These 4 Chinese Fintech Stocks Are Tanking After New Regulatory Crackdown On Online Lending

The Troubled Ones

With China (FXI)(MCHI) tightening its regulations, shares of some listed fintech companies are suddenly under fire. As a result, a handful of the country’s largest fintech startups are also eyeing initial public offerings (IPOS) overseas. The country’s regulators have now stopped all approvals for online lending companies in an effort to tighten controls around Internet finance.

New regulations by the Chinese government direct local governments to halt approval of licenses to companies that provide online lending services, as well as forbidding these lenders to operate outside the province where they are registered. In the past, online lenders have faced scrutiny for providing loans without adequate due diligence, further burdening China’s bad debt issues. Most of these lenders charge high rates of interest. Even though existing companies will continue to operate, they will likely be subject to heavy regulations. “[Regulators] are very scared that a lot of these firms have very little internal control and serious oversight as to who they are lending money,” said Christopher Balding, a professor at Peking University’s HSBC Business School.

In the recent years, fintech companies that provide online lending and investment products have mushroomed in China, pushing the need for stricter regulations in this space. According to government sources, there are currently nearly 2,700 online lenders in China that service nearly 10 million customers. The country does not have a standard credit rating system currently, making it difficult for small borrowers to get access to loans. This has led to the fast growth of online lenders and also the need for tighter scrutiny after cases of fraud.

However, these regulations sparked a sell-off in shares of these fintechs, including several that have recently listed in New York.

Stocks affected

In the past few years, investors have shown a large appetite for fintech companies as they have gained hefty valuations in listings in New York and Hong Kong. The announcement regarding stricter regulations and curbs on new licenses sparked a sharp fall in Chinese listed fintechs.

Companies including Zhongan (6060.HK), Qudian (QD), Ppdai (PPDF) and Jianpu Technology (JT) have listed their shares in the past few months. Further, Chinese companies like Xiangyuan Culture Group, a Shanghai-listed entertainment and leisure company, and Renhe Pharmacy Group, a Shenzhen-listed firm have also laid out plans to spin off their micro lending units.

Shares of online insurer ZhongAn, that listed in September in Hong Kong dropped nearly 4%. The company’s shares have returned 17% since its $1.8 billion IPO. This was also Asia’s largest Fintech IPO in 2017. 

Comparatively, New York-listed shares of Alibaba (BABA) backed Chinese online microlender Qudian tumbled nearly 16% on November 22. The company’s shares have returned -33% since its IPO. The company raised $900 million in October in one of the largest Chinese IPOs in the United States in 2017 so far.

Meanwhile, shares of fintech companies Ppdai Group and Jianpu Technology that listed this month tanked 24% and 13% following the news.

Ppdai Group is an online microlender that raised $221 million in a public issue earlier in November on the NASDAQ exchange.

Jianpu Technology raised $190 million by listing 22.5 million ADRs on November 16. The company operates an open source platform for financial products in China.

It’s Blue Skies for the 5 Largest Emerging Market Aluminum Producers as China Cuts Output

Blue skies for aluminum producers

In line with its blue skies program, China (FXI) passed an “Air Pollution Control” regulation earlier this year which required aluminum producers in the four provinces around Beijing to cut aluminum output. The move is targeted towards reducing pollution and stabilizing the market. Smelters and aluminum refineries were mandated to implement cuts of at least 30%. Accordingly, the Asian (AAXJ) (VPL) country is estimated to cut around 3-4 million tonnes of aluminum capacity by the end of 2017. Since China is the world leader in aluminum production (chart below), the move is impacting market dynamics and prices for this base metal.

The price of aluminum has been treading north

Meanwhile, the price of aluminum is already treading north (see chart below) and is likely to continue, at least over the medium term.

This is bad news for the automotive sector being that they are one of the key drivers of global aluminum demand. Most equipment manufacturers and auto body producers are located in developed markets (EFA) (VEA). So, while auto parts makers stand to face dark clouds, aluminium producers have blue skies, as they benefit from the rise in the price of their product.

The largest aluminium producers in the emerging markets

Here’s a list of the five largest aluminum producers located in emerging markets (EEM) (VWO):

  1. UC Rusal (Russia)
  2. China Hongqiao Group Ltd. (China)
  3. Aluminium Corp. of China (China)
  4. China Power Investment Corp. (China)
  5. Shandong Xinfa Aluminium & Electricity Group Ltd. (China)

United Company RUSAL (RUSAL.PA), Up 33% YTD

The world’s largest primary aluminum producer based out of Russia (RSX), UC Rusal, produced a total of 3.7 million tonnes of aluminum in 2016. The company was formed by the merger of RUSAL, SUAL, and the alumina assets of Glencore (GLNCY) in March 2007. Currently, it accounts for almost 9% of the world’s primary aluminum output and 9% of the world’s alumina production.

The company’s GDR currently trades at the Euronext Paris Exchange under the ticker RUSAL. The GDR is up 33.2% on a YTD basis and commands a market cap over $9 billion (as of November 20). In the FY2016, the company reported an ROA (return on assets) of 8.65% and an EBITDA margin of 19.05%. The company’s revenue sources are spread across Asian and European countries with the Netherlands accounting for 28.6%, followed by Russia at 19.7%. 82.2% of the company’s long-term assets are located in Russia.

