28.9% YoY to reach RMB 50.2bn. Operating income grew 52.5% to reach RMB 1.99bn. Net profit grew 200% to reach RMB 1.29bn.

Peers include Zijin Mining Group (RMB 72bn market cap), Zhongjin Gold (RMB 35bn market cap), and Zhaojin Mining Industry Co. (RMB 20bn market cap).

Key Strengths

Strong balance sheet aids acquisition financing

The company has the lowest gearing level amongst peers at 14%; this allows the company to gain more favorable terms when obtaining equity or debt financing for acquisitions or development of new projects, such as the pending Veladero mine acquisition in Argentina.

Adept at cost cutting

Gross margins improved quarter on quarter in 4Q16 by 260 basis points to 10.2%, despite the declining price of gold. The company is taking efforts to improve efficiency. Since revenues are dictated by the market price of gold, cost efficiency measures are important to improving margins, as it helps distinguish itself from its peers.

Key Opportunities

Joint venture with Barrick Gold

In April 2017 Shandong Gold announced that it was planning to purchase a 50% interest in Barrick Gold’s Veladero mine in Argentina for US$960 million and also forming a partnership to explore joint development of the Pascua-Lama deposit. The Veladero mine has proven and probable reserves of 6.7mn ounces of gold, and indicated gold resources of 3.3mn ounces. It is expected to produce 770,000-830,000 ounces of gold in 2017. For comparison, Shandong Gold produced just 1.2mn ounces of gold in 2016. This indicates that the joint venture could substantially increase the company’s annual output.

Xiling mine in Shandong province

Shandong Gold in March announced that it had discovered 382 tons of gold reserves at its Xiling mine in Shandong province. The company notes that the volume could reach over 550 tons, pending exploration over the next two years. This would make it China’s largest gold mine; it would have a life of over 40 years.

Key Risks

Volatility of gold prices

The company’s revenues are dependent on gold spot prices, which can fluctuate in the short run. Prices are often heavily influenced by macroeconomic factors, such as the raising of interest rates. Gold is often seen as a defensive asset, or a safe asset that investors flock to during bear markets.

Slower than expected progress on acquisitions

There is the risk that the acquisition of the 50% stake in the Veladero mine falls through, which will impact future revenues. There is also the possibility that progress on other mining activities slows down due to unexpected reasons.

Today, Bumitama Agri Ltd (SGX:P8Z) (Bumitama) is one of the fastest growing palm oil companies in Indonesia. Its roots can be traced back to 1996. In that year, Lim Gunawan Hariyanto had formed Bumitama and acquired its first land bank in Central Kalimantan for palm oil plantation.

Since then, Bumitama has expanded rapidly. It began its planting activities in 1998, commissioned its first palm oil mill in 2003, and had surpassed 100,000 hectares of planted area in 2010. Subsequently, on 12 April 2012, Bumitama was listed on the Mainboard of the SGX.

In this article, I’ll present a detailed account on Bumitama’s success thus far and its outlook for the immediate future. They are:
 

#2: The Business

Bumitama has established an integrated business model that involves:

1. Palm Oil Plantations

   Bumitama has grown its planted area from 107,502 hectares in 2010 to 175,243 hectares in 2016. Bulk of these estates are located in West and Central Kalimantan. The remainder of estates are situated in Riau, Sumatera. As such, fresh fruit bunches (FFB) productions had grown from 764,261 metric tonnes (MT) in 2010 to 2,185,440 MT in 2016. These fruits are supplied to its CPO mills for processing. 

2. CPO Mills

   Bumitama has increased its number of CPO mills to 13 in 2016, up from 6 CPO mills in 2012. They receive FFB from its estates and process them into crude palm oil (CPO) and palm kernel (PK). In tandem with growing FFB production, Bumitama has reported production growth in both CPO and PK. CPO production has grown from 256,883 MT in 2010 to 701,304 in 2016. PK production has grown from 52,989 MT in 2010 to 138,175 MT in 2016. 

3. Biodiesel

   In 2015, Bumitama has ventured into biodiesels. It owns a biodiesel plant in Gresik, East of Java. In November 2015, Bumitama has secured a contract to supply 20,000 MT of biodiesels to PT Pertamina (Persero) and thus, beginning to derive sales of biodiesels. 
   Still, contributions from this venture is relatively insignificant as Bumitama has generated 310 Million Rupiah or 4.7% of total group revenues from sales of biodiesels in 2016.
    

How did Robert Kuok, presently the richest man in Malaysia, earned his nickname, ‘The Sugar King’?

Here’s the story. Since 1952, Robert Kuok had began to acquire sugar plantations in Perlis through Kuok Brothers Sdn Bhd. Subsequently, Robert has established the Malayan Sugar Manufacturing Company (MSM) in 1959 and Perlis Plantations Bhd in 1968. Towards the end of the 1960s, Robert was controlling more than 10% of global sugar supply and thus, meriting his nickname, ‘The Sugar King’.

In 1972, Perlis Plantations Bhd was listed on the Kuala Lumpur Stock Exchange (KLSE). Since then, it has expanded and diversified into a wide range of businesses. In 2000, Perlis Plantations Bhd has changed its listing name to PPB Group Bhd (KLSE:PPB). As I write (17 September 2017), PPB Group Bhd is a matured conglomerate worth RM 19.9 Billion.
 

