Cachet's Insight 02/03/2020

Market Outlook

Asof February 27th, JACI Total return index delivered +0.40% for the week. Primary market remains active but has slowed this week as concerns grow. Market sentiment soured further as COVID-19 continues to spread worldwide. New cases outside China have exceeded those within China for the days. More downgrades to global growth expectations emerged as downside risks to the global economy increase.

Since 24th January (the day before Lunar New Year holidays), spreads-over-treasury (SOT) of JACI IG and HY have widened 8.2bps and 30.3bps respectively, whilst the broad market has widened just 12bps. Year to date, JACI remains in positive territory with a total return of +2.59%, as falling treasury yields have more than compensated for modest spread widening. The new issuance market also continues to be well supported with better quality investment grade issuers and Chinese property names well-bid by institutional and private wealth money respectively.

UST yields extended the rally during Asia session helped by a surprise statement from Fed Chairman Powell, who said the coronavirus “poses evolving risks” to U.S. growth, with market now expecting at least a 25bp rate cut for March 18th.

Bank of Korea held its key interest rate unchanged at record lows of 1.25%, and opted for a more targeted measure of making cheap loans more available to affected companies. 2020's GDP growth was cut to 2.1% from 2.3% earlier amidst growing concern of a surge in COVID-19 cases in recent days. Eurozone Feb PMIs were better than expected, with Eurozone manufacturing sentiment improving to 49.1 from 47.9 in Jan. However, the outlook is uncertain given disruptions in supply chain and demand amidst the virus outbreak.

UBS suggests that resumption rates have picked up notably in the past week, and coastal cities now all have above 80% resumption rate in the industrial sector, while small companies still have lower resumption rates. Daily coal consumption of six large independent power plants picked up to 64% of average level of that in the same period in 2017-2019. Policy responses so far focused on liquidity injection, MLF rate cut, and fiscal support in the form of tax waivers and subsidies. As President Xi called for "redoubling effort to achieve this year's economic objectives" this past weekend, there would require significant policy stimulus to achieve it. More policy easing is expected to come.

Global supply chain disruptions across Asia will likely take time to resolve themselves. This implies lower earnings and headwinds for global manufacturing industrial chain as China, South Korea and Japan have been important roles in the industrial chain. And historically, correction or say volatility has been substantial among electronic industrial chain related stocks.

Chart of the week

The Hang Seng Index has declined more than 2% from its February high, but it may not be enough to draw in relative value players. Since Hong Kong began suffering from street protests in the middle of last year, major sell-offs for the index have ranged from 6.1% to 12.5%. If this latest phase of weakness at least matches the smaller end of that range, that would suggest the Hang Seng is heading toward the 26,250 level. Adding to the negative outlook for the gauge is its recent decoupling from China’s CSI 300 Index, which gained 4% last week.

Hot Topic

The spreading coronavirus epidemic is spooking investors out of equities but UBS Global Wealth Management is advising its high net-worth clients to use this as an opportunity to load up on Chinese shares. Maximilian Kunkel, chief investment officer for Germany at the Swiss wealth management firm said:

  • We think investors should be buying the dip in emerging-market stocks and specifically Chinese stocks.

  • You have a more attractive valuation and growth mix here and also China seems to be containing the virus and getting back to business.

  • We would caution investors against buying into the dip in the euro-zone until there’s more certainty and until we reach a peak in the daily number of new infections. Because of Europe’s muted economic and earnings growth outlooks, China’s stocks look particularly attractive compared to the euro-area ones

Hot Stock

Last week, the pandemic of COVID-19 caused the biggest weekly drop in the U.S. stock market since the financial crisis. All three major indexes fell into the correction range. Some of the technology stocks even tumbled more than the indexes, even the FAANG stock dropped around 10%, but the online streaming platform Netflix almost unaffected by the epidemic and survived from the market correction, down by only 2.9% last week, showing strong continue supporting of its stock price.

《Business Insider》report pointed out that relative resistance to decline may be related to investors’ prediction that people in order to prevent the epidemic would rather stay at home, which might spend more time watching streaming media. Comparing to other FAANG stocks, Apple dropped 12.68% last week, Amazon dropped 10.13%, Google’s parent company Alphabet dropped 9.72%, Facebook dropped 8.43%, all underperformed Netflix.

The report pointed out that since the outbreak of the coronavirus, Netflix has not announced any news that its performance might be affected. But Apple has previously said that due to the epidemic, they estimated that they cannot reach its original financial target for the first quarter. And last week Microsoft also announced, due to the delay of the supply chain recovery, they expected that some of the targets for the third quarter will not be fulfilled.

Investment Idea

Capital Protected Up-and-Out Call on Gold

Investment Rationale: A natural hedge to the portfolio in the current market environments

Payoff at maturity:

If knock-out event occurred, redemption at: 98%+2%=100%

If no knock-out event occurred, redemption at: 98%+ATM call strike, show as below 98%+ATM call strike, show as below

Asset Allocation

Asia Bond Market

Asian dollar bond sales climbed 25% this week to $10.2 billion, led by Bank of China which priced the biggest deal this month. Borrowing was dominated by Chinese firms which saw record issuance this February. In China, record sales of corporate debt underscore how official support for the nation’s financial markets has boosted their resilience. Bloomberg-compiled shows, according to traders, spreads on Asian dollar bonds blew out Friday morning, however, as a selloff that started on the third week of February intensified amid growing coronavirus concerns.

