IQ Weekly Takeaways for 14 June 2020


1) Hong Kong Index to remove Weighting Cap for Dual-Class Shares

2) Perennial’s controlling shareholders launch privatisation offer at 95 cents per share

3) Singapore new private home sales surged 75% in May over April’s low despite circuit breaker

4) Why China did not retaliate after latest US move to target Huawei

5) American Express wins bank card clearing licence for China’s US$27 trillion market


1) Hong Kong Index to remove Weighting Cap for Dual-Class Shares

Hong Kong’s index compiler is scrapping a weighting limit for dual-class shares on some of its gauges, in a move seen as paving the way for more tech stocks to eventually join the benchmark. (Check out our article on China ADR Delistings that touches on this)

Hang Seng Indexes Co. said in a statement on Friday that it is removing a 10% cap on weighted voting rights companies for the Hang Seng Composite Index and other gauges. The change takes effect when an index review is done in August, it said.

The InvestQuest’s Explanation: The current HSCI Index weighting methodology imposes a weighting cap of 10% on individual stocks, with the exception of companies with a weighted voting right (WVR) structure, where the weighting cap is at 5%. There will be no change to this. Currently, Alibaba, Meituan Dianping and Xiaomi are the only three companies listed on the HK Exchange with a WVR structure, with JD.com being the likely 4th company. The announced change mentioned in the article refers to the AGGREGATE weighting cap of companies with weighted voting rights (WVR), which is currently set at 10% and will be removed in August’s Index review.

The market implication is that over time, we should expect to see the HSCI-related indices shifting away from “old-economy” sectors (HSI and HSCI have 48% and 31% exposure to financial sector stocks respectively), into Tech and Consumer Discretionary sectors as more Chinese ADRs execute secondary listings or choose to relist in HK. This is because roughly 80% of Chinese ADR listings by market cap are tech / consumer discretionary sector companies. We might then start to see the Hong Kong related stock indices start to trade at higher valuations multiples.

https://www.bloomberg.com/news/articles/2020-06-12/hong-kong-index-firm-lifts-weighting-cap-for-dual-class-shares


2) Perennial’s controlling shareholders launch privatisation offer at 95 cents per share

Perennial Real Estate Holdings’ substantial shareholders have joined forces with Chinese asset manager HOPU Fund Management Company to privatise the company.

The consortium, which already holds 82.43% of the company, is offering 95 cents per share and will not revise the offer. It last traded at 69 cents on June 9 before trading was halted on June 10 ahead of this announcement. 

The InvestQuest’s View: At 69 cents, Perennial currently trades at 0.44x P/B. The stock has traded in the range of 0.2x to 0.66x P/B in the past 5 years. At an offer of 95 cents, this implies 0.6x P/B, which looks fair in the current environment.

https://www.theedgesingapore.com/news/company-news/perennials-controlling-shareholders-launch-privatisation-offer-95-cents-share


3) Singapore new private home sales surged 75% in May over April’s low despite circuit breaker

Developers in Singapore sold 484 private homes in May, going by sale caveats, Knight Frank Singapore said on Wednesday (June 10). This is 74.7 per cent more than the 277 private homes sold by developers in April. 

While May’s new private home sales surged over April, they were still down 49 per cent from a year ago when developers sold 952 units, according to Urban Redevelopment Authority (URA) data.

https://www.straitstimes.com/business/property/singapore-new-private-home-sales-went-up-813-in-may-over-april-knight-frank


4) Why China did not retaliate after latest US move to target Huawei

When details of the latest US tech restrictions – which included limiting Huawei’s access to US semiconductor technology – were announced, the state-run tabloid Global Times said China was prepared to investigate or place restrictions on US tech firms such as Qualcomm, Cisco and Apple, and suspend purchases of Boeing planes…only to hold off for fear the move would backfire and damage its economy, according to a source close to the Chinese government.

Beijing’s caution was motivated by faltering economic growth and a desire to stabilise foreign investment at a time when growing numbers of foreign companies were looking to reduce their dependence on Chinese supplies following the Covid-19 pandemic and increasing pressure from the White House.

https://www.scmp.com/news/china/diplomacy/article/3088826/why-china-did-not-retaliate-after-latest-us-move-target-huawei


5) American Express wins bank card clearing licence for China’s US$27 trillion market

American Express received approval to start bank card clearing services in China, making it the first foreign payments network to be allowed to process local currency transactions in one of the world’s largest markets.

Mastercard in February won initial approval to set up its bank card clearing business in China, while progress has been slow for Visa Inc. The opening to card companies is part of a broader plan by China to give access to its markets, which also includes insurance, asset management and investment banking. 

https://www.scmp.com/business/companies/article/3088947/american-express-wins-bank-card-clearing-licence-chinas-us27

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