The Business

At core, PPB derives bulk of its profits from four different business segments. They include:

1. Wilmar International Ltd

   Presently, PPB Group Bhd is a substantial shareholder of Wilmar International Ltd (Wilmar) with 18.6% shareholdings. Listed on the SGX, Wilmar is among the largest agricultural-based conglomerates in Asia with three main business divisions: Tropical Oils (Palm Oil), Oilseeds and Grains, and Sugar. 
   
   In 2016, PPB has recognized RM 851.9 Million in profits from Wilmar. Thus, Wilmar is currently the largest income contributor to PPB. As I write, the market value of PPB Group Bhd’s shareholdings in Wilmar stands at RM 12.0 Billion (based on current exchange rate of RM 3.12 per S$ 1)

2. Grains & Agribusiness

   This division consists of grain trading, livestock farming, flour and animal feed milling. Let’s start with flour milling. PPB owns 80% interest in the FFM Group. The FFM Group has 9 flour mills with total milling capacity of 6,270 MT per day. Also, the FFM Group has 20% interest in 9 associates in China with a combined flour milling capacity of 12,550 MT per day. 
   In addition, PPB owns 5 feed mills with milling capacity of 145 MT per hour, a layer farm, and two breeder farms. The layer farm is capable of producing 20 million eggs per month while the two breeder farms are capable of producing 3.25 million day-old-chicks (DOC) per month. Combined, this division has contributed RM 267.2 Million in segment profits in 2016. It is the second largest income contributor to PPB. 

3. Film Exhibitions

   PPB owns 100% interest in Golden Screen Cinemas Sdn Bhd (GSC). It is the largest film exhibitor in Malaysia with 305 screens across 33 different locations nationwide. It also has 40% interest in Galaxy Studio Joint Stock Company which operates the Galaxy brands of cinemas in Vietnam. In 2016, this division has contributed RM 59.1 Million in segment profits. Thus, it is the third largest income contributor to PPB.

4. Consumer Products

   This division is involved in marketing and distribution of fast-moving-consumer-goods (FMCG) such as packaged flour, bakery products, edible oil, frozen food, canned food, eggs, and a variety of beverage products to supermarkets, retail outlets and neighbourhood stores in Malaysia. In 2016, this division has contributed RM 22.0 Million in segment profits. It is the fourth largest income contributor to PPB.

Growth Plans

Here, I’ll exclude Wilmar as I’ve written an article on it. Please click ‘Wilmar International Ltd’ for further details. As for PPB’s major subsidiaries, they have revealed several development plans to expand its businesses. They include:

1. Grains & Agribusiness

   PPB is constructing two new 500 MT per day flour mills. The first mill is at Ba Ria in Vietnam. The second mill is in Pasir Gudang. They are expected to commence operations by 2nd and 4th quarter of 2017 respectively.

2. Film Exhibitions

   In 2017, PPB is opening 3 new cinemas with 42 new screen in Malaysia. In addition, PPB is targeting to open 6 new cinemas with 37 screens and a 9-screen cinema in Cambodia.

3. Consumer Products
   PPB has secured distribution rights from Reckitt Benckiser Malaysia Sdn Bhd for Dettol, Strepsils, Durex, Gaviscon, Harpic, Vanish, Optrex, and Shieldtox in Northern Malaysia (Penang, Perak, Kedah and Perlis).

In 1965, the late Tan Sri Dato’ Seri Dr. Lim Goh Tong (LGT) has founded Genting Highlands Bhd and initiated the construction of access road from Genting Sempah to the peak of the Ulu Kali Mountain. For the next 40 years, LGT has laid a solid foundation of the Genting Group, which resulted in Genting Highlands being one of the most popular gaming & tourist destinations in Malaysia.

In 2003, LGT has handed over the Chairmanship of the Genting Group to his son, Tan Sri Lim Kok Thay (LKT). It was the beginning of Genting’s transformation journey from a local player to become an international integrated resort operator. As I write, Genting Malaysia Bhd, a 49.3%-owned subsidiary of Genting Bhd, owns and operates major resort destinations in Malaysia, the United Kingdom, the United States and Bahamas.

Listed On Bursa Malaysia, I’ll cover 8 things you need to know about Genting Malaysia Bhd (KLSE:GENM) before you invest.
 

#2: The Business

Genting Malaysia Bhd has four major resort properties. They include:

1. 1. Resorts World Genting (RWG)

      RWG remains as the trophy asset to Genting Malaysia Bhd. It has 6 hotels, theme parks, entertainment attractions, retail and dining outlets, international shows and business convention facilities. In 2016, RWG has recorded 20.2 million visitors with 29% of visitors were hotel guests. Out of which, RWG has derived RM 5.62 Billion and RM 1.89 Billion in revenues and EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) respectively. 

   2. Genting United Kingdom (UK)

      Genting’s UK operations consist of 43 casinos and Resorts World Birmingham (RWB). This includes 4 prestigious brands such as Crockfords, the Colony Club, Maxims Casino Club, and the Palm Beach. Thus, Genting is currently the UK’s largest casino operator. In 2016, Genting UK has contributed RM 1.82 Billion and RM 288.0 Million in revenues and EBITDA. 

• Genting in the United States & Bahamas

Genting is the proud owner of Resorts World Casino New York City (RWNYC). It is equipped with over 5,500 video gaming machines and has attracted 8.2 million visitors in 2016. In Bahamas, Genting operates the Resorts World Bimini (RWB). Collectively, Genting’s US & Bahamas operations had contributed RM 1.37 Billion and RM 193.4 Million in revenues and EBITDA.

