PREMIA POINT OF VIEW

PREMIA POINT OF VIEW

David Lai , CFA

Partner, Co-Chief Investment Officer

Old China vs New China
Aug 23, 2019


Some investors seem to be quite cautious when looking at the recent macro numbers of China, questioning the growth potential of China markets.  The picture may indeed look very different if breaking the market down into two segments: Old China and New China.  Let's pick FTSE China A50 as a representative of the former, focusing on mega-caps, SOEs and financials, and CSI Caixin Rayliant New Economic Engine Index as the latter, consisting of small-to-large caps, private enterprises and new economy sectors like consumer discretionary, healthcare and IT.   Based on the revenue numbers of the latest constituents between 2015 to 2019 estimates, New China has been growing at a CAGR of 15.9% compared to Old China's 2.1%.  It shows that some parts of China are still expanding steadily in a challenging environment.  For investors seeking growth opportunities in China, then new economy focused instruments are the right tools for them.


David Lai , CFA

Partner, Co-Chief Investment Officer

China Effective Lending Rates and Reference Rates
Aug 20, 2019



PBOC just announced to introduce a new Loan Prime Rate (LPR) on a monthly basis in order to make the interest rate mechanism more market-driven.  The central bank expects this change will bring down the overall interest rates and hence reducing the financial burden for both corporate and individual borrowers.  As shown in the chart, the effective lending rates for both ordinary loans and mortgages are 5.94% and 5.53%, respectively, significant higher than the benchmark rate of 4.35% set by the government.  Some banks now even set an internal floor at the benchmark rate, making sure that no loan will be priced under it.   The upcoming LPR will be priced at a spread over the medium-term lending facilities rate of 3.3%.  Following PBOC's expectation on the rate outlook, the change is essentially an extensive loosening measure.  It should be good for the economy at the cost of narrowing net margins among Chinese banks.

Alex Chu

Portfolio Manager

July Update: ETF Asset Class Monthly Performance in 2019
Aug 19, 2019

Almost all asset classes had some decent performance in June, especially Commodity and Equity, but the momentum failed to carry through in July. Investors were waiting for more positive news on the trade war and the Fed’s interest rate decision. The returns for Commodity, Equity, Fixed Income and Mixed Allocation were within a narrow range between -0.2% and 0.2%. Stepping into August, investors’ sentiment was dampened as the trade war tension escalated again. US 10-year treasury bond yield had once gone below 2-year bill yield. The inverted yield curve indicated that investors were betting the future would be worse than the present.


Aleksey Mironenko

Partner, Chief Distribution Officer

What's the highest US treasury yield?
Aug 16, 2019


What's the highest US treasury yield?

It used to be the 30yr, but not anymore.  With the last few days' risk off moves, even the mighty long bond now yields less than treasury floating rate notes (FRNs).  Tsy FRNs are 2-year notes that pay a quarterly coupon, but the coupon resets every week.  Right now, the yield is 2.13%, higher than all other treasury securities.  The 30y is at 2.02%.  The 1m is at 1.97%.  Everything else is even lower.  If you are looking for risk-free USD yield - 0 credit risk, 0 counterparty risk, nearly 0 interest rate risk - take a look at Tsy FRNs.  The Premia US Treasury Floating Rate Note ETF - 9077 HK and 3077 HK - offers direct and low cost exposure to Tsy FRNs on HKEx.

 

David Lai , CFA

Partner, Co-Chief Investment Officer

Time to load up China-A for diversification
Aug 15, 2019

As investors are getting more cautious on the back of an inverted yield curve, rising tensions from the trade war, and the increasing volatility in the markets, they can choose to eliminate risk by increasing their cash component or to manage risk by further diversifying their portfolios.  Ray Dalio, the hedge fund guru at Bridgewater, seems to adopt the latter view and suggests investors to increase China exposure now.  He asserted his belief in diversification, saying that despite the perceived risk of investing in China, going where growth can be found is the right thing to do.  Interestingly, if looking at the correlation between China-A and all major markets globally and regionally, China-A is lowly correlated with other markets with a range of 0.26 to 0.34 except the slightly higher figure with HK market at 0.55.  An increase in MSCI inclusion factor of China-A from 10% to 15% at the end of August would be a near-term catalyst.




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