China Hongqiao Group Ltd. (1378.HK), Up 39% YTD

The Shandong province-based China Hongqiao Group Ltd. is one of the largest (as of 2016) and lowest-cost aluminum producers in the world with a combined annual capacity of 3.61 million tonnes.

The company’s stock currently trades at the Hong Kong Stock Exchange under the ticker 1378. The stock is up 39.3% on a YTD basis and commands a market cap of about $69 billion (as of November 20). The stock currently trades at a P/E of 11.54. Estimated forward P/E for the stock stands at 8.13. In the FY2016, the company reported an ROA (return on assets) of 3.6% and an EBITDA margin of 30.1%. The company’s revenue sources and long-term assets are concentrated in China. The stock has 50% BUY recommendations and 50% HOLD recommendations from the 6 analysts that reviewed the stock.

Aluminum Corp. of China (ACH) (2600.HK), Up 58% YTD

China’s state-backed producer Aluminum Corporation of China Limited (aka Chalco) used to be the largest refined metal maker in China until China Hongqiao Group overtook it in 2015. Chalco produces about 3.31 million tonnes of aluminum annually.

The NYSE-listed ADR of the company trades under the ticker of ACH and commands a market cap of $12.9 billion. The company’s stock also trades at the Hong Kong Stock Exchange under the ticker 2600. The stock is up 58.44% YTD and commands a market cap of $98.2 billion (as of November 20). The stock currently trades at a P/E of 58.9. Estimated forward P/E for the stock stands at 25.5. In the FY2016, the company reported an ROA (return on assets) of 0.21% and an EBITDA margin of 8.9%. The company’s revenue sources and long-term assets are majorly concentrated in China. The stock has 53.3% BUY recommendations, 33.3% HOLD recommendations, and 13.3% SELL recommendations from the 15 analysts that reviewed the stock.

China Power Investment Corp.

China Power Investment Corporation (CPI) is one of the five largest gencos (generation companies) in China and a comprehensive energy group integrating industries of power, coal, aluminum, railway, and port. The company has an alumina refinery capacity of 2.6 million tonnes. The company’s stock is not listed on any exchange. In July 2015, the company was merged with the State Nuclear Power Technology Corporation (SNPTC) to form State Power Investment Corporation (SPIC).

Shandong Xinfa Aluminium & Electricity Group Ltd.

Shandong Xinfa is another privately held large-scale enterprise group in China. The company has an aluminum production capacity of about 1.63 million tonnes.

While above is a list of the largest aluminum producers based out of the emerging markets, UK’s Rio Tinto (RIO) and US’s Alcoa (AA) count among the notable developed market (EFA) (VEA) based producers of aluminum.

How Much Asian Venture Capital Is Plowing Into Bitcoin And Blockchain Technology?

Asia is increasingly investing into blockchain technology

Asia (AAXJ) (VPL) scores high when it comes to investment flow into blockchain technology and its product offerings. Venture capital deal financing into Bitcoin (ARKW) (ARKK) and blockchain technology in Asia rose from $37 million in 2015 to $119 million in 2016. Several large Chinese (FXI) (YINN) and Indian (EPI) companies are serving as venture capital investors in the development of the technology.

  • Baidu (BIDU) invested in U.S.- based bitcoin payments startup Circle
  • Huiyin Blockchain Ventures invested in US-based Purse.io
  • Indian UniCoin and Crefir China FinTech invested $30 million in US/Dutch BitFury.

Chinese blockchain/bitcoin-based startups such as Juzhen Financials, OkCoin, BTC China, and AntShares Blockchain have also raised significant funding over the course of the past 2 years.

The Chinese yuan commanded 96% of Bitcoin trading volume

Up until the beginning of this year, the Chinese yuan dominated the Bitcoin trading market with about 96% of all Bitcoin trading taking place in Chinese yuan. However, the regulatory crackdown on the rapid rise of cryptocurrency trading such as the ICO ban in China has lowered the country’s trading volume share to about 16%, according to data from bitcoinity.org.

From a currency perspective, Bitcoin trading, as of September 1 was dominated by the US dollar (59.6%), followed by the Chinese yuan (15.8%), the euro (10.5%), and the Japanese yen (10.3%) (chart above).

Asian economies are at the forefront of adopting blockchain technology

Nonetheless, Asian economies have been at the forefront with regard to the adoption and development of blockchain technology. Key initiatives taken in this regard include:

  • Japan (EWJ) and South Korea (EWY) already have regulated cryptocurrency environments, and are now in the process of licensing exchanges.
  • China (FXI), Hong Kong (EWH), and Singapore are leading countries in testing blockchain technology and investing into it.
  • China, whose appetite for blockchain goes beyond cryptocurrencies, is working towards developing a robust Internet finance industry supported by blockchain-enabled alternatives. For example, the Postal Savings Bank of China is testing a blockchain-based asset custody system.
  • In China, large Internet players are incorporating blockchain into their business models. AntFinancial (a subsidiary of AliBaba (BABA) is introducing a Bitcoin mobile wallet, and Tencent (TCEHY) is planning to use the technology to offer digital asset management, authentication, and “shared economies” through a new platform, TrustSQL.
  • India (EPI) has witnessed the rapid adoption of electronic payments and the rise of new market entrants. M-banking transactions have surged over the past few years as new entrants offering m-wallets continue to attract more consumers.