#3: The Financials

Overall, Genting Malaysia Bhd has reported growth in group revenues, up from RM 7.89 Billion in 2012 to RM 8.93 Billion in 2016. This was attributed to stable sales performance from RWG and higher sales contributed from RWB and RWNYC.

However, Genting Malaysia Bhd has recorded decline in shareholders’ earnings, down from RM 1.60 Billion in 2013 to RM 1.26 Billion in 2015. This was due to losses incurred from RWNYC and RWB during the 2-year period.

In 2016, Genting Malaysia Bhd has recorded RM 2.88 Billion in shareholders’ earnings. This is because, in that year, it has recognized an one-off gain of RM 1.27 Billion from the disposal of its interest in Genting Hong Kong Ltd. As such, I’ve excluded the one-off gain from the calculation of Return on Equity (ROE) for Genting Malaysia Bhd in 2016.
Click on the link to read the whole article.

To explore the issue of why the line item such as "Other operating expense", presented in the P&L and notes to the financial statements, is frequently a large amount, in the context of the rest of the items in the P&L, that is not accompanied by additional detail or disaggregation. This issue results in investors having a diminished ability to understand the financial performance of those companies that do not disclose this detail. We would like to discuss the issue of why companies fail to disaggregate these line items, and think about how disclosures could be improved. In addition, 

Lenovo Group Limited (HKG:992) might be a company that is familiar to most of us. After all, the company is the largest PC manufacturer in the world. However, that might be all we know it to be. And how wrong we will be able it.

Lenovo Group has business segments across many products and services. Besides its PC, the company has a sizeable mobile smart phone business. It also produced a wide range of other smart devices such as tablets, storage devices and much more.

The company also has an attractive dividend yield of more than 6.2% now. Is it worth investing in? Listed in Hong Kong and part of the Hang Seng Index, Here are 7 things you must know about Lenovo Group Limited.​

The Business

The company now segments its business unit into three main groups.

PC and Smart Device

This is its traditional PC business. It also includes its other smart devices such as tablet and personal storage products. The segment contributed about 70% of its USD10.0 billion revenue in Q1 FY17/18. It was the only segment that was profitable. It produced a pre-tax income of US$291 million during the quarter.

Revenue was relatively flat year-on-year with a pre-tax income margin of 4.2%. The PC business continues to be a tough and brutal business to compete in for Lenovo and the company claimed to be the leading PC manufacturer with the highest margin.

Mobile Business

Lenovo is one of the biggest mobile smartphone manufacturers in China. Its products are also exported globally and the company commented that sales are picking up for its Latin America and Western Europe markets. It generated about 17.5% of the group’s revenue from this segment. However, due to cost pressure, the segment saw a loss of US$173 million.

Data Center Business

The company also serve the enterprise market with its data centre products. The segment produced a revenue of US$971 million, about 9.7% of the group’s revenue for the quarter. This segment also saw a loss of US$144 million for the quarter.

And here are some of the Asia-listed suppliers of Apple Inc that might be impacted by its new product ranges.

The iPhone

As the largest contract manufacturer in the world, Hon Hai Precision Industry Co. Ltd (TPE:2317), better known as Foxconn is a key assembler for Apple Inc. The company has grown together with Apple and currently employed more than 1.3 million people in its organization.

Listed in Taiwan, the company is currently trading around 13.4 times its earnings and offering a 3.9% dividend yield.

The Chip

Apple products are as much about the hardware as it is about the software. And at the heart of the software is its processing microchip. On this end, Taiwan Semiconductor Manufacturing Company Ltd (TSMC) (TPE:2330), the largest semiconductor foundry in the world is also a key supplier to Apple. TSMC has been one of the performing stocks among the Apple suppliers in the past decade. Even from its peak price of TWD66.00 per share back in 2007, its share price now is more than 3 times at TWD 218.0 per share. Listed in Taiwan, the company is still only trading at 16 times its earnings and offering a 3.2% dividend yield.

The Camera

iPhone prided itself as having one of the best imaging cameras for any smartphones available. In iPhone X, there are not just two but four cameras within the phone, with two 12MP back cameras, one 7MP front camera and an infrared camera front camera as well. This means that its camera supplier might have double the order from the same quantity of phone. One of its camera suppliers is Cowell E Holdings Inc (HKG:1415).

Listed in Hong Kong, Cowell E Holdings is now trading at 11.7 times its earnings and offers a 1.5% dividend yield to investors.

The Apple Watch

One of the fastest growing product for Apple is its Apple Watch. According to its keynote event last week, Tim Cook mentioned that Apple Watch is now the largest watch brand in the world, overthrowing the long-term crown, Rolex. It is also growing extremely fast, growing more than 50% in sales since last year. One of Apple Watch assembler is listed in Taiwan. It is Quanta Computer Inc (TPE:2382).

It is currently trading around 18 times its earnings and offering a 5% dividend yield for investors.

The Speakers

Sound quality has been very important for Apple. The iPhone has been focused on making a great sound. This is done with the help from one of its speaker manufacturer, AAC Technologies Holdings Inc (HKG:2018).

AAC Technologies Holdings Inc is listed in Hong Kong. It is trading around 30 times its earnings and offering a 1.1% dividend yield to its shareholders. Interestingly, the company has also been the target of a short seller attack back in May 2017. Gotham City Research claimed that the company has used “dubious accounting” method to overstate its profits and evade Apple’s labour standards.

