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From: Gino Yu [
Sent: 12/17/2016 2:43:49 AM
To: jeffrey E. [jeevacation@gmail.com]
Subject: Fwd: Schulte Research: Deep dives into PRC fin tech ownership and Trump cabinet ownership. (DO NOT FORWARD)
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Importance: High
See the attached. Let me know if you are interested in meeting him when he's in NYC.
gino
Begin forwarded message:
From: Paul Schulte <
Subject: Re: Schulte Research: Deep dives into PRC fin tech ownership and Trump cabinet
ownership. (DO NOT FORWARD)
Date: 17 December 2016 at 8:35:35 AM HKT
To: Gino Yu
Sure. Forward
Founder and Editor
Schulte Research
On 17 Dec 2016, at 3:09 AM, Gino Yu `> wrote:
I'm Still in HK. Cancelled my India trip. Leaving for Italy on Monday. Can meet this weekend if you are
around.
Can I forward this to my benefactor in NYC? You interested in meeting him while you are there?
gino
On 16 Dec 2016, at 6:19 PM, Paul Schulte _____ > wrote:
Founder and Editor
Schulte Research
Begin forwarded message:
HOUSE OVERSIGHT 026036
From: Paul Schulte <I
Date: 12 December 2016 at 4:10:08 PM GMT+8
To: Paul Schulte <
Subject: Schulte Research: Deep dives into PRC fin tech ownership and Trump cabinet ownership. (DO
NOT FORWARD)
SCHULTE RESEARCH REPORT: ED 164
.41114
DEEP DIVES INTO PRC FIN TECH OWNERSHIP AND TRUMP
CABINET OWNERSHIP. (DO NOT FORWARD)
12 December 2016
ED 164
• H SHARES: PING AN, CICC AT CENTER OF ALIBABA, TENCENT
PHENOMENON. BUY. SELL AIA.
• TRUMP CHOICES ARE ALL ABOUT KOCH BROS & OIL/GAS
NETWORK: BUY RUSSIA... ALSO SAUDI BANKS.
• INVESTOR FEEDBACK: INFLATION COMING. BUY BOMBED
OUT BANKS HSBC, KB, UNICREDIT? GROWING AGREEMENT ON
BOOM IN US. BUY CITI, JPM.
Schulte Research Report, ED 164: Slides
CONTACT US
Paul Schulte
Founder, Schulte Research
Gavin Liu
Senior Analyst
IND-X Advisors Limited
Kinwick Centre, 8th Floor
32 Hollywood Road
Central
Hong Kong
1. Ping An & CICC are the 2 H shares that operate in the middle of Alibaba, Tencent, Lufax.
A. The chart below represents a deep dive we did on the new world of Chinese banking. Companies
like Zhong An, WeBank and Lufax will grow dramatically and will take advantage of (as well as
support) the massive worlds of Alibaba and Tencent. Together, Alibaba and Tencent have market cap
of $500 bn. Popping up in many of these areas of overlap are Ping An and CICC. They are
strategically placed to make great strides in China. This is slowly being recognized in the case of Ping
AN (See Page 8 of attached PPT). Ping An's market cap is $97 bn. It is connected to Zhong An.. It
owns 44% of Lufax. And some if its management were the very ones that started WeBank. It is
perfectly positioned for the coming boom in new banking. It has the best combined ROA and ROE
globally and its P/E of 10x is trading on a 50% discount to the global averages. Why is Ping An
trading at a discount to AIA? BUY PING AN -- SELL AIA..
B. The other company which has the best return on capital of any broker dealer -- and is also
positioned nicely for the coming boom in the new era of banking in China -- is CICC. CICC and CDH
(a CICC breakaway) both invested in Zhong An and Lufax. CICC has vision and a proven track record.
HOUSE OVERSIGHT 026037
Yet it has been a laggard. This is a top pick for H shares for China in 2017. The other bank with great
vision in this area is CCB, which has invested in Ant Financial. BUY H shares CCB and CICC. (See
attached PPT for portfolios and China fintech details).
C. IPOs in 2017. I think Zhong An will be a surprise for 2017 in the Hong Kong market. Its market
cap is expected to be $10 bn and it has interesting potential in so many areas of insurance. It
remains an insurance company whose marginal cost of a new customer is zero. It has a talented
team of 900 engineers and has new Al and blockchain divisions. It is rolling out an impressive array
of products including corporate solutions for insurance and investment plans. Lufax CEO Greg Gibb
made a big splash at the Finnovasia (Schulte Research co-sponsored it) in Hong Kong last month.
The company is a diversified financial conglomerate akin to "Schwab meets etrade and Fidelity" --
only 25 years ago. It needs an IPO north of $25 bn in order for the private equity partners to make
money. Lastly, Ant Financial will come to the market for a $60 bn IPO in 2017 -- also in Hong Kong.
This is a mothership company that goes to the heart of China's system. Its early investors are CIC,
CDB, CCB, China Life and other vital organs of the system. It will not be allowed to fail. There are
some questions about whether to own this through Alibaba, since Alibaba will own 33% of Ant post
IPO. I'm in this camp. Buy Alibaba on this pullback. (See attached PPT for the full China Fintech
Report).
2. Koch Industries saturates both the offices of Trump as well as Pence. Mega bullish for Russia, oil
and gas companies. Mega bearish for alternative energy.
A. The Koch Brothers are not just two grumpy men -- they are a political party. Koch Industries is the
second biggest private company in the US after Cargill. They operate public and secretive political
entities in 32 states and dole out more than $500 million each political cycle to various entities in the
strongest places. The political entities employ more than 1,200 people and the amount of donations
available to right wing causes varies dramatically but is as high as $750 million per cycle. It is the
third largest party in the US after the Democratic and Republican party. It controls the Libre Alliance,
Americans for Prosperity, Freedom Partners, Institute for Energy Research, American Energy Alliance
and Concerned Veterans.