Asia’s Share of Blockchain Deals Is Booming While North America’s Is Shrinking

Why are blockchain applications practical emerging markets?

The Bitcoin surge has put blockchain or distributed ledger technology on every investor’s radar. While market participants remain divided on the Bitcoin boom continuing or going bust, there are very few contesting the growth and potential of the blockchain technology behind it.

While the United States and Europe dominate the blockchain innovation landscape, the scale for its future growth potential could tilt towards emerging markets (EEM) (VWO).  With higher banking risks and lower banking penetration, developing economies offer the perfect setting for adoption of blockchain-based financial solutions. In fact, blockchain technology is already impacting the provision of financial economies in selected regions of Asia (AAXJ) (VPL), Africa (EZA), and Latin America (ILF).

Asia has emerged as a key player in blockchain technology

Asia has emerged as a key player in this regard (chart above). The region, for its part, brings together regulatory activism, a dynamic technological/fintech ecosystem, the collaboration of industry and entrepreneurial players, and sustained access to venture capital, which is key for any economy that wishes to leapfrog on innovation. Over the years, Asia’s share of global Bitcoin (ARKW) (ARKK) and blockchain deals has risen from 8.5% (2013) to 22.7% (2016), according to data provider CBInsights.com. At the same time, North America’s dominance has reduced from 78.7% to 49.2% over the same period.

Moreover, an increasing number of emerging and frontier (FM) (FRN) market companies are now dominating the Bitcoin and blockchain space (see chart above). Asia especially, with its forward-looking regulatory environments, is steadily emerging as a leader in the testing of, and investment into, blockchain technology.

Leading the blockchain-based solutions for the financial services industry

Asia is currently the leader for emerging markets in blockchain-based solutions for the financial services industry. Markets such as China (FXI) (YINN) and India (EPI) in particular have facilitated the adoption of the technology by massive digitization of payment solutions. Cryptocurrency is already being tested and adapted to facilitate trade finance, and the technology is being levered to improvise on processes such as e-proxy voting, land registry management, and supply chain management.

In the next article we’ll take a quick look at the current state and future potential of blockchain technology in emerging economies such as Asia, Africa, and Latin America.

The 13 Chinese Companies That Listed On US Stock Exchanges In 2017

2017 has so far seen 13 Chinese companies list on the US stock exchanges

With about $2.4 billion raised in IPOs on US exchanges by Chinese companies so far this year, other China-based firms are increasingly vying for US investors and exchanges. Robust US investor demand for fast-growing Chinese companies (FXI) (YINN) has added wind to the string of IPOs that companies based out of this Asian nation (AAXJ) (VPL) have made in the US (SPY) (IWM). The year 2017 has so far seen 13  IPOs completed by Chinese companies on the US stock exchanges. These are:

  1. RISE Education Cayman Ltd (REDU)

The Beijing-based leader in junior English language training company, RISE Education Cayman Ltd. is the latest Chinese company to list on the US exchanges. On October 20, the consumer sector firm listed on the NASDAQ GM stock exchange under the ticker REDU. The company is a pioneer in the “subject-based learning” teaching philosophy in China. The IPO, which became effective as of October 19, bagged $159.5 million at an initial offer price of $14.5 a share.

REDU closed at $15.14 on October 23 with a market capitalization of $832.7 million.

  1. Qudian Inc (QD)

On October 18, Chinese online micro-credit provider Qudian Inc listed on the NYSE, raising $900 million in an IPO that was priced at $24, in the biggest ever US listing by a Chinese fintech firm. The financial sector firm’s stock, trading under the symbol QD, closed at $33 as of October 23. The stock commands a market capitalization of $8.8 billion in the US stock market.

Year-end Forward P/E for the depository receipt is estimated at 21.47. Estimated earnings-per-share stand at $8.21.

  1. RYB Education Inc (RYB)

Beijing-based RYB Education, Inc. is the largest and leading early childhood education and care provider in China. It operates kindergarten and preschool services. The company raised about $166 million in an initial public offering on September 27, listing the company’s stock on the NYSE with the ticker RYB at $18.5 a share. RYB closed at $26.01 a share on October 23. The stock commands a market capitalization of $745.5 million in the US stock market. Year-end forward P/E for the depository share is estimated at 78.82. Estimated earnings-per-share stand at $0.33.

  1. Secoo Holding Ltd (SECO)

Secoo Holding is Asia’s largest luxury e-commerce company. The Beijing-based e-retailer listed on the NASDAQ GM stock exchange on September 22nd under the symbol SECO. The IPO raised $110.5 million for the company at an offer price of $13 per share. The stock was down to $8 as of October 23 with a market capitalization of $411 million.

