Adrian Valenzuela

Between a rock and a hard place: HKEX's balancing act Hong Kong's capital markets remain an attractive place for PRC companies to raise funds from international investors, including through IPOs. Recent indicators and client requests suggest that after a somewhat slower period, interest in and demand for HK IPOs are picking up. Underwriters and potential issuers will likely remain cautious until after the US elections. However, as the US-China geo-political and geo-economic relationships are expected to remain tenuous, PRC companies and investors are exploring options beyond western capital. The HK IPO process can thus serve as an important indicator of how the financial sector and other market participants address the existing and future US-China conflict of laws, particularly around international sanctions and PRC countermeasures. Despite being stuck between a rock and a hard place, the HKEX has been able to strike a creative – albeit some might say, timid – balance between international banks' commitment to sanctions compliance and domestic rules. 1. Sanctions opinion This balancing act relies on the requirement for potential issuers to provide a sanctions memo from a qualified counsel. We have supported a number of recent successful IPOs and pending processes. We can therefore attest that HKEX takes this sanctions clearance very carefully – often through a number of detailed follow up queries and clarifications – before the disclosure terms are finalized. A legal opinion must address whether business activities within the track record period (3 years): (i) are subject to or may have violated any sanctions and export controls laws in applicable jurisdictions; and (ii) will result in any material sanctions risks to itself or other stock exchanges. Dealings in high-risk countries like Iran and Russia should therefore be carefully reviewed and sanctions risks should be efficiently mitigated. 2. Sanctions compliance The legal opinion is a "live" document and delays in listing will require the analysis to capture an updated track record period. This requires an applicant to continuously comply with ever-changing sanctions regimes. Indeed, the HKEX recommends all applicants monitor their business for exposure to sanctions risks during and after their listings. While international sanctions compliance might not always be a top priority, any company with HK IPO aspirations would be well-advised to enhance its sanctions compliance early to save legal fees and IPO delays. 3. Collaboration with regulators Listing applicants should also be ready to answer questions from the regulator and be flexible when circumstances change – eg SenseTime, a facial recognition developer, removed US investors from its IPO after being added to the CMIC List. Our sanctions and our IPO teams are happy to address any questions – Frank Bi, Li Jiang, Tom Cummins, Dr. Dr. Claus Zimmermann, Vicki Tang, Kenneth Lee

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A 2018 speech that rings ever so true today - Noted economist 向松祚 delivered a searing speech six months into the trade war. It has been widely circulated this week for some of his remarks have become prophetic. He openly questioned Beijing’s ability to manage the bilateral relations with Washington at a time when China was still faced with far too many domestic challenges of its own. He castigated the authorities and state media for glossing over these challenges given that they were structural and deeply-rooted issues. However, the title of his speech "2018年，中国国运的转折；过去最差，未来最好的一年；最不讲信用的政府!" ,six years later, has unfortunately become true. 向 said 2018 marked the beginning of the biggest changes facing the country in 40 years and that 2018 will be remembered as “过去最差，未来最好的一年。” A must listen. #china #economy

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Japan’s continuing stock market rally is further aiding #japanesecompanies in unwinding #crossshareholdings amidst increasing pressure, not only from both domestic and international #investors, but also from the Tokyo Stock Exchange and Japan's Financial Services Agency, Japan (JFSA, 金融庁) , both of whom are pushing for more robust #corporategovernance and related #disclosures. The FSA, in particular, has been scrutinising companies who “are suspected of avoiding sharing information on cross-shareholdings by labelling them ‘pure investments,’ even though they do not intend to sell those shares because such investments do not require disclosure.” An FSA spokesman said that “efforts to reduce cross-shareholdings are important for improving corporate value. The FSA will continue encouraging companies with cross-shareholdings to disclose information in an appropriate manner." Other entities are also applying pressure with the Asian Corporate Governance Network (ACGN) , an independent, Hong-Kong based investor group, writing “in an open letter in April that companies should have zero cross-shareholdings”, saying the practice has a "detrimental impact on companies' capital efficiency." Whether it’s the stock market rally, regulatory pressures or both, companies appear to be  responding with Toyota Motor Corporation recently announcing it would buy back more than $5 billion of its shares owned by banks such as MUFG and Sumitomo Mitsui Banking Corporation – SMBC Group . Honda, too, made a similar announcement. The big question is whether this will improve #ROE significantly: according to S&P Global, average ROE for Japanese mega banks, as an example, was 6.5% in the latest fiscal year compared to JP Morgan’s 16%. A Jefferies analyst calculated that if companies in the Topix sold all their cross-shareholdings, average ROE could rise to around 12% from 9%. #japan