Although nothing was proven from the attack, investors should be aware of this incident before investing in ACC Technologies.

The Display

Lastly, the iPhone X has changed its display to the OLED technology. This marks a sharp shift in the future of display technology for Apple. One of the companies that might benefit from it could be LG Display Co Ltd (KRX:034220), a key global leader in the OLED technology.

LG Display Co is listed in South Korea, with a price to earnings ratio of 5.2 times but only offers a 1.5% dividend yield.

Value In Focus

These companies might have a skin in the game for the success of Apple. However, investors have to understand that due to Apple’s enormous pricing power over its suppliers, not all of its suppliers would benefit as Apple grows. Moreover, Apple has a history of switching suppliers when they change their components. The example of changing its display technology to OLED is one such example. If the suppliers are unable to change with Apple, it would be left behind.

What is the value of a bag of rice?

If you ask a homemaker, a bag of rice may feed her family for a week. Ask a grocer, a bag of rice is a product that can be sold for a profit margin or commission. If you ask a brewer, a bag of rice is a raw material that can be processed into wine which could be sold at a value multiple times of the price of a bag of rice. As such, the true value of a bag of rice depends on who the user is and how the user intends to use it.

So, what is the value of S$ 100,000?

If you ask Mr. Kuok Khoon Hong and Pak Martua Sitorus, they would tell you that S$ 100,000 is the amount of paid-up capital for their first company, Wilmar Trading Pte Ltd in 1991.

Since then, the Wilmar International Limited (SGX:F34) is established and has matured into one of the largest agricultural-based conglomerates in the world with over 500 manufacturing plants worldwide worth S$ 20.7 Billion as at 16 September 2017.  How often do you find someone who is able to turn S$ 100,000 in seed capital to S$ 20.7 Billion in 25 years? 

It is now part of the Straits Times Index constituents in Singapore.

At the core, Wilmar International Ltd (Wilmar) has established an integrated business model that encompasses the entire value chain of the agricultural commodity business. This includes production, processing, merchandising, branding and distribution. All in all, Wilmar derives income from three main business divisions. They include:

1. Tropical Oils

   Wilmar is among the largest palm oil plantation companies in the world with a total planted area of 241,892 hectares in 2016. In that year, Wilmar has produced 3.8 Million MT of Fresh Fruit Bunches (FFB). Almost 100% of its FFB production is supplied to its own plants where they were refined and processed into oleochemicals, speciality fats and biodiesel products. 
   Presently, Wilmar is also the largest processor and merchandiser of palm and lauric oil products in the world. Excluding its associates, Wilmar has 28 refineries, 19 oleochemical plants, 16 speciality fat plants, and 13 biodiesel plants with a total annual capacity of 28 million MT, 2 million MT, 2 million MT and 3 million MT respectively. In 2016, Wilmar’s Tropical Oils division has contributed US$ 689.2 Million in pre-tax profits and thus, remains as the largest income contributor to the overall group. 

2. Oilseeds & Grains

   Wilmar is the largest oilseed crusher, flour and rice millers in China as it operates 52 oilseed crushing plants, 18 flour mills and 16 rice mills in the nation. Its products are distributed across China, India, Indonesia, Vietnam and several nations in Africa. In 2016, Wilmar’s Oilseeds & Grains division has contributed US$ 251.1 Million in pre-tax profits and thus, is the second largest income contributor to the overall group. 

3. Sugar

   Wilmar is the largest sugar producer in Australia with 8 sugar mills and 2 sugar refineries in that country. In 2016, Wilmar produces 50% of Australia’s raw sugar and 75% of sugar requirements in Australia and New Zealand. In 2016, Wilmar’s Sugar division has contributed US$ 125.3 Million in pre-tax profits. It is the third largest income contributor to the overall group.

EBLSL prepares Equity Insight Report on regular basis that provides brief company insights based on fundamental analysis along with a preview of respective industry in which the company operates. Besides, factors affecting stock prices i.e. investment positives and negatives are also presented in the report.

We spoke to 145 CFOs across Asia about their background, experience, business, career and interests to uncover the DNA of a CFO. From qualifications and experience to personal development and work-life balance, our report gives you an insight into what it takes to reach the top finance job.

This is the first documented study of the relationship of the Cash Conversion Cycle and the performance of Philippine firms, submitted as a graduate course requirement.

SIA Engineering Company Limited’s (SIAEC) (SGX: S59) annual general meeting (AGM) was held on 20 Jul 2017. Our team went to the meeting to find out more about how the business is doing. The meeting turned out to be very informative, with the management team being candid on the Group’s current challenges and how it plans to drive the company forward over the next few years.
If you are unfamiliar with the business of SIA Engineering Company, you can view our analysis of the company right here.
From the AGM, here are four key takeaways we discovered during the meeting:
 

Cathay Pacific Airways Ltd (HKG: 0293) is the flagship airline in Hong Kong. Listed on the Hong Kong Stock Exchange, it carried 34.3 million people and moved 1.8 million tonnes of mail & cargo to some 197 destinations in 48 countries in the year 2016 alone!

Having been around since 1946 when it was founded, Cathay Pacific has moved millions maybe even billion of passengers and cargo over its long history. Is there still growth potential left in the company?

With that, here are 7 things you need to know about Cathay Pacific.
We looked through a SWOT analysis of the company.