  1. TDH Holdings Inc (PETZ)

TDH Holdings, through its subsidiaries, manufactures pet food products, as well as, canned vegetables and chews. The company recently listed its shares on the NASDAQ CM stock exchange on September 21, raising $6.5 million at $4.25 a share. The shares of the company now trade under the symbol PETZ on the US exchange at $25.25 a share (as of October 23) with a market capitalization of $230.6 million.

  1. BEST Inc (BSTI)

On September 20th, Alibaba Group (BABA) backed logistics firm, Best Inc. raised $517.5 million at $10 a share in an IPO. The stock now trades on the NYSE at $10.94 (as of October 23) under the symbol BSTI. The stock commands a market capitalization of over $4 billion in the US stock market. The Hangzhou-based company offers logistics and supply chain management solutions in China.

  1. Zai Lab Ltd (ZLAB)

The Pudong-based biopharmaceutical company, Zai Lab, is built on a vision that China would be the next destination for the pharmaceutical and healthcare industry. The company raised $172.5 million in an IPO on September 20, marking its listing on NASDAQ GM stock exchange under the ticker ZLAB. The shares initially offered at $$18 a share, now trade at $26.5 (as of October 23) with a market capitalization of $1.3 billion.

  1. ZK International Group Co Ltd (ZKIN)

ZK International Group Co., Ltd, a subsidiary Zhejiang Zhengkang, is an industrial sector firm engaged in the designing and production of pipes and fittings. The company’s stock listed on the NASDAQ CM stock exchange under the symbol ZKIN on September 1 via an IPO, at $5 a share raising $5.3 million for the company. The stock commands a market capitalization of $103 million in the US stock market and closed at a price of $7.88 on October 23rd.

  1. China Internet Nationwide Financial Services (CIFS)

This Beijing-based financial sector firm, trades under the ticker CIFS on the NASDAQ GM stock exchange, is engaged in providing financial advisory services in China. The company’s stock listed on the US stock market on August 8 at an initial offer price of $10 a share, raising $20.2 million for the company. The stock, trading at $31.5 (as of October 23rd), commands a market capitalization of $693 million in the US stock market.

  1. Newater Technology Inc (NEWA)

Newater Technology, Inc. operates as a wastewater purification treatment company. The Yantai-based industrial firm listed on the NASDAQ CM stock exchange on July 28th under the symbol NEWA. The IPO raised $8.05 million for the company at an offer price of $5 per share. The stock closed at $9.77 as of October 23rd with a market capitalization of $103.6 million.

  1. Bison Capital Acquisition Corp (BCACU)

Bison Capital Acquisition is engaged in services such as share exchange, amalgamation, acquisition, share reconstruction, asset management, and other financial services. On June 20, the blank check company listed on the NASDAQ GM stock exchange under the ticker BCACU. The IPO bagged $52.5 million for the company at an initial offer price of $10 a share.

BCACU closed at $10.31 on October 23 with its market capitalization standing at $82.3 million.

  1. Bright Scholar Education Holdings Limited (BEDU)

Bright Scholar education Holdings, listed as BEDU on the NYSE, provides bilingual, kindergarten, training, and other educational programs and services through its subsidiaries in China. The company raised over $181 million in an initial public offering on May 18, listing the company’s stock on the US stock market at $10.5 a share. BEDU closed at $25.55 a share on October 23. The stock has a market capitalization of about $3 billion in the US stock market.

  1. China Rapid Finance Ltd (XRF)

Listed since April 28th on the NYSE stock market, China Rapid Finance Limited operates one of China’s largest online consumer lending marketplaces.  The company caters well to China’s 500 million EMMAs (Emerging Middle-class Mobile Active consumers), and has facilitated over 20 million loans to more than 2.7 million borrowers. Back in April, the company raised $69 million in an IPO, marking its listing on the US stock exchange under the ticker XRF. The shares initially offered at $6 a share, and now trade at $9.06 (as of October 23) with a market capitalization of $586.2 million.

Electric Vehicle Battery Makers Are Disrupting Global Mining of These 3 Metals

World’s top battery makers have a plan…

With cobalt prices soaring, the world’s top battery makers, a majority of which are based in emerging Asia (AAXJ) (VPL), are looking to tweak the ratios of raw materials used in the manufacture of lithium-ion batteries. More specifically, they’re attempting to reduce the amount of one of the more expensive components, cobalt, being used in the production process. The rare metal has more than doubled in price over the past year on strong demand accompanied by a supply shortage. We’re now seeing car giants rushing to lock in supply deals with cobalt miners. The Volkswagen (VLKAF) (VLKAY)-CATL-Glencore (GLNCY) (GLCNF) deal in just one example.

…with the demand for EVs to jump 20x by 2025

With the demand for electric vehicle batteries predicted to jump 20-fold from 2015 to 2025, emerging market  (EEM) (VWO) battery makers are currently testing a new recipe.