The troubled business arm of a top Chinese university Peking University Founder Group defaulted on a 2 billion yuan bond, after missing an extended repayment deadline Friday. It risks becoming the nation’s biggest onshore bond defaulter. Another developer, Yida China is offering note exchange on repayment concerns. Yida China offers to exchange for at least $225m, or 75% of the outstanding principal amount of the 6.95% notes due 2020 for cash and new bonds

Elsewhere, Japan is set to get another super-long corporate bond as borrowers try to lock in ultra-low financing costs amid the BOJ’s prolonged super-easy monetary policy. A key metric of the creditworthiness of South Korean companies is at its weakest in at least a decade, and the worst may be yet to come due to the dramatic spread of coronavirus in the country

Zhejiang Geely

  • Latest quote: 99.34

  • USD 400m 5-years FXD bond, coupon 3%

  • Expected Issue Rating: S&P: BBB-

  • Issuing Format: Regulation S only, Cat 1, Registered Form

  • JGCs/JBRs/JLMs: ANZ6, China Everbright Bank Hong Kong Branch7, Citigroup, ICBC International, Shanghai Pudong Development Bank Hong Kong Branch

Guangzhou R&F Properties

  • Latest quote: 99.29

  • USD 400M 4NC2 Bond, coupon 8.625%

  • Expected Issue Rating: Fitch: BB-

  • Issuing Format: Regulation S only, Cat 1, Registered Form

  • JGCs/JBRs/JLMs: Goldman Sachs (Asia) L.L.C. (B&D), Standard Chartered Bank, HeungKong Financial, China CITIC Bank International and CLSA

Bank of China

  • Latest quote: 99.115

  • USD 2.82B AT1 Perp NC5 Bond, coupon 3.6%

  • Expected Issue Ratings: Moody’s: Ba1 / S&P: BB+ / Fitch: BB+

  • Issuing Format: Regulation S only, Cat 2, Registered Form

  • Sole FA/SGC: BOC International

  • JBRs/JLMs: BOC International, Bank of China, BNP PARIBAS, Citigroup (B&D), Crédit Agricole CIB, ICBC International , MUFG, Standard Chartered Bank, UBS and Wells Fargo Securities

Hysan Development

  • Latest quote: 100.1

  • USD Perp NC 5.5 Bond, coupon 4.1%

  • Expected Issue Ratings: Moody’s: Baa2 / Fitch: BBB

  • Issuing Format: Regulation S only, Cat 2, Registered Form

  • JG/JBR/JLM: Crédit Agricole CIB*, HSBC, J.P. Morgan, Standard Chartered Bank and UBS (B&D)

Global Indices

  • SSE Composite Index was down 5.24% last week.

  • Hang Seng Index was down 4.32% last week.

  • Dow Jones Industrial Average index was down 12.36% last week.

  • NASDAQ Composite Index was down 10.54% last week.

  • S&P 500 Index was down 11.49% last week.

Newly Listed

  • Ximei Resources Holding 9936.HK (Closing Date 2020/03/02)

  • Sunlight Technology Holdings 1950.HK (Closing Date 2020/03/03)

  • GFL Environmental Inc GFL.US (Closing Date 2020/03/03)

  • Cirtek Holdings 1433.HK (Closing Date 2020/03/04)

  • Kidztech Holdings 6918.HK (Closing Date 2020/03/04)

  • China Bright Culture Group 1859.HK (Closing Date 2020/03/05)

  • Ye Xing Group Holdings 1941.HK (Closing Date 2020/03/06)

  • SMC Electric 2381.HK (Closing Date 2020/03/06)

Analyst Recommendation

  • CICC gave its price target on (JD.US) to USD 46.00 a share and gave the outperform rating

  • Credit Suisse gave its price target on Target Corporation (TGT.US) to USD 125.00 a share and gave the outperform rating.

  • JP Morgan gave its price target on Meituan Dianping (3690.HK) to HKD 120.00 a share and gave the overweight rating.

  • Deutsche Bank gave its price target on China Mobile (941.HK) to HKD 85.00 a share and gave the buy rating

Result Announcement


  • Annual:6160.HK BeiGene Ltd.

  • Quarter:JD.US Inc Adr

  • Quarter:CORE.US Core-Mark Holding Co Inc

  • Quarter:EVRG.US Evergy Inc

  • Quarter:JOBS.US 51job


  • Quarter:HPE.US Hewlett Packard Enterprise Co

  • Quarter:TGT.US Target Corporation

  • Quarter:KSS.US Kohls Corp

  • Quarter:ROST.US Ross Stores Inc

  • Quarter:JWN.US Nordstrom Inc


  • Annual:1208.HK MMG

  • Quarter:DLTR.US Dollar Tree, Inc

  • Quarter:CPB.US Campbell Soup Co

  • Quarter:BFB.US Brown-Forman Co

  • Quarter:SPLK.US Splunk Inc


  • Annual:66.HK MTR Co

  • Annual:1997.HK Wharf Real Estate Investment Co

  • Quarter:COST.US Costco Wholesale Corp

  • Quarter:KR.US Kroger Co

  • Quarter:COO.US Cooper Companies Inc


  • Quarter:TFCFA.US Twenty-First Century Fox Inc

  • Quarter:BAX.US Baxter International Inc

  • Quarter:GLP.US Global Partners LP/MA

  • Quarter:ANDX.US Andeavor Logistics LP

  • Quarter:PSDO.US Presidio Inc

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