Hang Seng Bank (HKG:0011) is one of Hong Kong’s largest listed companies that was founded back in 1993. In fact, the Hong Kong stock index is named after itself; the Hang Seng Index. The name of the bank carries significance as it means “ever-growing” and that’s exactly what they bank is trying to do.

Hang Seng is part of the HSBC group with the latter owning approximately 62% of the former. HSBC is one of the world’s largest banking and financial services organisation. Currently, Hang Seng has a market capitalisation of HK$335.15B.

With that, here are 7 things you need to know about Hang Seng.
Find out more about the strength, weakness, risk and opportunity of this company.
Learn more about its main shareholder, its valuation and its financials.

Passive investing is a term to describe investing in funds that simply track an index. An index is basically a collection of stocks chosen based on certain criteria, typically by its size, as used as a way to measure how the general market is doing.

Are Active Fund Managers Doing Their Job?

In the past, indices such as the Straits Times Index, Hang Seng Index or the Kuala Lumpur Composite Index are just used to measure the performance of the general markets. Investors are rarely able to invest directly in the indices. Traditionally, fund managers are the ones who decide which stock and the timing to invest and sell an investment. These traditional funds are called active funds. Yet data is showing that 97% to 99% of fund managers underperformed the S&P Indices over the past 10 years.

This means that if you have just invested in a simple passive index fund that has no fund manager over the past decade, you most likely have earned more money than those high-paid fund managers.

These data show why should we pay extra billions in fees to stock market fund managers who consistently underperform? Even if you have no interest in research and investing in the stock market yourself, investing in a passive index fund just seem more logical and cost effective.

However, just choosing between passive index funds can be a challenge, given the largely available choices out there.

In order to make a smart decision on which index fund to invest in, we believe that you should still have a basic knowledge of what investing is about.

This basic knowledge includes:

• Knowing why you should invest in the long term.
• Know the difference between investing and speculating.
• When we invest, we are buying businesses, not stock tickers.

Next, we have to know what are some of the more common passive index funds around. Here is the summary of a group of passive index funds that we have selected.

Most, passive funds are listed as Exchange-traded Funds (ETF) on the various exchanges. ETF are funds that are tradable on the exchange. It means we can buy this funds, like how we buy a stock, directly through our brokerage account.

Think of it as mutual funds that we can buy like stocks.

US Market

Vanguard 500 ETF (NYSEARCA: VOO)

Vanguard is the largest passive fund manager in the world. One of its flagship funds is Vanguard 500 ETF. It is an ETF that tracks the performance of the S&P 500 index. This means it invests in some of the largest companies in the world like Apple Inc, General Electric, Exxon Mobil and others.

The fund is also one of the cheapest in the world, with an expense ratio of just 0.05%. This means that we are only paying 5 cents a year for every $100 you invested in the fund. If you compare that to the typical 1% to 2% expense ratio for a mutual fund and a 5% sales charge when you buy them, you might see why passive funds are so attractive and why mutual funds tend to underperform.

The Hong Kong Market

Hong Kong also has some large passive funds listed as ETFs.

Hang Seng H-Share Index ETF (HKG:2828)

For example, the Hang Seng H-Share Index ETF is a HK$40 billion index fund that tracks the H-Share index in Hong Kong. H-Shares are some of the largest China-based companies listed on the Hong Kong Stock Exchange. This includes companies like Ping An Insurance, Industrial and Commercial Bank of China and PetroChina.

For investors who are optimistic about the future of large corporation in China, it is a simple way to gain exposure to these companies. However, expense ratio in Asia still tends to be much higher than in the US Market. The Hang Seng H-Share Index ETF charges about 0.6% in total a year to its fund investors. You can download the factsheet to Hang Seng H-Share Index ETF here.

Hang Seng Index ETF (HKG:2833)

Another common index fund in Hong Kong is the Hang Seng Index ETF. It is an index fund that tracks the performance of the Hang Seng Index. Unlike the H-Share Index, Hang Seng Index includes some of the largest companies listed in Hong Kong, including China-based, Hong Kong-based or international-based companies.

Some of the companies it invested in are HSBC Holdings, Tencent Holdings, CK Hutchison Holdings and even the Hong Kong Exchanges & Clearing Limited. Since its establishment in 2004, the fund returned more than 160% in total to its investors.

You can download the factsheet to Hang Seng Index ETF here.

 The Singapore Market

Singapore has a much smaller passive fund industry. However, to gain access to the Singapore market, the SPDR STI ETF might be a good option.

SPDR STI ETF (SGX: ES3)

The SPDR STI ETF is a passive index fund that tracks the performance of the Straits Times Index (STI). The STI includes about 30 of the largest companies listed in Singapore. These are companies like Singapore Telecommunication, DBS Group Holdings, CapitaLand Limited and Keppel Corporation Limited.

Since its inception in 2002, the fund returned about 7.55% a year to its investors. And its expense ratio is quite low at just 0.3%. You can download the factsheet to SPDR STI ETF here.

The Malaysia Market

Although Malaysia does have a number of passive index ETFs listed on Bursa Malaysia, most of them are very thinly traded. This means it is extremely hard to invest in them due to the lack of interests. Hopefully, that would change in the future.

Passive Or Not To Be

The index fund market is clearly still massively underdeveloped in Asia. Looking at the growth this industry in the USA, it seems that Asia would continue to see growth in the passive funds market.

Although passive investing is not always perfect, some argued that it might lead to blind investing, creating a larger crisis in the future.

However, based on the poor performance of fund managers over the last decade, passive investing is gaining popularity as an alternative to paying a huge fee to fund managers who underperform 97% of the time.