Panasonic (PCRFF) (PCRFY), the world’s leader in battery production, is working on reducing cobalt consumption in its battery production process. With customers including Tesla (TSLA), Panasonic currently employs NCA (nickel-cobalt-aluminum) technology in battery production. The two companies are now together working to develop a battery with 85% nickel composition.

South Korea (EWY) based Samsung SDI (SSDIF) and LG Chem (LGCLF) are developing new power packs that use more nickel and less cobalt. Samsung SDI expects the industry-wide amount of cobalt per battery unit to decrease to about half of current levels over the long term.

Change is good

Currently, the more popular NMC (nickel-manganese-cobalt) formula employs a 6:2:2 ratio; that is, a ratio of 60% nickel to 20% cobalt and 20% manganese. SK Innovation, another of South Korea’s top battery makers, is working to change the composition of these cathode materials to 80% nickel, 10% cobalt and 10% manganese; so an 8:1:1 ratio.

Consequently, depending on the success of efforts to change the ratio of lithium-ion batteries inputs from the current 6:2:2 to 8:1:1, the demand for nickel may grow by 10-40% from its current level by 2025 (according to a UBS report).

Meanwhile, China’s (FXI) (YINN) EV battery producers such as BYD (BYDDF) (BYDDY) are focused on cheaper lithium-iron-phosphate (LFP) batteries that don’t use either nickel or cobalt.

Cobalt Prices Are Up 80%, Emerging Market Miners Gear Up To Address Shortage

Cobalt prices up 80% YTD, no reversal yet

Cobalt prices are up over 80% in the year so far. They’ve recorded a 112.5% rise over the past one year, thanks to the rapid rise in the adoption and usage of electric vehicles and consequently, the global lithium-ion battery market. Cobalt is a critical input in lithium-ion cell production accounting for 20% of its composition. The battery industry consumes over 40% of global cobalt production.

What led the price so high?

With the global lithium-ion batteries poised to become a $40 billion market by 2025 (Goldman Sachs (GS) estimate), demand for cobalt should continue to rise. According to estimates, the demand for cobalt is set to increase by 34% per year until 2026. However, the supply side of this key ingredient seems low, with battery makers struggling to secure supplies. This has driven prices up to where they are now (see chart above), affecting battery makers such as Tesla (TSLA), BYD (BYDDF) (BYDDY), CATL, and Tianjin Lishen, LG Chem (LGCLF), Samsung SDI (SSDIF), and SK Innovation, among others.

The price hike has been driven by higher demand and a supply shortage on account of the unstable political situation in the Democratic Republic of Congo (DRC), which accounts for nearly 60% of the world’s cobalt production. In 2016, DRC produced 66,000 metric tons of cobalt, more than eight times more than its closest competitor, China (FXI) (YINN).

Rising demand for EVs to add to demand cobalt

Macquarie Research has predicted that trouble in the DRC and rising demand for electric vehicles will lead to a four-year-long cobalt shortage. However, since approximately 97% of the world’s supply of cobalt comes as a by-product of nickel or copper, as long as the demand for nickel and copper remains sufficient, so would cobalt production.

Meanwhile, cobalt-rich economies and cobalt miners are eyeing additional reserves and deposits to address the shortfall in supply.

  • Chile (ECH) is conducting surveys in its Atacama and Coquimbo region in search of cobalt deposits.
  • First Cobalt (FTSSF), a Canadian mining company, is looking to expand its footprint in Cobalt, Toronto.

Prominent cobalt miners include Glencore (GLNCY) (GLCNF), China Molybdenum (CMCLF), Katanga Mining (KATFF).

Meanwhile, to hedge their exposures, battery makers are working on ways to reduce their dependence on cobalt as prices rapidly rise.

Asia’s Largest Fintech IPO of 2017 Just Raised $1.8 Billion, This Is What You Need To Know

Zhongan Online

Last week, China’s (MCHI) first Online Property & Casualty Insurance provider Zhongan Insurance listed its shares on the Hong Kong Stock Exchange (HSI) under the ticker 6060.HK.In an IPO on September 28, the online insurer listed 199.3 million shares at a price of HKD 59.70 per share, at the top end of the IPO’s pricing range of HKD53.70 to HKD59.70 per share. The IPO was 3.93 times oversubscribed by retail investors. Typically, 10% of the shares on offer are reserved for retail investors, while the rest are offered to institutional investors. This ratio may, however, go up depending on the volume of demand from retail investors. Zhongan initially reserved 5% of its share offering for retail investors but raised it to 20% given the higher demand. Zhongan intends to use funds from the share issue to support its expansion efforts.The value of Zhongan’s shares surged nearly 18% after its debut trading, valuing the company at $12 billion. In the following five days of trade (as of Oct 6), shares of Zhongan gained 60% from its listed price of HKD 59.70. The company’s market value has subsequently increased to $17.3 billion.

The listing is one of the largest technology IPOs to debut on the Hong Kong Stock Exchange in 2017 so far. It is also Asia’s (AAXJ) largest IPO by a financial technology firm in 2017, paving the way for Chinese tech companies to list their shares on Asian stock exchanges instead of the United States. “I hope this is the beginning of another round of new economy companies choosing Hong Kong,” Charles Li, CEO of market operator Hong Kong Exchanges & Clearing Ltd stated following the listing.

