Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

As we have said many time before, the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> methodology that will impact the dividend futures.

As we have said many time before, the Hang Seng China Enterprises Index (HSCEI INDEX) 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from the Hang Seng China Enterprises Index (HSCEI INDEX) in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and to the Hang Seng China Enterprises Index (HSCEI INDEX) methodology that will impact the dividend futures.

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

There are a lot of changes expected to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> over the next 6 months.<a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> lists on 5 February and we expect the stock to get Fast Entry to the index with the change implemented at the close of trading on 22 February.The Hang Seng Indexes Company Limited (HSIL) will announce the results of the March 2021 review of the Hang Seng Family of Indexes on 26 February. The constituent changes will be effective after the close of trading on 12 March. We expect 1 inclusion and 3 exclusions at the review.At the current time, we expect 3 changes at the June 2021 review. There are a few stocks that are close adds and deletes and the actual number of changes could be higher.There are a few large IPOs that could take place this year that could get those stocks Fast Entry/ regular entry into the index. The main ones are <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (1284375D CH)</a>, JD Logistics, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>'s Douyin and a possible revival of the shelved <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> IPO.Then there is the possibility of some large 'homecoming' listings getting included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> over the next few reviews. <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> is rumored to have picked banks and is said to plan a listing in Hong Kong in the first half of the year, with <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> and <a href="https://www.smartkarma.com/entities/bilibili-inc" target="_blank" data-smartkarma-citation="entities:26793:1" rel="noopener">Bilibili Inc (BILI US)</a> as other names on the list.In this Insight, we lay out the potential roadmap of upcoming changes to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> along with the impact on the stocks.

There are a lot of changes expected to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months.Kuaishou Technology (1024 HK) lists on 5 February and we expect the stock to get Fast Entry to the index with the change implemented at the close of trading on 22 February.The Hang Seng Indexes Company Limited (HSIL) will announce the results of the March 2021 review of the Hang Seng Family of Indexes on 26 February. The constituent changes will be effective after the close of trading on 12 March. We expect 1 inclusion and 3 exclusions at the review.At the current time, we expect 3 changes at the June 2021 review. There are a few stocks that are close adds and deletes and the actual number of changes could be higher.There are a few large IPOs that could take place this year that could get those stocks Fast Entry/ regular entry into the index. The main ones are DiDi Chuxing (1284375D CH), JD Logistics, ByteDance (1460967D CH)'s Douyin and a possible revival of the shelved Ant Group (6688 HK) IPO.Then there is the possibility of some large 'homecoming' listings getting included in the Hang Seng China Enterprises Index (HSCEI INDEX) over the next few reviews. Baidu (BIDU US) is rumored to have picked banks and is said to plan a listing in Hong Kong in the first half of the year, with Pinduoduo (PDD US) and Bilibili Inc (BILI US) as other names on the list.In this Insight, we lay out the potential roadmap of upcoming changes to the Hang Seng China Enterprises Index (HSCEI INDEX) along with the impact on the stocks.

