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Central Asset Investments is an established Asia-focused multi-strategy investment firm. Founded in 2005, Central Asset Investments capitalizes on the firm’s Asian investment background and strength in equities, convertible bonds, and fixed income in order to provide investors with long term,... More
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  • The Long Awaited Through Train Arrives To Hong Kong Station

    The CSRC today announced a pilot mutual market access scheme to be launched in approximately six months time. Hong Kong investors will be able to trade specified Shanghai stocks through local brokers and similarly, Chinese investors will be able to trade specified Hong Kong shares. The initial quota will be Rmb300 bn, with a Rmb13 bn daily trading limit for Hong Kong investors investing in Shanghai, and an initial quota of Rmb250 bn with Rmb 10.5b daily trading limit for mainland investors looking to get into the Hong Kong market. The universe of equities eligible for this scheme include HSI Large-cap & Mid-cap indices, SH180 Large-Cap & SH380 Mid-cap indices and A+H dual listed names. Mainland institutional and retail investors with over Rmb500,000 securities/cash balance can participate in Hong Kong while the details of Hong Kong investor eligibility is yet to be announced.

    This represents the last capital account restriction between China and Hong Kong as the two governments agreed to mutual market access between the stock markets of Shanghai and Hong Kong. This should help Hong Kong in its quest to remain a hub for the internationalization of the Rmb. This will also have a profound effect on various equities listed in both exchanges. Firstly, this will allow various A-H spreads to normalize, particularly Chinese financials, which trade at a premium in Hong Kong. This was clearly evident in the insurance space where the Ping An Insurance H-share underperformed it's A-share listing by 10.12% and similarly the China Life H-Share underperformed it's A-Share counterpart by 4.15%. This ultimately caused the HSCEI Index to underperform other China related markets. We could expect more convergence of A+H shares in the days to come, however it is unclear that full convertibility between the separate share classes will be allowed and so full convergence may prove to be elusive. This program will also give mainland investors access to key stocks which are listed in Hong Kong and trade at better valuations to similar plays in China. For example, Tencent (700 HK) rallied 7.55% after the announcement as investors anticipate the technology giant will garner great interest from mainland investors.

    Disclosure: I am long TCEHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: This article provides general information only. It does not constitute an offer to sell or the solicitation of an offer to buy any interests in any securities, investment product or fund. Investor should consult their own financial advisors prior to making any investment decisions and should not rely solely on these statements or any information presented in order to make such investment decision. Investors should verify the accuracy of any information mentioned in this article. CAI may or may not have an interest in the companies mentioned in this article.

    Apr 10 8:12 AM | Link | Comment!
  • The Modi Rally In India

    The Indian Nifty Index is up 27.7% from its August 27th 2013 low and is continually hitting all-time highs. The country experienced a current account and currency mini-crisis and the economy was left for dead during the second half of last year. However the stock market remained resilient and has powered ahead to unchartered territory in 2014.

    Amidst investor criticism, the Indian government was able to bring in a new Reserve Bank of India (RBI) governor, Raghuram Rajan, who acted as a savior and steadied the ship. India had been suffering from stagflationary pressures where Real GDP slowed down from over 9% in FY2011 to 4.4% in FY2013 whilst Wholesale Price Index (WPI) remained rigidly above 7%. Rajan took a hawkish stance and increased the repo and reverse repo rate by 75bps from 7.25% & 6.25% to 8% & 7% respectively over three RBI meetings. Rajan then tackled the current account deficit by introducing two short-term policy fixes where the RBI engaged in (i) a FX swap window which raised USD 34B of Non-Resident Indian deposits and (ii) quantitative control of gold imports which aimed at helping reduce gold imports by USD 30B over a 12 month period. The current account deficit is now less than 1% of GDP after peaking at approximately 6% of GDP and the last WPI print came in at 4.68%. Real Deposit rates are now positive, the currency and current account have stabilized and this therefore has ignited a 'Rajan' rally.

    Rajan brought the Indian economy into stabilization, but in order for India to reach potential GDP of 8%+ India needs a stable government with a leader that can push through structural reform and execute on the infrastructure projects which India so desperately needs. This is why the coming general elections are so important. The markets and polls suggest that a new government coalition led by the BJP should come to power. BJP's charismatic and go-getting leader Nirendra Modi is expected to assume power as the prime minister. Given his stellar economic track record in Gujarat (10% annual GDP growth rate from 2004-2012) where he served as Chief Minister for 13 years markets are excited at the prospects for the country. On arrival into office he is expected to identify the 25-50 most important stalled infrastructure projects, locate bottlenecks and authorize their removal. In addition the BJP party has vowed to create 10 million jobs. The election will be held in seven phases from April 6th to May 12th 2014. The first exit poll will come on the evening of May 12th, and the counting will occur on May 16th.

    The Nifty trades at 12.1x FY2015 P/E according to a Bloomberg Survey of Estimates. Over the last five years, the forward P/E band has ranged from 11x to 16.8x and this measure reached as high as 19.5x in 2007. For the Indian markets to keep on its ascent, a decisive election result is necessary. However it must be followed up with a slew of reforms to wind down subsidies, lift capital productivity and deleverage the SOE banking sector. Markets are confident that Modi will deliver on these reforms, and if this is the case a cyclical uplift and a significant rise in potential output could be on the cards over the next five years. This could cause a significant rerating of Indian markets as the Nifty has valuation support compared to recent history. On the other hand, an indecisive election result may put Indian politics back to a 1990's-like impasse where governments kept breaking up. This will probably put an arrest to the current Nifty outperformance.