“Technology and the internet are changing the world. We believe ZhongAn’s IPO in Hong Kong will give confidence to other players in the fintech industry and give a boost to Hong Kong’s status as an international financial hub,” said ZhongAn CEO Chen Jin.

Alibaba (BABA) backed Ant Financial holds a 13.8% stake in Zhongan, while Tencent Holdings (0700.HK) and Ping An Insurance Group holds stakes of 10.4% each. SoftBank is a cornerstone investor in Zhongan with a 5% stake. Public shareholders hold 13.8% of Zhongan’s equity.

Can you bet on a company currently in losses?

Zhongan has demonstrated solid sales volumes, but is yet to generate considerable profits. The company generated earnings of just $1.4 million in 2016 on sales of $512 million (RMB 3.4 billion) due to significant underwriting losses recorded for the last three years of $9.2 million, $76.9 million and $23.0 million in 2014, 2015, and 2016 respectively.

In March 2017, the company reported losses of $30.4 million (RMB202.1 million) and expects to close 2017 in losses as well. In its IPO prospectus, Zhongan attributes these losses to its focus on “rapid expansion”. This will lead to higher overhead, R&D and administrative expenses, unearned premium reserves given a change in products, and increases in handling charges, consulting fees and commissions.However, Zhongan expects their gross written premium (GWP) to rise in 2017 as it increases in customer base. In the last three years, the company’s GWPs have nearly tripled from $119.3 million (794 million RMB) in 2014 to $512 million (3.41 billion RMB) in 2016.

Zhongan expects to realize underwriting profits in the medium to longer term and aims to lower its combined ratio to 100% from 104.7% in 2016. The combined ratio measures the profitability of an insurance company. It is calculated as a percentage of losses and expenses on earned premiums.

ZhongAn CEO Chen Jin, addressed concerns over whether they would make profits soon, “We are still a young company and at the early development stage. We will continue to increase our input, to stay competitive in the future.”

Product mix and operations

Zhongan currently offers a diverse mix of nearly 240 product terms across health, accident, liability, bond, credit, among other personal insurances. However, its top five products constitute nearly 65% of its GWP (as of 2016) making it highly concentrated. In March, 2017, this concentration declined to 57.3%, but still remains significantly risky.

Zhongan’s health insurance products were the top non-auto product by sales on Ant Financial’s insurance platform in 2016, while travel accident insurance also saw strong growth.Zhongan sells its products through partner platforms, with its top five partners accounted for nearly 69% of its GWP in 2016. This poses another risk to Zhongan as it makes it heavily reliant on these partners for its revenue stream.

These Three Frontier Markets Countries Have Already Launched Their Own Cryptocurrencies

Economies are increasingly adopting cryptocurrencies

Bitcoin’s humble beginning in 2009 and its subsequent growth to a $76 billion market cap (as of October 9) bears testimony to the conviction of blockchain technology as a means of payment. Blockchain technology and its product, cryptocurrencies, are gaining acceptance amongst a handful of sovereigns that are now considering the idea of developing their own digital currency. Cryptocurrencies together now command over $150 billion in market capitalization.

There are approximately 50 countries globally (ACWI) (VTI), which currently do not have or do not use their own sovereign currency. This is resulting in some governments beginning to consider the creation of a digital currency of their own. The prospect of decreased transaction costs and ease of ownership make the option increasingly appealing, particularly for use in international transactions.

Presently, there are three frontier markets (FM) (FRN) that are already using digital currencies (ARKW), and a fourth is preparing to do so. Emerging markets (EEM) (VWO) such as China (FXI) and Russia (RSX) are also considering various applications in this regard. Meanwhile, the emirate of Dubai recently launched its own blockchain-based cryptocurrency known as emCash.

Here are the 3 frontier markets that are already using digital currencies, and the fourth which is preparing to join the list:

1. Ecuador

In 2014, Ecuador became the first country in the world with its own digital currency. The small Latin American (ILF) nation is the first to have a state-run electronic payment system known as Sistema de Dinero Electronico. The system allows Ecuadorian residents to pay for public services via their mobile wallets. The scheme intends to help begin to reduce government spending of more than $3 million a year to exchange old notes for new dollars. The 5-year goal for the digital currency is to reach over 4 million users registering around $80 million.

2. Tunisia

Since 2015, Tunisia has been using the universal contracting platform, Monetas, to boost its eDinar (aka Digicash and BitDinar) digital currency using the blockchain. The Monetas platform is an advanced crypto-transaction technology that uses a Blockchain secured digital notary to enable all kinds of financial and legal transactions, public or private, globally. With the La Poste Tunisienne android application powered by Monetas, Tunisians use their smartphones to make instant mobile money transfers, pay for goods and services online and in person, send remittance, pay salaries and bills, and manage official government identification documents.