IHH Healthcare Berhad (“IHH”) is the world’s 2nd largest listed healthcare operator by market capitalisation. It has more than 10,000 licensed beds in 50 hospitals across 10 countries (primarily in Malaysia, Singapore, Turkey and India).

The company was established in 2010 following the acquisition of Singapore’s Parkway Group and Malaysia’s Pantai Group. In 2012, IHH acquired Acibadem Holdings Group in Turkey and was subsequently dual listed on both the Main Markets of Bursa Malaysia and the Singapore Stock Exchange (“SGX”).

IHH also owns 35.74% of SGX listed Parkway Life REIT.
Here is what you must know about this huge healthcare group.

Is AIMS AMP Capital Industrial REIT Worth Investing In?

Fuelling Consumption Growth of Petrochemicals in Asia. Everyday, we use petrochemicals.

In the morning, we use soap and shampoo when we take a shower. In the afternoon, we are given food packed in a plastic container for our lunch takeaways. In the evening, we enjoy a nice stroll at the garden. If we look around, fertilizers are used to grow flowers and trees in the garden. These are just a few examples of how we consume petrochemicals on a daily basis.

As I write, Petronas Chemicals Group Bhd (PCG) is the largest integrated producer of petrochemicals in Malaysia and among the largest in Southeast Asia. Listed on 26 November 2010 on Bursa Malaysia, Petronas Chemicals Group Bhd is one of the five stocks where its major shareholder is PETRONAS, the national custodian of oil and gas assets in Malaysia. Here, I’ll cover seven key takeaways of PCG before investing into it. Other PETRONAS subsidiaries include PETRONAS Dagangan Berhad (KLSE:PETDAG) and Petronas Gas Berhad (KLSE:PETGAS).
Find out more about one of the largest chemical companies in Malaysia.
We did a SWOT analysis on the company and talked about its current valuation.

7 Things You Need to Know About SPH REIT Now

Japanese regional banks have been suffering from the severe business environment and financial conditions since the 2008 Lehman Crisis. This situation has worsened since the Bank of Japan introduced negative interest rates in 2016.

On the other hand, Japanese corporations still have not paid sufficient dividends to its shareholders. The dividend payout relative to net profit (Payout Ratio) and capital (DOE) are half or less of leading global markets.

Shareholder proposals for an increased dividend payout of Japanese corporations are more supportive by large investors including banks in Japan. Another tail wind is the Japanese “Stewardship Code” which seeks for stronger corporate governance and deeper dialogues between corporations and shareholders

In this research, I aggregate the financial statements of more than 17,000 companies across the world to then calculate the amount of cash that is held on the balance sheet of various countries across the world. From this, I then look at current cash levels at all markets across Asia, from Developed to Frontier.
The benefit of this research is that it can help us to better forecast the balance sheets of companies in Asia. This is especially critical for free cash flow valuation.

Are you a shareholder or analyst with an interest in mergers and acquisitions? 
The accounting standard-setters need your expertise. 

We are aware that M&As are common and can take the form of group restructurings or third party acquisitions. There is usually no question that there is underlying substance to acquisitions with third parties - the transaction price typically represents the fair market value of the acquired business. But M&As within a group might arguably be different.

The findings of this M&A survey will be published and will help us consider whether all M&As should be accounted and reported in the same way. 

To participate, click on this link: http://survey.hkicpa.org.hk/index.php?sid=57118&lang=en, or download and email us the attached survey: outreachhk@hkicpa.org.hk

Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management

Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management

Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management

Paper Submission for AAM-CAMRI-CFA Institute Prize in Asset Management

"Ethical issues in the financial services industry affect everyone, as almost all of society are consumers of its products and services.  Given the vital role that financial institutions play, moral hazards may be more acute and it is therefore unsurprising that the industry should be subject to the highest ethical standards.  Ethical dimensions create an environment based on trust and make economic transactions more predictable for producers and consumers".

In this short video, I review my latest research on the level of cash that companies have on their balance sheet. My main conclusion is that companies in Asia have the highest levels of cash compared to all other regions across the world.
This finding is important for two reasons: First, to help us think about how much cash we should be forecasting when we are valuing companies and second, it helps us understand the underlying strength of the balance sheet of companies in Asia. 

"Restoring the trustworthiness of global business will be a long-haul and there are no short-cuts when it comes to trying to embed ethical behaviour in business DNA.  But the dialogue in global board rooms is beginning to change with the importance of corporate culture, behaviours and the causal links to incentives and rewards gradually being recognised.  Our international businesses will always have responsibilities that go way beyond compliance - you cannot regulate for good behaviour.  Sustainable improvements in culture and behaviour in banking and right across the business landscape can only be achieved if individual institutions, owners, investors and the people leading and managing them step up to the plate.  As Dr Madden's thought provoking book makes clear, responsibility and accountability have to move to the top of every Board agenda".  Dame Collete Bowe, Chairman, UK Banking Standards Board.

The Standard Setting Department of the Hong Kong Institute of Certified Public Accountants is conducting a survey on the new auditor's report of listed entities. Feedback from users of financial statements is important for us to know whether the new requirement serves users' needs, and if not what could be improved. http://survey.hkicpa.org.hk/index.php?sid=55433&lang=en
 
The survey is open until the end of August. For enquiries: outreachhk@hkicpa.org.hk>


Background of the new auditor's report
From financial year ends 15 December 2016 onwards, auditor's reports of listed entities are required to describe key audit matters (KAMs) to provide greater transparency about the audit that was performed. Communicating KAMs assists intended users of financial statements in understanding matters that were of most significance in the auditor's professional judgement; and understanding the entity and areas of significant management judgement.

