Cachet's Insight 25/05/2020

Market Outlook

As of 21 May, JACI Total return index delivered +1.29% last week. Primary market remains active this week and was led by IG issues, with some HY issuance.

Tensions between US and China rose as the US banned some Chinese companies from being listed on US stock exchanges, and both nations continue to step up criticisms at each other. China reiterated its pledge to implement the Phase 1 trade deal despite the impact from Covid-19.

Investor sentiment improved this week as more economies reopen but remain fragile on increased US China tensions and poor economic data. While there are some signs of easing in the COVID-19 outbreak, second waves are emerging in several cities and cases reported worldwide now exceed 5million. 10Y UST yields widened 5 bps to 0.67% as of 21 May close. Investor should keep a close watch on developments of the coronavirus spread and oil price collapse, and their impact on market liquidity and issuer fundamentals. Investor may better look out for attractive opportunities upon recent spread widening and may selectively add risk.

China's PBoC kept interest rates and RRR unchanged this week. The government has also refrained from setting an annual growth target amid the uncertainty caused by Covid-19 and renewed focus on increasing stimulus and maintaining employment and investment. Targeted budget deficit widened to more than 3.6% of GDP. Investor should closely monitor the geopolitical events especially Saudi-Russia oil price war, US-China trade progress and Middle east tensions as global geopolitics remain volatile. Investor may participate selectively as new issuance begins to pick up in the IG space, US retail sales in April were worse than expected, dropping to an unprecedented 16.4% mom; industrial production also suffered a 11.2% decline mom. New US jobless claims slowed to 2.44m last week. Investor should reduce China exposure on heightened US-China tensions.

Hot Topic

China’s nixing of its growth target from 2020’s work report goes a long way to explain Friday’s stumble in Chinese stocks to commodities.

That was enough to turn pre-NPC hype for China policies into such a disappointment as markets took it to mean the mainland’s leaders won’t resort to mass stimulus to salvage the economy in a decisive way that they did during 2008-09 crisis.

The iShares China Large Cap ETF trading in the U.S. tumbled 2.7% on Friday, in a somber mood also worsened by rising tension with the U.S. after China introduced a plan for a new security law in Hong Kong. That compares with the S&P 500’s mild gain. Albeit disappointing, the focus is clearly on the fiscal side with the PBOC maintaining prudent monetary policy. The package is not all doom and gloom.

Below are key points:

  • No Growth Target: Setting no GDP target for 2020 means more measured pace of stimulus. But the government set a goal of creating 9 million jobs, making employment a top focus. This year’s inflation target to 3.5% from 3%, leaving room for policy maneuver. Based on a consensus growth of 1.8% this year, an average GDP growth of 4.7% is needed every quarter after a 6.8% contraction in 1Q. And the recovery will be more visible in 2H.

  • Fiscal Stimulus: 2020’s extra fiscal spending includes budget deficit by 1 trillion yuan, another 1 trillion yuan in special treasury bonds, 1.6 trillion rises in special local government bonds. The deficit ratio is at more than 3.6% of GDP, a more than decade high, but nowhere close to the U.S. Fiscal shortfall that ballooned to 10% of last year’s GDP after the $2 trillion spending. Overall, China’s fiscal expansion is greater and more PBOC stimulus such as RRR and lending rate cuts are on the way too.

  • SOE and Market Reforms: Most notable new wordings in this broad reform directive includes using capital market and securitization to increase returns for state-owned enterprises and affirming private property rights through legislation. UBS economist Wang Tao says the actual implementation of these and SOE divestment could be a positive surprise for markets.