3. Senegal

In December 2016, this West African country launched its own national digital currency, eCFA, valued at par with the CFA franc. The eCFA was developed by the Banque Regionale de Marches (BRM) and eCurrency Mint and is compatible with other digital cash systems in Africa. The blockchain-based currency has been designed to be compatible with other digital currencies in Africa (EZA). The drive for its very own digital currency perpetuated from the fact that Senegal’s CFA franc is shared by 14 countries in West and Central Africa, and its value is guaranteed by the French government.

Estonia

This European country (VGK) (EZU) is among the most tech-friendly countries in the world. The economy already has an e-Residency programme in place where the government stores its data on the blockchain. Now, the Baltic country is on track to creating its own digital currency, Estcoins, which will be available for use by members of its e-Residency programme. The project is being advised by Ethereum founder, Vitalik Buterin.

Asian Stocks to Watch: Korean and Chinese Electric Vehicle Battery Makers

Chinese and Korean EV batteries makers are poised for growth

A recent Credence Research report estimates the market for lithium-ion batteries to reach $95.9 billion by 2025. No doubt, global electric vehicle (EV) batteries makers are already scrambling for position in this high-growth market. While Japan’s (EWJ) Panasonic is currently leading the world (ACWI) (VTI) in supplying batteries to electric vehicles (EVs) manufacturers; we’re increasingly seeing Chinese and Korean EV batteries makers getting engaged in the battle for dominance in the global automotive lithium-ion battery sector. China (FXI) (YINN) and Europe (VGK) (EZU) are considered the key battle-grounds for EV sales.

 

Chinese batteries makers are already working towards high targets set for 2020 with notable government support. According to Bloomberg New Energy Finance estimates, if Chinese batteries makers deliver on their targets, the economy should be in a position to produce 121 GWh (gigawatt hours) of battery power by 2020; enough to charge over 4.8 million electric cars to each travel 100 kilometers.

On the other hand, South Korea’s three leading EV battery manufacturers, LG Chem, Samsung SDI and SK Innovation, have together pledged to invest a combined $1.77 billion to expand EV and hybrid battery production capacity in South Korea by 2020. With domestic demand limited, these battery makers are expanding their global manufacturing footprints trying to cash-in on Europe’s fast-growing EV market.

For emerging market (EEM) (VWO) investors, here’s a quick list of the top Chinese and Korean EV batteries makers.

China

In China, the list of EV batteries makers is led by BYD, CATL, and Tianjin Lishen Battery. BYD and CATL have seen particular benefit from government support.

BYD or “Build Your Dream” (1211.HK) (BYDDF) (BYDDY) is China’s largest battery maker. The company produced approximately 100,000 EVs or plug-in hybrids in 2016. Consistent with BYD’s strategy of vertical integration, the company currently has 20 GWh of battery cell capacity. The company’s target for 2020 is set at 34 GWh. Warren Buffet’s Berkshire Hathaway has a 10% stake in the company.

CATL or Contemporary Amperex Technology Ltd. focuses on the production of lithium-ion batteries and the development of energy storage systems. CATL currently has 7.7 GWh of battery capacity and plans to reach a battery production capacity of 50 GWh by 2020.

Tianjin Lishen Battery Co., Ltd. engages in the development, manufacture, and sale of lithium-ion batteries. The company plans to have 20 GWh of battery cell capacity by 2020.

To allow electric cars to go further on a single charge, a critical factor for batteries is their energy density. For now, China lags behind Korean makers in terms of the technology to provide greater energy density. South Korean companies have been involved in high-performance batteries manufacturing for over 15 years now, long before China got into it.

South Korea

In South Korea, the list of EV batteries makers is led by LG Chem, Samsung SDI, and SK Innovation.

LG Chem or LG Chemical (051910.KS) (051915.KS) (LGCLF) is the largest Korean chemical company. The company is principally engaged in the manufacture of petrochemical materials. The company also provides lithim-iion batteries for laptops, phones and electric vehicles (EVs). The company has plans to start production at a newly-built EV battery factory in Poland which has a capacity to produce battery packs for 100,000 EVs per year, in addition to existing plants located in South Korea, China, and the USA.

Samsung SDI (006400.KS) (006405.KS) (SSDIF) manufactures and sells batteries worldwide. It manufactures and sells small-sized lithium-ion batteries of various kinds and uses, including automotive batteries. The company has completed the construction of a new EV battery plant in Hungary in May with an initial capacity to produce 50,000 EV battery packs per year. When operative (2018), the new plant will serve to strengthen Samsung SDI’s global EV production network which already includes facilities in South Korea and China.

SK Innovation (096770.KS) (096775.KS) is a Korea-based holding company principally engaged in the manufacture and distribution of petroleum products. It is Korea’s first and largest energy and chemical company, now also engaged in future energy. As an EV batteries maker, it is the smallest of the three in South Korea. Nonetheless, the company’s South Korean production capacity is estimated to rise to about 150,000 EV battery systems per year.

The competition ahead

What remains to be seen is how the above listed Chinese and Korean EV batteries makers will fair compared to their Eastern and Western competitors. In the East, established Japanese batteries makers such as Panasonic, AESC, and GS Yuasa (GYUAF) stand in competition, and in the West, industry giants such as Johnson Matthey (JMPLY) (JMPLF), Bosch, and Johnson Controls (JCI) are also vying to become major suppliers of EV batteries globally.

