Cachet's Insight 20/01/2020

Updated: Feb 19, 2020

Hot Topic:

After almost two years of hostilities, the US and China have signed a "phase one" deal eventually. But the deal only covers the easier aspects of their difficult relationship, and only removes some of the tariffs. As phase one trade deal does not equal to trade peace, US and China still have a long way to go for trade dispute resolution:

  1. Open up the financial market: The agreement doesn't go far enough to ensure foreign financial firm have equal market access.

  2. Made in China 2025: Made in China 2025' program is a direct threat to US supremacy in tech. US blamed that the Chinese firms get unfair and outsized assistance from the Chinese government in the form of subsidies, caught up and even outpaced the US firm.

  3. HUAWEI Group: HUAWEI became a symbol of the US-China tech rivalry, the US government has linked the company's fate to the relationship between the US and China. Huawei and other Chinese companies should still expect the pressure on them to continue. More American export bans not just on Huawei, but on several more Chinese companies and increased US scrutiny on Chinese investments abroad.

  4. Other reductions in tariffs: A definitive timeline on when the tariffs which are still in place will go down doesn't mention in the deal. The threat of tariffs is left behind in case Beijing doesn't keep to its commitments.

Market Outlook

“The latest GDP and IP data provides a very positive start to the Chinese New Year for China’s economy,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore. “The outlook for 2020 is for continued robust growth, boosted by the Phase One trade deal with the U.S. and the continued positive impact of government monetary and fiscal policy stimulus measures.” On data, China has revealed stabilization in the economy with 4Q GDP meeting expectation at 6%. Total Social financing expanded to RMB2.1trn in Dec, much above market expectation to support growth. US labor market reports came in below expectations but is unlikely to result in changes in Fed's neutral monetary policy stance. On the positive end, US retail sales showed a pickup in consumer spending and China industrial output also exceeded estimates, climbing 6.9% in Dec, suggesting good momentum. As a result, three major US indices three major US indices. Hang Seng Index closed higher for the seventh straight week on Friday surprisingly. Hang Seng Index is expected to defend 29,000 and even to test 30,000 in the first quarter.

However, Close monitoring of geopolitical events especially US-China trade progress and Middle east tensions as global geopolitics remain volatile.

Chart of the week:

The world’s second-largest economy expanded by 6.1% in 2019, slower than 6.6% the previous year but in line with the government’s target. The signing of the phase-one trade deal with the U.S. this week combined with recovering global demand has improved the outlook for Chinese factories and exporters in 2020, though uncertain implementation of that deal and domestic financial fragility remain risks.

Industrial output rose 6.9% in December from the same period the previous year, versus the median forecast of 5.9%. Some of that may be due to the effects of Chinese New Year. That holiday is earlier this year than in 2019, and companies may have increased production in December ahead of a shutdown later this month. Retail sales rose 8% versus an estimate of 7.9%.

December’s data provides support to the argument that the current policy mix is the right one, according to Michelle Lam, greater China economist at Societe Generale SA in Hong Kong.

Global Indices:

  • SSE Composite Index was up 1.46% last week.

  • Hang Seng Index was down 0.54% last week.

  • Dow Jones Industrial Average index was up 1.82% last week.

  • NASDAQ Composite Index was up 2.29% last week.

  • S&P 500 Index was up 1.97% last week.

Investment Idea

  • Bond: FAEACO 7.375 PERP

  • CALL DATE: 10/18/2024


  • CURRENT PRICE (DATE): 104 (10 Jan 2020)

  • OFFER YTM: 6.38%

  • COUPON RESET FORMULA if applicable: H15T5Y +8.924000%

  • LV indicatively 30%

Company Overview

Far East Consortium International ('FRTCF') (35:HK) is a diversified property conglomerate. The company is diversified geographically with properties in Hong Kong, Australia and New Zealand, Singapore, Mainland China, U.K. and Continental Europe, and Malaysia. FRTCF also generates a high proportion of its earnings from recurring income generated by its hotels, car park and facility management businesses, and other investment properties.


Recognized revenue grew 73% y-o-y to HKD5.1bn in 1HFY2020 as of 30 Sep 2019, compared to HKD3bn during the same period last year. The increase was driven by strong sales of residential properties in Australia, Hong Kong and Singapore.

The company announced on Nov. 28, 2019 that it was considering to spin off certain non-Hong Kong hotel assets as a stapled unit on the Singapore Stock Exchange, which is expected to generate a new income stream.

Balance sheet leverage has shown signs of improvement with net gearing and debt/EBITDA declined to 125% and 7.19x in 1HFY2020 respectively.

Risks to consider

Continued contributions from the group’s gaming operations, following the acquisition of TWC* and the relevant execution risks associated with such expansions.

Further expansion into Australia or Europe for car park operating businesses.

  • Bond: LAMON 4.8 01/18/48

  • MATURITY: 1/18/2048

  • CALL DATE: 1/18/2028


  • CURRENT PRICE: 102.5

  • OFFER YTM: 4.43%

  • COUPON RESET FORMULA if applicable: H15T5Y +3.235000%

  • LV: 70%

Company Overview

La Mondiale (LAMON) is the pensions and savings arm of the SGAM AG2R La Mondiale Group, which is France's fourth-largest health insurance provider and the second-largest for long-term care. The group operates under a mutual insurance model, where earnings are accumulated into equity and not distributed to shareholders. Its products are distributed via channels such as its proprietary client network, private banks and brokers.