Hot Stocks

Chinese technology company NetEase plans to carry out a secondary listing on the Hong Kong Stock Exchange on June 11, which will be followed one week later by web retailer, four sources with direct knowledge of the matter said. The two transactions could raise a combined $5 billion, separate sources said, and the deals would be the largest for Hong Kong’s equity capital markets so far this year. The sources could not be named because the information has not yet been made public. is expected to be the largest of the two deals with the likelihood it will sell 5% of its shares that could raise up to $3 billion, one source said, while NetEase is targeting a transaction of up to $2 billion, another source said. A spokesman and a NetEase spokesman declined to comment. The two Nasdaq-listed companies have made confidential filings to the Hong Kong Stock Exchange and preparations for the secondary listings as well underway. The decision to press ahead with the listings comes after the U.S Senate passed legislation on Wednesday that could prevent some Chinese companies from listing their shares on U.S. exchanges unless they follow standards for U.S. audits and regulations. The proposed laws still need to be passed by the U.S House of Representatives and be ratified by President Donald Trump.

Chart of the Week

The air has suddenly come out of a rally in a biotech firm that’s been working with China’s militaryto develop a coronavirus vaccine.

CanSino Biologics Inc. (6185.HK) tumbled as much as 23% in Hong Kong trading on Thursday afternoon, erasing an earlier 16% surge. The stock had almost tripled since announcing on March 4 it was in the process of developing a vaccine. The rally accelerated after the company said on Monday Canada approved its clinical trial application for a vaccine.

The sudden reversal underscores the risks in chasing the most popular theme this year -- vaccine producers. Moderna Inc. (MOV.US) slumped from a record in New York trading earlier in the week as investors digested early data from a small trial of the company’s coronavirus vaccine, as well as a $1.3 billion stock sale.

Some traders said a series of large transactions may have triggered the selloff in CanSino, with at least 17 trades comprising more than 10,000 shares each changing hands in the afternoon. Eli Lilly & Co. is the company’s biggest shareholder with a 15.5% stake, according to an April filing.

The firm listed in Hong Kong in March last year, raising $160 million in a heavily oversubscribed initial public offering. It developed the first Ebola vaccine approved in China for emergency use and national stockpile, it said at the time. The company has a current market value of $6.1 billion.

CanSino made no revenue in 2019, according to a March exchange filing. Its operating loss was about 200 million yuan ($28 million) last year.

Other biotech firms have rallied in Hong Kong as the coronavirus spread across the globe. Viva Biotech Holdings has jumped 65% this month, while Shanghai Junshi Biosciences Co. has surged to a record. Innovent Biologics Inc. slumped nearly 10% on Thursday after jumping almost 80% since mid-March.

CanSino didn’t immediately reply to emails sent to its investor relations and press departments seeking comment on the stock move. An external representative said she couldn’t immediately comment on behalf of the company. “No one knows how much CanSino is worth,” Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong, said before the afternoon plunge. “People are making bets on the success of its vaccine, but the trial is just in stage two and there is possibility for it to fail.”

CanSino shares were last down 14%, ending a 10-day winning streak. Its 14-day relative strength reached 89 on Thursday morning before the rally reversed. More than 70 indicates sentiment is overheated on a stock.

Investment Ideas

The Coronavirus situation around the world has been coming under control with governments globally enforcing lockdown measures to curb the spread. These measures have proved successful thus far with number of infections on the decline in most countries. Governments are now moving to consider reopening the economy in many countries with some having already done so in phases. This signals a move and adjustment back to life as we know it with businesses and schools to resume slowly. One of the first sectors to reopen in most countries is the education sector with governments slowly reopening schools in a bid to get the academic schedule back on track. While this will not be a full resumption of normal school activity and attendance (with schools in different countries having schedules for different age groups to cater to social distancing measures and ensuring capacity is within limits), it does show that school goers will still be facing their dreaded national examinations. The demand for education services is likely to be back and may see a disproportional rise to normal times as people scramble to get back in full flow of their syllabus.

Product: Fixed Coupon Note (FCN)

Today, we provide a route to market on key education companies via an FCN for a range trading view.

With a 24% downside buffer (76% strike), yielding a 12% p.a. coupon in a 3-month tenor.

*Please noted that product prices are indicative only subject to refresh before trade, the prices change subject to market conditions.