    An electorate of 800 million people however is impossible to predict - volatility is a certainty.

    Apr 04 12:03 PM | Link | Comment!
  • First Solar Inc. (FSLR) And The Potential Of Thin-Film Cadmium-Telluride Technology

    First Solar Inc.'s (NYSE: FSLR) Analyst Day guidance exceeded consensus expectations, particularly in the area of conversion efficiency; the company increased the target efficiency of its modules from 17.2% to 19.5% by 2017. According to the efficiency/cost roadmap provided by FSLR, the conversion efficiency of thin-film Cadmium-Telluride (CdTe) is expected to surpass that of PV Silicon by 2016. Should the target level of efficiency be achieved, FSLR will have the opportunity to penetrate the rapidly-developing distributive generation (NYSE:DG) market in North America. Unlike utility-scale projects, DG requires a higher level of efficiency because of the limited space available on rooftops. Japan is the perfect example of a market that FSLR can penetrate with its new technology, due to the limited geographical space available for solar panel installations within the country.

    The journey to cost reduction. FSLR is expected to lower its module costs to $0.35 and its Balance of System (BoS) costs to below $1/watt; this will significantly increase the company's success in the US DG market. The above numbers imply a 11% yearly average cost cut for modules and a 12% yearly average cost cut for BoS within the next few years. After raising the target efficiency of thin-film CdTe modules, FSLR's cost reduction targets are more achievable, as the increase in conversion efficiency alone will lead to a 9% yearly average cost cut. Deutsche Bank (NYSE:DB) analysts state that more than 10 U.S. states have currently reached grid parity, and nearly all of the 52 states are predicted to reach grid parity by 2016. According to DB, Solar LCOE in grid parity states ranges from 11-15 c/kWh, compared to retail electricity price of 11-37 c/kWh. Due to the improved economics of solar in these markets, along with factors such as solar leasing and low cost financing, an installed capacity growth of ~600% is expected over the next 3-4 years. Solar system prices are expected to decline from sub $3/W to $2.50/W over the next 12-18 months. With broader acceptance of yieldco-type structures, solar financing costs are expected to decrease by ~200-300 bps (with solar LCOE decreasing from 10-16 c/kWh to 8-14 c/kWh), and capital flow to the solar sector is expected to increase significantly.

    Cadmium-Telluride (CdTe) technology. Going forward, management will emphasize thin-film's potential due to the R&D breakthroughs and successes that FSLR has experienced in 2013. Thin-film can be used to replace PV silicon in the DG business if it can achieve an efficiency level higher than that of PV silicon. Although Cadmium alone is a toxic substance, Cadmium-Telluride is not; hence, the product is not expected to be banned by any governments.

    Valuation. There are mixed views on how FSLR should be valued. The most common approaches include: P/B, P/E, and DCF. Some analysts do not like using P/B because it does not account for the differing returns on equity across various solar verticals; others do not like P/E because it captures a large part of FSLR's legacy business (which is less likely to be dominant going forward). If FSLR is able to breakthrough into the DG segment, FSLR appears to be relatively cheap on a price to book basis (trading at 1.5x) compared to its competitors Solarcity (NASDAQ: SCTY) and Sunedison (NYSE: SUNE), which trade at 17x and 18x respectively. First Solar has also guided roughly $25/share of cash on its balance sheet by year-end 2015, hence giving the company ample cash in a rapidly evolving industry. Analysts expect FSLR to earn $2.59/$4.7 in 2014/2015 respectively, therefore if you discount $25/share of cash by 20%, FSLR is trading at an undemanding ex-cash 2015 P/E multiple of 11.7x.

    Effect of the US International Trade Commission (NYSE:ITC). An important catalyst to consider is the federal investment tax credits (ITC) expiration in 2016. The federal ITC reduces the tax liability for individuals or businesses that purchase qualifying solar energy technologies. By the end of 2016, if a 30% ITC is maintained, ~47 states are expected to reach grid parity; however, only ~36 states are expected to reach grid parity if the ITC is reduced to 10%. For this reason, a big rush of new installations ahead of 2016 ITC expiration is expected. Ultimately, the availability of a residential leasing option would also act as a significant growth catalyst for the sector considering the fact that solar leasing companies are highly profitable and have strong incentive to maximize number of leasing customers ahead of the ITC expiration in 2016. The future for solar in North America and across the world seems to be bright as system prices are reduced.

    FSLR is expected maintain a competitive advantage, in terms of their technology, as new competitors have been focusing on cost reduction rather than improving the efficiency of their modules.

    Disclaimer: This article provides general information only. It does not constitute an offer to sell or the solicitation of an offer to buy any interests in any securities, investment product or fund. Investor should consult their own financial advisors prior to making any investment decisions and should not rely solely on these statements or any information presented in order to make such investment decision. Investors should verify the accuracy of any information mentioned in this article. CAI may or may not have an interest in the companies mentioned in this article.

    Disclosure: I am long FSLR.

    Tags: FSLR, Solar, SUNE, SCTY
    Mar 24 11:23 AM | Link | Comment!
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