B. What do they do with their money? They support right wing Republican candidates for all
organizations -- attorneys general, Senate, House and state political figures. This is where it gets
interesting. Freedom Partners is thought of as the "Koch bank". Guess who ran this? Marc Short. It
controls about $250 mn in funds for political activity. Guess who employed Marc Short as chief of
staff? Indiana Governor Mike Pence. Guess who then employed him as chief of staff? President-elect
Trump. Matt Lloyd is in charge of communications and strategy for VP-elect Pence -- he came from
Koch Industries. Governor Pence was a frequent attendee of the secretive semi-annual meetings of
the Koch Brothers. Guess who raised more than $100 million for Freedom Partners? Don McGahn.
Guess who is the new White House Counsel for President-elect Trump? Don McGahn. (McGahn was
embroiled in the Tom Delay scandal in the 2000s). Guess who had two companies which had Koch
Brothers as investors and whose chief of staff (Chenowith) came from the Koch world? The new CIA-
designate chief Mike Pompeo. (Pompeo's Kansas campaign received a $900,000 donation from Koch).
Guess who gave $1 mn to Americans for Prosperity? Education secretary designate Betsy Devos.
Guess who has written the strategy paper for the Department of Energy transition? Tom Pyle -- He is
affiliated with the Koch Industries Office of federal Affairs and the Institute for Energy Research.
Guess who was caught up in a Koch Industries scandal for a petrochemical port project (with a Koch
affiliated Messr. Henneberry)? Governor Nikki Haley who is UN Ambassador designate.
HOUSE OVERSIGHT 026038
C. Advisors are ALL Koch-related. Here is where it gets fun. Former campaign advisor Corey
Lewandowski came from KochLand. Rebekah Mercer is part of Koch and and gave $2.5 mn to
Freedom Partners. Kellyanne Conway has connections to Pence from way back and is connected to
Steve Bannon through the Center for National Policy. Trump deputy campaign manager David Bossie
came from Citizens United. The Director of Coalitions for Trump is named Alan Cobb -- he came from
Americans for Prosperity. Daren Se!nick is a transition advisor and he came from Concerned
Veterans. Others on the Trump team who came from Kochland include Stuart Jolly, Eli Miller, Scott
Hagerstrom and Matt Ciepielowski.
3. BUY the hell out of Russia -- Exxon Rex is a cabinet trifecta for Koch Brothers.
A. And there's Exxon Rex. Any contribution from Exxon received money from Koch -- and vice versa.
Rex Tillerson is worth $151 million and is leaving Exxon next year. He seems to have accepted
secretary of state position. He inked a deal worth $300 billion in oil and gas exploration in 2012. (For
that, he received the highest civilian honour bestowed by Russia). This will be a boom for Koch
Industries as the sanctions against Russia are lifted. (Thank you Uncle Vlad for interfering in the
elections). This will be a boom for Russia -- for equities, FX and bonds. It is clear that sanctions
against Russia will be lifted regardless of whether Russia interfered in the elections. (Clinton made
this a campaign issue and still lost!).
B. Anyone who thinks this will be reversed by Greenpeace or other green organization is kidding
themselves. The Senate and House is Republican. Majority parties control all committees so they
control the agenda. The agenda is set. These guys are geniuses with the news cycle. And the vast
array of think tanks controlled by the Koch Brothers (most of them) allows them to control the news
cycle as well as the opinion pages of newspapers. The web on control on public opinion from the
Koch Brothers reaches every newspaper through a large array of think tanks like the AEI and Cato
Institute, not to mention the vast array of Koch think tanks.
C. If you don't like this, tough luck. Life is not fair. This is not going to be reversed. Think of it as
watching a science experiment. Bush lost the popular vote to Gore in 2001 and completely reversed
policies on tax, environment, Middle East, energy, fracking, birth control, and LGBT issues. Trump,
Pence, Bannon and Koch will make a deal which will be a hybrid of religious right on moral issues and
"zero intrusion from government" in commerce. Republicans already control the Senate, the House, a
majority of governorships as well as a majority of attorneys general. It will be very hard to reverse
this. And if Trump can deliver jobs to the midwest red states, more senate seats will turn red. Tom
Pyle's list of things to for the Department of Energy's transition team is expressly designed to do this.
This includes new oil and gas leasing projects, more fracking, more coal, more LNG projects -- and a
green light for both the Keystone and Dakota pipelines. The working paper reneges on the Paris pact,
the Clean Power Plan and the carbon tax. And it is expressly a climate change denial policy. States
like North Dakota, South Dakota, Oklahoma, Iowa, Texas, Louisiana, West Virginia, Kansas and
others will come to life again.. Most of these states have small populations but each gets a governor
and two senators.
HOUSE OVERSIGHT 026039
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Schulte-Research
China Fintech Map
Tencent
$231 bn
SZ
30%
WeBank
$5bn
SZ
Tencent 30%
12%
WeBank management
team from Ping An
Zhong An
sn bn
SH
Ant 16%
Ping An 12%
Tencent 12%
Ping An
CDH (ex-CICC)*
CICC
Lufax
525bn
SH
Ping An 44%
BOC, Guotai Junani
*CDH: set up by Wu Shangzhi. who brought a team from CICC
Alibaba/Ant
libaba will own 33% of Ant post IPO
$233 bn/$60 bn
HZ
(CC, CDB, CCB, China Life, China
Pacific insurance)
private
Ping An
$97 bn
SZ
CITIC Sec.
Zhong An
HOUSE OVERSIGHT 026040