Asset Allocation

Asia Bond Market

Trading volume of Asian bond market slows, major weekly sales decline. Due to the quiet market, which obscured many transactions by Chinese borrowers, the weekly U.S. dollar bonds issued in Asia fell by 15% from the previous week to $ 3.5 billion. Demand for some transactions last week is quite strong. Hongkong Land saw more than $ 3.4b command Issuing US $ 600 million in 10-year bonds. Henderson Land ’s US $ 300 million bond issuance is more than 7 times the issuance. Bank of East Asia secured a guarantee of more than $ 3.8b command $ 600 million in bonds. Country Garden's $ 544 million bond issuance scale exceeds 12 times the issuance scale. After news of the secondary market spread, Hong Kong bonds expanded by about 10-15 basis points. Security Law According to credit dealers, Friday morning. Elsewhere, China ’s major stock exchanges it has started A pilot program that allows companies to issue short-term local bonds. Indonesian coal miners seek to buy back bonds at a 57% discount.


  • 1645.HK Haina Intelligent Equipment International Holdings Limited (2020/05/20-2020/05/25)

  • 9923.HK Yeahka Limited (2020/05/20-2020/05/25)

Newly Listed

  • 9978.HK Fineland Real Estate Services Group LimitedResult (2020/05/28)



  • Quarter: 3690.HK Meituan Dianping

  • Annual: 6110.HK Topsports International Holdings Ltd

  • Annual: 0872.HK TUS International Ltd

  • Annual: 0738.HK Le Saunda Holdings Ltd

  • Quarter: JHX.US James Hardie Industries PLC


  • Quarter: 3888.HK Kingsoft Corp Ltd

  • Quarter: COE.US China Online Education Group

  • Quarter: CYD.US China Yuchai International Ltd

  • Quarter: BNS.US Bank of Nova Scotia/The

  • Quarter: AZO.US AutoZone Inc


  • Annual: 0241.HK Alibaba Health Information Technology Ltd

  • Quarter: 1093.HK CSPC Pharmaceutical Group Ltd

  • Quarter: HPQ.US HP Inc

  • Quarter: UVV.US Universal Corp/VA

  • Quarter: RY.US Royal Bank of Canada


  • Quarter: 1177.HK Sino Biopharmaceutical Ltd

  • Quarter: COST.US Costco Wholesale Corp

  • Quarter: DLTR.US Dollar Tree Inc

  • Quarter: TCOM.US Group Ltd

  • Quarter: NIO.US NIO Inc


  • Annual: 0244.HK Sincere Co Ltd/The

  • Annual: 0434.HK Boyaa Interactive International Ltd

  • Interim: 1611.HK Huobi Technology Holdings Ltd

  • Quarter: 6100.HK Wise Talent Information Technology Co Ltd

  • Quarter: BIG.US Big Lots Inc

Analyst Recommendation

  • China Renaissance gave its price target on Meituan Dianping (3690.HK) to HK$140.00 a share and gave the buy rating.

  • HSBC gave its price target on Kingsoft Corp Ltd (3888.HK) to HK$34.66 a share and gave the buy rating.

  • Blue Lotus Capital gave its price target on Alibaba Health Information Technology Ltd (241.HK) to HK$20.00 a share and gave the buy rating.

  • Gordon Haskett gave its price target on Costco Wholesale Corp (COST.US) to US$350.00 a share and gave the buy rating.

  • Goldman Sachs gave its price target on Dollar Tree Inc (DLTR.US) to US$89.00 a share and gave the buy rating.

  • UOB Kay Hian gave its price target on Group Ltd (TCOM.US) to US$23.00 a share and gave the buy rating.

Global Indices

  • SSE Composite Index was down 1.91% last week.

  • Hang Seng Index was down 3.64% last week.

  • Dow Jones Industrial Average index was up 3.29% last week.

  • NASDAQ Composite Index was up 3.44% last week.

  • S&P 500 Index was up 3.20% last week.

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