In the latest issue (Issue 13 – August 2017), it covers the stories of:

Financial Crime Risk : Anti-Money Laundering Practices in Banking To understand anti-money laundering, we have to understand what money laundering is. Money Laundering is the process of converting illegal funds into seemingly legitimate assets with the purpose of concealing the ownership or original source of these funds. This makes it difficult for the authorities to trace the origins of the funds. To counter this, the banking sector has established a set of internal regulations and system known as anti-money laundering. These are legal controls taken by financial institutions to investigate suspicious transactions to help prevent money laundering activities within the banking sector.

The Rise of Text Mining in Financial Markets The world is awash in data. Financial markets are awash in data. We are generating around 2.5 quintillion (2.5×1018) bytes of information every day, and there is an average of 4,000 brokerage reports a day comprising around 36,000 pages in 53 languages. As market participants try to maximize their competitive edge from the growing mountain of information, the nancial world increasingly feels there is a need to harness the power of big data and it has been shaping the way they acquire, analyze and utilize data. The recent development is the rapid expansion of text mining. Hence, this article will focus on the development of Text Mining technology as well as Text Mining technique.

Statutory statements prepared for reporting purposes are a combination of accounting rules formulated to characterize the accrual process, management estimates based on past experience applied to projected events, and managerial judgment that is subject to cost-benefit rationale. The net earnings per share number, which in the ultimate analysis increases shareholders’ equity, is mostly neglected in management discussions and analysis. A majority of the managerial analysis is concentrated on alternative numbers arrived at by massaging the earnings information. The ensuing treatise is an endeavor to reconnect the economic implications of the accounting for depreciation, goodwill amortization/impairment charges (universally assumed to be non-cash charges), as well as other one-time charges, that are being neglected by most investors when analyzing manipulated pro-forma earnings reports from corporate managements. Since earnings comprise an integral part of expected returns, a sound knowledge of accounting theory and concepts is essential for conducting insightful financial analysis. The purpose of this research is to generate a healthy debate amongst accounting, finance, and other professionals who are consumers of company information to evaluate the efficacy of reported financial statements, management discussion and analysis that accompanies them, and current valuation methodologies practiced. Contrary to popular notions, if cognitive biases are removed, one may find that accounting earnings do mirror economic reality.

Title: A Resolution to the Problem of Multiple IRR: A Modified Capital Amortization Schedule (MCAS) Method for Non-Normal Cash flow (NNCF) to Obtain a Unique IRR 

 

 
The problem of multiple IRR remained unresolved for almost a century. This problem is associated only with some of the non-normal net cash flow (NNCF) that wrongly includes reinvestment income as income or benefit stream. The reinvestment income, which is not a benefit from the investment or project under analysis, causes the multiple IRR problem. This is often misinterpreted as problem of IRR but its neither a problem with IRR nor NPV. It is a problem associated with some NNCF data and the failure to update the discounted cash flow (DCF) or capital amortization schedule (CAS) methods to handle such problem.
Using NNCF data, analyses are conducted with special emphasis on topics such as:


a.      A modified CAS (MCAS) method that eliminates multiple IRR associated with NNCF data;
b.      Multiple IRR problem and the Descartes rule of sign and Norstrom’s criteria;
c.      A NNCF data with a unique IRR under DCF / CAS methods vs IRR by MCAS method;
d.      Resolving the problem of multiple IRR by MCAS Method Versus MIRR; and
e.      A critical review of the GIRR and AIRR Methods to Estimate NNCF.
The salient findings of the present analysis are:
a.      The MCAS method, presented in this paper, identifies and eliminates the reinvestment income associated with NNCF investments (with positive opening balance in one or more years in the CAS) from the benefit stream;
b.      This new method overcomes the multiple IRR problem and leads to a unique and real IRR; The effectiveness of MCAS to handle the NNCF data is illustrated with numerical analysis;
c.      The assumption of reinvestment at IRR or at hurdle rate in NPV are false assertions in the cases of normal NCF and some of the NNCFs. However, such reinvestment is evident only with NNCFs with positive opening balance in one or more years under the CAS.
d.      The reinvestment income under the benefit stream causes multiple IRRs and multiple NPVs too. As NPV is a static point estimate (at hurdle rate) the multiple NPVs are not exposed. Without eliminating the reinvestment income, none of the criterions viz. NPV, IRR or MIRR, is useful as a decision criterion. Neither NPV or MIRR is a preferred criterion, under such circumstances, as recommended in some published works.
e.      The MCAS method is appropriate for both normal NCF and NNCF as illustrated in this paper. CAS or DCF method is appropriate only for normal NCF investments.
f.       Even when there is no multiple IRRs with some NNCFs under DCF/CAS method, the MCAS method estimated IRR or NPV, without reinvestment income, are different from that of the DCF/CAS estimated IRR and NPV. For a consistent estimate of IRR and NPV, the MCAS method is most appropriate both for NCF and NNCF investments.
g.      The generalized IRR (GIRR) and the Average IRR (AIRR) are also not appropriate estimates for NNCF and they are not NCF consistent as discussed in this paper. The problem of multiple IRR associated with the popular cases of NCF investments used in GIRR and AIRR, are also resolved now.
In conclusion, the MCAS method resolves the problem of multiple IRR and leads to a unique IRR that is real and NCF-consistent. Neither the NPV nor the MIRR could resolve the problem of multiple IRR.