HSCEI Index Rebalances - The Year of the Ox and of More Change

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> along with their ADRs (<a href="https://www.smartkarma.com/entities/china-mobile-ltd-spon-adr" target="_blank" data-smartkarma-citation="entities:16398:1" rel="noopener">China Mobile Ltd Spon Adr (CHL US)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-adr" target="_blank" data-smartkarma-citation="entities:1017:1" rel="noopener">China Telecom Corp Ltd (Adr) (CHA US)</a>, and <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-adr" target="_blank" data-smartkarma-citation="entities:1000:1" rel="noopener">China Unicom Hong Kong (Adr) (CHU US)</a>) present a very strange problem. The Trump <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-securities-investments-finance-communist-chinese-military-companies/" target="_blank" rel="noopener">Executive Order</a> (Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) is something of nuisance. It doesn’t sanction most of the names on the Defense Department Qualifying Entity list but it makes it so that US Persons and those that invest US Person money cannot invest in the securities of these companies and in certain subsidiaries. But the list of Communist Chinese Military Companies includes the parent companies of the three Chinese mobile telephony companies, and those three companies, along with many Chinese companies, have underperformed peers in other markets since the Executive Order was announced.The new FAQs published by the Treasury Department OFAC (discussed in <a href="https://www.smartkarma.com/insights/ofac-makes-a-longer-list-of-trump-names-of-china-military-cos" target="_blank" data-smartkarma-citation="insights:46704" rel="noopener">OFAC Makes a Longer List of Trump Names of China Military Cos</a>) suggest all 50% subsidiaries or ‘entities determined to be controlled by one or more Communist Chinese military company(ies) identified in or pursuant to EO 13959’ will be covered under the Executive Order but also says that the deadline for not transacting in such names would be 60 days after the OFAC adds the specific name to the list. <blockquote>The initial prohibitions pursuant to section 1(a)(ii) of E.O. 13959 would go into effect beginning 9:30 a.m. eastern time on the date that is 60 days after such subsidiary is added to OFAC’s new list to further implement E.O. 13959. <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/857" target="_blank" rel="noopener">FAQ 857</a></blockquote>The three HK-listed telecom stocks are subsidiaries of QEs but they have yet to be listed, and the US-listed ADRs have also yet to be listed on the OFAC list. That means the NYSE <a href="https://ir.theice.com/press/news-details/2020/NYSE-to-Commence-Delisting-Proceedings-in-Securities-of-Three-Issuers-to-Comply-with-Executive-Order-13959/default.aspx" target="_blank" rel="noopener">decision</a> to delist the stocks was somewhat precipitous, and I expect there may have been political pressure to delist prior to the 11th when the deadline for the first set of stocks arrives at their initial 60-day deadline.Saturday, China's Commerce Ministry warned of "necessary countermeasures to resolutely safeguard the legitimate rights and interests of Chinese companies" in response to the NYSE announcement but there were no details, and in announcing the criticism, saying that the NYSE's actions would "greatly weaken all parties' confidence in the US capital markets", the Chinese Commerce Ministry was effectively saying that retaliation would greatly weaken all parties' confidence in Chinese capital markets. One can't have it both ways, and it must be noted that given the SEC's <a href="https://www.sec.gov/corpfin/disclosure-considerations-china-based-issuers" target="_blank" rel="noopener">guidance</a> at end-November on Chinese ADRs in the US is really a matter of time given China's Securities Law. Yesterday, the CSRC <a href="http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/202101/t20210103_390002.html" target="_blank" rel="noopener">responded</a> with a measured comment, and today, in what has to be seen as an embarrassing walk-back, the NYSE has <a href="https://ir.theice.com/press/news-details/2021/NYSE-Updates-Guidance-on-Delisting-Determination-for-Securities-of-Three-Issuers-in-Relation-to-Executive-Order-13959--/default.aspx" target="_blank" rel="noopener">walked back their decision to delist the three ADRs</a>. This was accompanied by further clarification from OFAC in the form of FAQ 862, which notes that nothing requires that US Persons actually sell their holdings, just that they might be restricted from doing so if they do not do so in the period between the 60 day deadline and the subsequent exemption period end.The three names have popped sharply in Hong Kong, more than making up for yesterday's smaller fall in price.That leaves investors with another issue.Discussion ensues below.

China Mobile (941 HK), China Telecom Corp Ltd (H) (728 HK), and China Unicom Hong Kong (762 HK) along with their ADRs (China Mobile Ltd Spon Adr (CHL US), China Telecom Corp Ltd (Adr) (CHA US), and China Unicom Hong Kong (Adr) (CHU US)) present a very strange problem. The Trump Executive Order (Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) is something of nuisance. It doesn’t sanction most of the names on the Defense Department Qualifying Entity list but it makes it so that US Persons and those that invest US Person money cannot invest in the securities of these companies and in certain subsidiaries. But the list of Communist Chinese Military Companies includes the parent companies of the three Chinese mobile telephony companies, and those three companies, along with many Chinese companies, have underperformed peers in other markets since the Executive Order was announced.The new FAQs published by the Treasury Department OFAC (discussed in OFAC Makes a Longer List of Trump Names of China Military Cos) suggest all 50% subsidiaries or ‘entities determined to be controlled by one or more Communist Chinese military company(ies) identified in or pursuant to EO 13959’ will be covered under the Executive Order but also says that the deadline for not transacting in such names would be 60 days after the OFAC adds the specific name to the list. The initial prohibitions pursuant to section 1(a)(ii) of E.O. 13959 would go into effect beginning 9:30 a.m. eastern time on the date that is 60 days after such subsidiary is added to OFAC’s new list to further implement E.O. 13959. FAQ 857The three HK-listed telecom stocks are subsidiaries of QEs but they have yet to be listed, and the US-listed ADRs have also yet to be listed on the OFAC list. That means the NYSE decision to delist the stocks was somewhat precipitous, and I expect there may have been political pressure to delist prior to the 11th when the deadline for the first set of stocks arrives at their initial 60-day deadline.Saturday, China's Commerce Ministry warned of "necessary countermeasures to resolutely safeguard the legitimate rights and interests of Chinese companies" in response to the NYSE announcement but there were no details, and in announcing the criticism, saying that the NYSE's actions would "greatly weaken all parties' confidence in the US capital markets", the Chinese Commerce Ministry was effectively saying that retaliation would greatly weaken all parties' confidence in Chinese capital markets. One can't have it both ways, and it must be noted that given the SEC's guidance at end-November on Chinese ADRs in the US is really a matter of time given China's Securities Law. Yesterday, the CSRC responded with a measured comment, and today, in what has to be seen as an embarrassing walk-back, the NYSE has walked back their decision to delist the three ADRs. This was accompanied by further clarification from OFAC in the form of FAQ 862, which notes that nothing requires that US Persons actually sell their holdings, just that they might be restricted from doing so if they do not do so in the period between the 60 day deadline and the subsequent exemption period end.The three names have popped sharply in Hong Kong, more than making up for yesterday's smaller fall in price.That leaves investors with another issue.Discussion ensues below.