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HKSAR Government's Institutional Green Bonds Offering The Government of the Hong Kong Special Administrative Region of the People's Republic of China (the HKSAR Government) today (18 July) announced the successful offering of approximately HK$25 billion worth of green bonds (the Green Bonds), denominated in Renminbi (RMB), US dollars (USD), and euro (EUR) under the Government Sustainable Bond Programme (previously known as the Government Green Bond Programme). Following a virtual roadshow on 16 July 2024, the Green Bonds were priced on 17 July 2024 as follows: ·RMB 2 billion 2-year tranche at 2.60%; ·RMB 2 billion 5-year tranche at 2.70%; ·RMB 2 billion 10-year tranche at 2.80%; ·RMB 2 billion 20-year tranche at 3.05%; ·RMB 2 billion 30-year tranche at 3.15%; ·US$1 billion 3-year tranche at 4.336%; and ·EUR 750 million 7-year tranche at 3.379%. #greenbond #HongKong #HKMA #offshore #RMB

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I would like to discuss the issues on the March 8 Nikkei Newspaper article, "Investment Focuses on Gender Equality, No Future for Male-Dominated 'JTC'."

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The latest from the Asian takeaways series is called "Charsiu Chronicles", with our updated thoughts on China equity after reflecting on the numerous research trips we've done so far as a team in 2024 YTD. Siguo Qian Christopher Camilla and I share our thoughts on: + the good and the bad as we are seeing on the ground + how China Inc is doubling down on exports and manufacturing to hit growth targets + disruption and consolidation opportunities we see at the industry level + what the US elections might mean for near term outlook As we've always said... when it comes to investing in China equity, things are never as good as they look, but also never as bad. While it has been a difficult year, we continue to see compelling long term alpha opportunities based on strong stock specific fundamentals. 💪🧐 #chinaequity #activeinvesting #emergingmarket

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Sinohope Technology Holdings Limited (1611.HK) announced that its subsidiary, Sinohope Asset Management (Hong Kong) Limited (“Sinohope AM”), has received approval from the Hong Kong Securities and Futures Commission for its application for a Type 1 (dealing in securities) license and an uplift of its Type 4 (advising on securities) license. With the new Type 1 license, Sinohope AM will be able to distribute virtual asset (VA) related products to professional investors, including but not limited to VA funds and VA structured products. As a Type 4 license holder, Sinohope AM can now also provide VA advisory services under its uplifted license. We look forward to leveraging these new licenses to better serve professional investors with innovative VA offerings. Thanks the help from Jason Chan (Howse Williams) in securing the license approval in less than half a year, we were able to obtain these licenses in an efficient timeframe. SINOHOPE Asset 新火科技