Moreover, a number of global vehicle manufacturers are now developing their own EV battery capabilities. German Daimler’s (DAI.DE) (DDAIF) (DMLRY) Li-Tec Battery subsidiary and Japanese Toyota’s (TM) Primearth EV Energy are prime examples. Tesla (TSLA) is also building its own multi-gigawatt hours battery plant in partnership with Panasonic (PCRFY) (PCRFF) in the US.

China’s Share Of Global Battery Production To Hit 70% By 2020, But Japan’s Panasonic Still Leads

A $240 billion market opportunity

Electric vehicles makers have a big role to play in the ongoing electric vehicle revolution. Electric vehicles (EVs) are steadily replacing internal combustion engines (ICEs), in light of increasing awareness related to the damaging effects of carbon emissions. Wall Street analysts predict that we’re looking at a $240 billion EV market opportunity in 20 years. According to estimates, EVs will account for as much as 40% of auto sales and 30% of global car parc over the next 20 years.

Rising demand, falling cost

Batteries make-up about 1/3rd of the cost of an electric vehicle. Hence, unprecedented demand for lithium-ion batteries is expected as manufacturers look to keep pace with demand. And, on a macro level, they would help reduce carbon emissions and oil dependence. Goldman Sachs (GS) estimates the lithium-ion battery market to be worth $40bn by 2025 and to be dominated by China (FXI) (YINN). And, given the current and predicted decline in the cost of manufacturing these batteries (see chart above), battery makers should see sunnier days ahead.

China and South Korea are poised to grab their share

The global lithium-ion battery market is expected hit $46.2 billion by 2022, with a CAGR of 10.8% during the 6 years beginning 2016. The demand for lithium-ion batteries in the automobile industry is expected to surge with the increasing demand for EVs. Asia-Pacific (VPL) is widely expected to dominate this market throughout 2015-2022.

Presently, Japan’s Panasonic is the largest supplier of electric vehicle batteries globally. However, China’s BYD (1211.HK) (BYDDF) (BYDDY) and CATL, and South Korea’s Samsung SDI and LG Chem are also taking big strides to grab their fair share in the opportunity lying ahead of them.

China’s global market share in battery production is projected to rise to more than 70% by 2020. With over 140 EV battery manufacturers, the country is expected to lead the way in batteries. In 2016 alone, 507,000 EVs were sold in China, a 53% jump from the previous year figure. While taking the necessary steps to boost supply, China will also be instrumental in creating demand with their target of having 5 million EVs on its roads by 2020, as compared to the 1 million today.

On the other hand, South Korea’s (EWY) EV battery makers LG Chem (051910.KS) (051915.KS) (LGCLF), Samsung SDI (006400.KS) (006405.KS) (SSDIF), and SK Innovation (096770.KS) (096775.KS), are working to establish their manufacturing facilities in Europe (VGK) (EZU), the fastest growing market for electric cars in the world (ACWI) (VTI).

In Part 2, we’ve compiled a list of the key stocks to watch, as Chinese and Korean battery makers position themselves to profit from the electric revolution.

The World’s 5 Largest Solar Power Plants Are In These Two Asian Countries

The 5 largest solar power plants are in the emerging markets

Emerging markets (EEM) (VWO) house the 5 largest solar power plants in the world. India (EPI) and China (FXI) (YINN) in particular have risen to become the leaders in solar power generation globally. The top 5 power plants (by generation capacity) are housed in these two Asian (AAXJ) (VPL) economies. The chart below depicts the top 5 photovoltaic power stations of the world. The 6th, Solar Star, is based in the US and has a solar power generation capacity of 579 -megawatt (MW).

Iran is poised to overtake Solar Star

Iran is now poised to move into the 6th largest slot with its 600 MW plant, scheduled to be built in stages over the next 3 years. Iran’s Energy Ministry recently signed a $600 million financing and development agreement with UK-based specialist renewable energy investor, Quercus, for creating the project together. Lower oil prices and air pollution have been shifting the economy’s focus from natural gas and oil-based power generation to renewables. The project falls in line with the economy’s commitment to develop 5 GW of new renewable energy capacity by 2020. The country’s current installed solar energy capacity stands at 53 MW.

Emerging markets are increasingly investing in renewables

In our recent series, Solar Power in the Lead, as Future Energy Takes Center Stage in the Emerging Markets, we highlighted how emerging markets are currently leading the charts in renewable energy (ICLN) (PBW) (QCLN) attractiveness, with solar energy (TAN) holding enormous potential. Investment flows to the industry are picking up backed by attention and funding from international agencies such as the USTDA, World Bank, and BRICS Bank.

Declining costs of solar panels and wind turbines are making renewable power a more attractive option in the Middle East, Africa, and Asia.

While China and India have already established themselves as the dominant players in the renewable energy market, sub-Saharan Africa (EZA) is also showing immense potential in the renewable energy space, particularly in solar.