  1. LAMON has market leading positions in savings products for the high net worth segment, pensions for self-employed, and group pensions.

  2. S&P believes that LAMON has exceptional liquidity, supported by highly liquid assets and positive net inflows. Its pension business, which cannot be surrendered easily, is also positive for liquidity.

  3. LAMON's profitability is more resilient to low interest rates, as unit-linked savings accounted for a bigger share of its premiums (37%) compared to the French life market (28%).

  4. Potential for rating upgrade, given S&P's positive outlook.

Risks to consider

LAMON's capital is sensitive to interest rate changes owing to its significant amount of long-term pension liabilities.

Asset Allocation

Analyst Recommendation:

  • DBS Bank gave its price target on Hang Lung Properties Ltd (0101.HK) to $21.66 a share and gave the buy rating.

  • Guotaijunan International gave its price target on Vinda International Holdings Ltd (3331.HK) to $19 a share and gave the buy rating.

  • Jefferies gave its price target on Starbucks Corp (SBUX.US) to $110 a share and gave the buy rating.

  • Mizuho Securities gave its price target on Intel Corp (INTC.US) to $64 a share, gave the buy rating.

Newly Listed

  • 1442.HK Infinity Logistics and Transport Ventures Limited (2020/01/21)

  • 1601.HK Zhongguancun Science-Tech Leasing Co., Ltd. -H shares (2020/01/21)

  • 9933.HK GHW International (2020/01/21)

Result Announcement


  1. Quarter: AXP.US American Express Co

  2. Quarter: NMR.US Nomura Holdings Inc

  3. Quarter: IBKR.US Interactive Brokers Group Inc

  4. Semi-annual: 1797.HK Koolearn Technology Holding Ltd

  5. Annual: 6163.HK Gemilang International Ltd


  1. Quarter: NFLX.US Netflix Inc

  2. Annual: 0010.HK Hang Lung Group Ltd

  3. Annual: 0101.HK Hang Lung Properties Ltd

  4. Annual: 0752.HK Pico Far East Holdings Ltd

  5. Annual: 3331.HK Vinda International Holdings Ltd


  1. Quarter: JNJ.US Johnson & Johnson

  2. Quarter: GD.US General Dynamics Corp

  3. Quarter: NSC.US Norfolk Southern Corp

  4. Quarter: UTX.US United Technologies Corp

  5. Quarter: APH.US Amphenol Corp


  1. Quarter: MSFT.US Microsoft Corp

  2. Quarter: SBUX.US Starbucks Corp

  3. Quarter: INTC.US Intel Corp

  4. Semi-annual: 8020.HK Unitas Holdings Ltd

  5. Semi-annual: 8105.HK Kingsley Edugroup Ltd


  1. Quarter: ABT.US Abbott Laboratories

  2. Quarter: EBAY.US eBay Inc

  3. Quarter: RTN.US Raytheon Co

  4. Quarter: COLB.US Columbia Banking System Inc

  5. Quarter: FCX.US Freeport-McMoRan Inc

Asia Bond Market:

Diverse issuers flock to market in bullish mood. China property developers lead dollar bond sales deluge, issuance momentum was strong in the Asian dollar bond market, with nine issuers pricing dollar bonds, of which three were Chinese property companies. Kaisa, Landsea Green and Seazen were the property issuers that sold new notes. BOCOM HK priced a three-part offering in USD, HKD and CNH. Away from China, India’s Power Finance and Indonesia’s Bank Tabungan Negara tapped the market in addition to Japanese names Nippon Life and Sumitomo Mitsui Finance & Leasing. According to Institute of International Finance Global debt will likely exceed $257 trillion in the first quarter of 2020, driven mainly by non-financial sector debt, due to low interest rates and loose financial conditions, according to Institute of International Finance.


  • $300m 5.5NC3 bond at 9.95%, IPT 10.25% area

  • Reg S

  • EXPECTED ISSUE RATINGS B2 (Moody’s) / B (Fitch)

  • JBRs/JLMs: Credit Suisse, BOC International (B&D), Kaisa Financial Group

Landsea Green Properties

  • $200m 2.75Y bond at 11.95%, IPT 12.125% area

  • EXPECTED ISSUE RATINGS: B3 / B- / B (Moody’s / S&P / Fitch)

  • Reg S

  • JGCs/JBRs/JLMs: Guotai Junan International (B&D), Haitong International

Seazen Group

  • $350m 3.5NC2 bond at 6.8% coupon; IPT 7.8% area

  • Reg S

  • EXPECTED ISSUE RATINGS: BB- by S&P, and BB by Fitch

  • SGC, JBR & JLM: Haitong International (B&D)

China Development Bank

  • GBP1b 3Y bond at UKT+85bp, IPT UKT+100-105bp area

  • Reg S

  • Expected Issue Rating: A1 by Moody’s

  • JBRs/JLMs: Agricultural Bank of China Ltd. Hong Kong Branch, Bank of China, Bank of Communications, Barclays, CCB Europe, Crédit Agricole CIB, Deutsche Bank, HSBC, ICBC and Mizuho Securities


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