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It is always a challenge for G5 Central Banks to manage market expectations when policy decisions are unsynchronised with the US Fed. The integration of their capital markets makes for something akin to a weighted basket of monetary conditions, with the USD claiming the lion share. What can make it easier, however, is when the US is not reeling from a shock, or when the Fed isn't giving strong forward guidance beyond market expectations. Fortunately for the BoJ, this is one of those times . . . although it briefly looked different in early August. The statement on monetary policy from the BoJ (https://lnkd.in/dMjjxETZ) made it clear that policy guidance is unchanged, meaning the MPB moves forward with normalisation at the next meeting. Growth was cited as still proceeding above potential, and price indicators validate the price target. The risk factors that present the most concern are external, essentially growth in US & Europe. It is for that reason a US soft-landing provides the ideal landscape for BoJ normalisation. China is slowing, which will be a drag on Japanese growth. A sudden slowdown in the US or Europe would require a policy pause. Barring some pre-US presidential election nightmare scenario, or fresh geopolitical shock, BoJ looks set to raise rates to 0.50% at the end of October. Will that produce some additional Yen strength? Possibly. But most of the speculative pressure has been released from the Yen crosses. If the Yen strengthens due to renewed capital inflows, strong inbound tourism, and a smooth LDP presidential succession, then this is a positive side story to monetary policy normalisation, not an interruption. #boj #monetarypolicy #yen #fed #centralbanks

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Perhaps encouraged by the slow but apparent move of some #Japanese companies to improve #shareholdervalue by divesting from some of it cross-shareholdings (https://lnkd.in/eX3Q2G_5), KKR is setting its sights on #Japan as a pivotal market for its ambitious goal to double its #aum in the next five years. Although the global investment firm has identified the Asia-Pacific region in general, which has contributed to 39% of its $47 billion investments since 2005, as key to this strategy, it’s Japan that stands out for KKR due to opportunities to buy undervalued but quality businesses at bargain prices. With successful investments like Kokusai Electric and Koki Holdings (former Hitachi Koki), KKR sees potential due to Japan's low #valuations and massive room for operational improvements - divesting from cross-shareholdings, amongst other possibilities - in its conglomerates. Moreover, KKR's interest in Japan is buoyed by a lack of competition for deals, with #alternativeassets comprising a mere 9% of the market, compared to 26% in North America and 16% in Europe. The firm is also capitalising on trends in Japan's nearly $3 trillion #insurance market, the world's second largest. KKR points to factors such as an aging population and sustained low interest rates, driving demand for retirement products, which is evident from the significant sales of annuities in Japan compared to the U.S. #kkr #japanesecompanies #japanbusiness #apac #asia

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Part 3 of my discussion with Misako "Terri"​ Terui for Nikkei-sha. This segment discusses what the Senjin Capital team look look for in a potential investment, the issues historically in Japan's corporate sector that have led the government to take action, and our views on whether the government's measures are being effective. I speak in the video in English, but with Japanese subtitles, as the intended audience is Japanese corporate managers and executives.

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As for the May 21 Nikkei article, “GPIF verifies 6% increase in market capitalization through dialogue between investment managers and companies": (1) The reason why investor engagement is effective is in the exercise of voting rights. Engagement is considered to have been effective around 2014, when foreign ownership exceeded 30%. (2) Engagement is generally effective in the funds entrusted to GPIF, according to the results of the study. GPIF should raise fees to allow investment managers to engage in fruitful engagement. (3) This tends to be a generic question for passive funds. If we expect engagement to be more effective in the future, we need to increase the number of active funds.

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🌏 Proud to wave the proverbial Southeast Asia banner at last week's IPEM Paris 2024 alongside my fellow panelists Rishika Chandan and Paul Choo as well as our moderator, Eric Marchand. Southeast Asia is at a crucial juncture of growth and opportunity. Starting with the basics: Southeast Asia will add ~140m new consumers by 2030. This population is large (today over 660m), young, rapidly urbanising and entering the middle class en mass. Besides this remarkable consumption story – Southeast Asia’s economic resilience and stability is also notable with GDP and FDI flows remaining robust over the past 5 years. Notable is that in 2023, SEA-6 attracted over USD 200bn in FDI, surpassing China for the first time in a decade. This shift is driven by the region’s strategic advantages and market potential, making ASEAN an increasingly crucial hub for manufacturing and offering new investment prospects as global supply chains evolve. Further, the venture capital and private equity landscape in ASEAN is maturing rapidly. Assets under management have reached $69 billion, signaling a growing and competitive investment ecosystem. This growth presents numerous opportunities across various sectors, particularly technology and innovation. However, ASEAN faces challenges, including economic disparities among member countries, inconsistent regulatory environments, inadequate infrastructure, and governance and sustainability issues. Addressing these challenges is essential for unlocking the region's full growth potential. As ASEAN continues to grow, its potential as a leading hub for venture capital and growth funding in Asia-Pacific is clear. By engaging with the region’s dynamic ecosystems, investors can play a significant role in shaping its future and tapping into its extensive opportunities. At TNB AURA, we are dedicated to exploring these opportunities and believe that Southeast Asia’s dynamic landscape offers unmatched potential for innovation and growth. 🙏 Credit to the Collyer Capital team for the succinct summary deck posted below (with permission of course).