Published in May 2017, this research reveals most active managers fail most of the time, at least if we define failure as underperformance of an appropriate passive benchmark. Success, when it does occur, tends not to persist.

Is current disclosure of Operating profit /expense helpful for understanding companies?
We discussed how difficult to distinguish whether Operating / Non operating in financial statements recently with investors, information providers, accounting setters in Hong Kong. 
It makes lower comparability and becomes barrier of understanding company value.
We discussed several points of view to solve it and revealed that disclosure issues of IFRS are highly common among investors globally.

"How investors analyse and what managements need to explain, when M&A happened?" We discussed this issues in Japan, with some accounting standard setters.  
We have been discussing about comparability issue and line item classification issue from users’ point of view in the past workshops. At the last workshop (https://www.arx.cfa/up/post/3375/20170206_IFRSXBRLWS10_E.pdf) , we discussed on whether “share of profit/loss of associates” is “operating” or “investing” may differ by company or its business, focusing on the point that “What is really comparable? Does same account name mean same substance? Which is same in substance?”.

The way of business for companies are changing nowadays, that we should focus on the point that more M&A is happening in place of building factory and hiring people in old times. So we focused on the point how investors should evaluate companies’ value in acquisition and what companies need to explain in our discussion.

We initiate coverage of IDLC with an OUTPERFORM rating with a target price of BDT 70.7 per share for December 2016. With current price of BDT 55.9 (as of May 04, 2016), the fair price implies a price return of 26.5%. Our estimated fair price implies a P/B multiple of 2.05x over 2016E NAV and 1.80x over 2017E NAV. Considering the latest published NAV, the stock is currently trading at a P/B multiple of 1.87x, which is lower compared to companies with similar business and ROE profile like HDFC in India and DBH in Bangladesh which are trading at 3.5x and 3.9x respectively.

We re-initiate coverage of Lafarge Surma Cement Limited with a “SELL” rating, with fair value estimate of BDT 51.6 per share for Dec 2017. Our fair value implies a forward P/E multiple of 23.4x over 2017E earnings and 17.9x over 2018E earnings. The fair value also implies a forward EV/EBITDA multiple of 14.2x and 10.8x relative to 2017E and 2018E EBITDA respectively. With current market price of BDT 76.1 per share (as on Oct 13, 2016), our fair value will provide a price return of –32.2% and expected dividend yield of 1.3%.

The research analysis report is conducted by students from National Chengchi University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Royal Institute of Colombo in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Curtin University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Narsee Monjee Institute of Management Studies, Mumbai in preparation for CFA Institute Research Challenge.  

The research analysis report is conducted by students from Bangladesh Institute of Business Administration in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Indian Institute of Management, Bangalore in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from University of Otago in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Sungkyunkwan University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Indian Institute of Foreign Trade, New Delhi in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from National University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Karachi School of Business and Leadership in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Peking University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Hong Kong Baptist University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Sunway University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Kyoto University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Ateneo de Manila University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Monash University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Singapore Management University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Griffith University in preparation for CFA Institute Research Challenge. 

Given most of the FinTech innovations, in particular the DLT, are developed for providing services directly to consumers, FinTech has initially been regarded as disruptive to the established financial institutions. However, a more recent development is that increasingly FinTech innovations are developed by, and in collaboration with, the well established incumbents in the financial sector. There are two very insightful reports on FinTech and DLT published by the FSDC in May 2017; which covers extensively the following areas including cybersecurity, payment and securities settlement, digital ID and KYC utility, WealthTech and InsurTech (including data analytics, automation and artificial intelligence), RegTech as well as Distributed Ledger Technology.  

Attached are the two links to these two reports by FSDC.  

http://www.fsdc.org.hk/sites/default/files/FSDC%20Paper_FinTech_E.pdf

http://www.fsdc.org.hk/sites/default/files/FSDC%20Paper_DLT_E.pdf
 

The research analysis report is conducted by students from Southwest University for Nationalities in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from The Chinese University of Hong Kong, Shenzhen in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from The Chinese University of Hong Kong, Shenzhen in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Shanghai Jiao Tong University in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from Foreign Trade University Ho Chi Minh City Campus in preparation for CFA Institute Research Challenge. 

The research analysis report is conducted by students from The Chinese University of Hong Kong, Shenzhen in preparation for CFA Institute Research Challenge.

The 46th National Budget of Bangladesh and 11th by Finance Minister AMA Muhith has been proposed on 1st June, 2017. Proposed budget size for FY ’18 is BDT 4002.66 bn which is 18.0% of GDP. This is the largest budget in the history of Bangladesh. Target Revenue is BDT 2879.91 bn caused a deficit amounting to BDT 1122.75 bn which will be financed through domestic sources (BDT 603.52 bn) and External Borrowings (BDT 519.24 bn).
 

EBLSL prepares Equity Insight Report on regular basis that provides brief company insights based on fundamental analysis along with a preview of respective industry in which the company operates. Besides, factors affecting stock prices i.e. investment positives and negatives are also presented in the report.

Despite a recent crackdown on insider trading in China an assumption persists regarding the relative information inefficiency and asymmetry of less developed markets. Researcher Chi asks: How much is private information exploited in a less developed financial market like China?
As it turns out, quite a lot.