China Mobile (941 HK): Probably Too Cheap

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) Alibaba: Antitrust Concerns2) Tencent Under Pressure From Antitrust Push3) POTUS Executive Order: New OFAC Clarification 4) China Logistics: Major Shareholders Seek to Exit 5) Kuaishou Technology IPO6) Yidu Tech IPO7) TOPIX Inclusion: ODK Solutions 8) New Horizon IPO9) Goldwin Bullish for Future Growth10) Yaoko: A Difficult 2021 Coming11) IQIYI Valuation12) Digital Currency: Still Remember Facebook Libra/​Diem?13) China Dental Care Industry14) ZTO Express &amp; BEST Inc15) Infrastructure Asset-Backed Securities: New Asset Class for Asia16) Japan Airport Terminal17) Will Biden Get Officially Inaugurated on 20 January?

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) Alibaba: Antitrust Concerns2) Tencent Under Pressure From Antitrust Push3) POTUS Executive Order: New OFAC Clarification 4) China Logistics: Major Shareholders Seek to Exit 5) Kuaishou Technology IPO6) Yidu Tech IPO7) TOPIX Inclusion: ODK Solutions 8) New Horizon IPO9) Goldwin Bullish for Future Growth10) Yaoko: A Difficult 2021 Coming11) IQIYI Valuation12) Digital Currency: Still Remember Facebook Libra/​Diem?13) China Dental Care Industry14) ZTO Express &amp; BEST Inc15) Infrastructure Asset-Backed Securities: New Asset Class for Asia16) Japan Airport Terminal17) Will Biden Get Officially Inaugurated on 20 January? 

Smartkarma North Asia Weekly: Alibaba Antitrust, OFAC Clarification, China Logistics, & Kuaishou IPO

On the 12th of November, newly lame duck US president Donald Trump signed an <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-securities-investments-finance-communist-chinese-military-companies/" target="_blank" rel="noopener">Executive Order</a>(Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) banning investment and capital provision by "US persons" to companies in lists established by the US Department of Defense pursuant to Public Law 105-261, Section 1237 (Fiscal Year 1999 National Defense Authorization Act).The various global index providers immediately commenced consultations with their myriad investors and with OFAC (the Office of Foreign Asset Control of the US Treasury Department) and decided in early December for the most part to delete certain securities from their indices. New guidance from OFAC in the form of FAQs (Frequently Asked Questions related to Executive Order (E.O.) 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies":  <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/857" target="_blank" rel="noopener">857</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/858" target="_blank" rel="noopener">858</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/859" target="_blank" rel="noopener">859</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/860" target="_blank" rel="noopener">860</a>, <a href="https://home.treasury.gov/policy-issues/financial-sanctions/faqs/861" target="_blank" rel="noopener">861</a>). This insight looks at the indirect holdings and subsidiaries.It is a BIG list (I have a list of 133 names, most of which appear to be 50+% controlled, which could be affected in portfolios).Investors would do well to understand how much of the float is for sale.

On the 12th of November, newly lame duck US president Donald Trump signed an Executive Order(Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies) banning investment and capital provision by "US persons" to companies in lists established by the US Department of Defense pursuant to Public Law 105-261, Section 1237 (Fiscal Year 1999 National Defense Authorization Act).The various global index providers immediately commenced consultations with their myriad investors and with OFAC (the Office of Foreign Asset Control of the US Treasury Department) and decided in early December for the most part to delete certain securities from their indices. New guidance from OFAC in the form of FAQs (Frequently Asked Questions related to Executive Order (E.O.) 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies":  857, 858, 859, 860, 861). This insight looks at the indirect holdings and subsidiaries.It is a BIG list (I have a list of 133 names, most of which appear to be 50+% controlled, which could be affected in portfolios).Investors would do well to understand how much of the float is for sale.

OFAC Makes a Longer List of Trump Names of China Military Cos

China

China Tower Corporation Limited operates as a telecommunication company. The Company provides telecommunication towers construction, towers maintenance, ancillary facilities management, and other services. China Tower provides its services throughout China.

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China Tower (788 HK)

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

We see downside in the HSCEI 2021 and 2022 div futures due to changes in the index composition and potential changes in the index methodology....

Brian Freitas

HSCEI Index Rebalances - The Year of the Ox and of More Change

There will be a lot of changes to the HSCEI this year that will impact the sectoral composition and open up trading opportunities on the stocks and...

Brian Freitas

China Mobile (941 HK): Probably Too Cheap

China Mobile Telcos are between a rock and a hard place. The NYSE acted too quickly. The Treasury Dept has been slow to clarify. Investors are...

Travis Lundy

Smartkarma North Asia Weekly: Alibaba Antitrust, OFAC Clarification, China Logistics, & Kuaishou IPO

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK...

Douglas Kim

OFAC Makes a Longer List of Trump Names of China Military Cos

There are a LOT of names which could be affected by the Trump Executive Order on China Military Companies. It behooves investors to have a list....

Travis Lundy

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