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▶ Japan Exchange Group CEO Emphasizes Dialogue with Shareholders In a recent symposium, Hiromi Yamaji, CEO of Japan Exchange Group (JPX), continued to stress the importance of increased dialogue between public companies and their shareholders in #Japan. As #corporategovernance reforms accelerate in the country, Yamaji highlighted the need for companies to regularly update their #shareholders on their progress towards improving corporate value and share price, two key drivers of these reforms. The Tokyo Stock Exchange, which is owned by the JPX, has taken several steps to enhance corporate governance, including streamlining the Prime section by eliminating around 20% of companies listed as such, raising the required standards for inclusion in the #TOPIX index, as well as requiring more independent directors on company boards. These initiatives, some analysts observe, have been an important factor in a significant increase in the benchmark Nikkei Stock Average. Yamaji acknowledged that while progress has been made, there is still room for considerable improvement. He urged companies to focus on concrete goals and communicate their plans ever-more effectively with shareholders. Notably, the TSE is also implementing measures to further enhance corporate governance, such as requiring Prime-listed firms to make disclosures in both Japanese and English.

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Since 1819, Singapore was built on the foundation of entrepreneurs. During that time, merchants ply their trade into Singapore. That remains the same till today as Singapore thrives on the entrepot trade between East and West. However, the world has evolved into many industries. And there is still the need for entrepreneurs to build upon the opportunities for Singapore as a financial and trading hub. Hear on part 2 of my podcast interview with Vince Chan, CFA CPA MBA Yale Chicago at Chief Change Officer about understanding this inherent need for a generation of entrepreneurs and how I acted upon this vision by building up a venture capital company to amplify the need to grow more entrepreneurs. #venturecapital #chiefchangeofficer @thevincechan

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In a rare move, the Hong Kong Index Company predicts the Hang Seng Index (HSI) reaching 22621 or 28% above 3 Sep 2024 close in the coming 12 months, using a bottom-up approach. Truly hope this comes true and my 40+ years of technical analysis fails this time, since my charts are whispering to me: put on your safety belt, there's a good chance of seeing the HSI touch 11,833 or lower, and then it could move sideways for 2-3 years. At 8:37pm HKT last evening (3 Sep Tue), I messaged the IC of our SFO: djia if close below 40300 this week could embark on a slippery path or challenge 全紅嬋 [Olympics Diving gold medalist Quan Hongchan] ... i feel that something very scary will soon arrive The US market fall in July [that the charts warned me about] was followed by a much stronger rebound than I expected, likely a highly dangerous bull-trap; hence keeping my positions for proof-of-chart-points intact. This time, I want to put on an extra seat belt and stay out of any stock market for quite a while. https://lnkd.in/g2_n728b (in traditional Chinese) #stockmarkets #capitalpreservation #wealthmanagement #investments #technicalanlysis

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Glad to be interviewed by 南華早報 on the recent debate about U.S. China’s Policy. While the CSIS report and former U.S. CG commentary are not completely new to us, speculations are expected as the election is approaching. However, it should be noted that a mature polity there’s always a general division of labour on policy formulation and actions. Therefore to make an informed judgement what comes next, a careful study on the dynamics between the Houses and the White House, and who is running the policy entrepreneurship table is more than necessary.

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