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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a>, there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 30.The inclusions are Autohome (2518 HK) and <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili Inc (9626 HK)</a> while the deletions are <a href="https://www.smartkarma.com/entities/zte-corp-h" target="_blank" data-smartkarma-citation="entities:6922:1" rel="noopener">ZTE Corp H (763 HK)</a>, <a href="https://www.smartkarma.com/entities/fit-hon-teng-ltd" target="_blank" data-smartkarma-citation="entities:22868:1" rel="noopener">Fit Hon Teng (6088 HK)</a> and <a href="https://www.smartkarma.com/entities/archosaur-games" target="_blank" data-smartkarma-citation="entities:28948:1" rel="noopener">Archosaur Games (9990 HK)</a>.The inclusion of Autohome (2518 HK) is a surprise and so is the corresponding deletion of <a href="https://www.smartkarma.com/entities/fit-hon-teng-ltd" target="_blank" data-smartkarma-citation="entities:22868:1" rel="noopener">Fit Hon Teng (6088 HK)</a>. With a large impact on both names, these are the ones to watch for. One-way turnover is estimated at 5.61% and will result in a one-way trade of HK$1.41bn.There are 10 trading days to implementation of the changes. The largest passive flows will go to <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili Inc (9626 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> while there will be outflows from <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/zte-corp-h" target="_blank" data-smartkarma-citation="entities:6922:1" rel="noopener">ZTE Corp H (763 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hang Seng Tech Index (HSTECH INDEX), there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 30.The inclusions are Autohome (2518 HK) and Bilibili Inc (9626 HK) while the deletions are ZTE Corp H (763 HK), Fit Hon Teng (6088 HK) and Archosaur Games (9990 HK).The inclusion of Autohome (2518 HK) is a surprise and so is the corresponding deletion of Fit Hon Teng (6088 HK). With a large impact on both names, these are the ones to watch for. One-way turnover is estimated at 5.61% and will result in a one-way trade of HK$1.41bn.There are 10 trading days to implementation of the changes. The largest passive flows will go to Bilibili Inc (9626 HK), Kuaishou Technology (1024 HK), Meituan (3690 HK) and Tencent (700 HK) while there will be outflows from Xiaomi Corp (1810 HK), ZTE Corp H (763 HK), Alibaba Group (9988 HK) and JD Health (6618 HK).

HSTECH Index Rebalance: Back to 30 with 2 Adds and 3 Deletes

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For 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>, there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.The inclusions are <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, while <a href="https://www.smartkarma.com/entities/guangdong-investment-ltd" target="_blank" data-smartkarma-citation="entities:12109:1" rel="noopener">Guangdong Investment (270 HK)</a>, <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> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a> have been deleted from the index. This is exactly in line with our <a href="https://www.smartkarma.com/insights/hscei-june-2021-index-rebalance-preview-three-adds-four-deletes-possible" target="_blank" rel="noopener">forecast</a>.One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a>.There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> was widely expected to be included but <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> was not on everyone's list. With 4 days ADV to buy on <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, the stock could outperform till implementation date.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hang Seng China Enterprises Index (HSCEI INDEX), there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.The inclusions are BYD (1211 HK) and Evergrande Property Services (6666 HK), while Guangdong Investment (270 HK), China Unicom Hong Kong (762 HK) and China Tower (788 HK) have been deleted from the index. This is exactly in line with our forecast.One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be on Tencent (700 HK), China Construction Bank H (939 HK) and China Tower (788 HK).There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). BYD (1211 HK) was widely expected to be included but Evergrande Property Services (6666 HK) was not on everyone's list. With 4 days ADV to buy on Evergrande Property Services (6666 HK), the stock could outperform till implementation date. 

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> April ADT (Average Daily Turnover) re-accelerated from March metrics, delivering amazing 55% year-over-year growth in the month. The outperformance is helped by the rebound of global equity markets and easy comparable from last year. For first 4 months of year 2021, HKEx ADT has accelerated the year-over-year growth rate to 77%. IPO market remains robust. Total raised fund has reached HK$137 billion in 32 IPO deals. New economy and biotech stocks account 95% of IPO deals.</li>
<li>We maintain our sanguine view on trading activities and IPO pipeline in Hong Kong market in 2021, and believe these are the driver to further lift market activities. HKEx delivered HK$3,840mn profit in 21Q1, up 31% quarter-over-quarter, 70% year-over-year. Total ADT is up 86% year-over-year and reached HK$244 bn. Excluding Southbound Stock Connect, ADT grew 76% year-over-year. Commodity trading volume at LME also rebounded 5% quarter-over-quarter. </li>
<li>We forecast Securities ADT of HK$240bn in FY 21 (excluding Stock Connect Northbound volume) and have TP HKD 550 for <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>. Mr. Nicolas Aguzin will become HKEx new CEO effective next Monday May 24 and will deliver his first public speech as HKEx new CEO at LME Asia2021 Metal Seminar on May 25, 2021.  We expect Mr Aguzin will continue to strengthen HKEx market leading position in China New Economy sector and Stock Connect program.     </li>
</ul>



HKEX (388 HK) April ADT (Average Daily Turnover) re-accelerated from March metrics, delivering amazing 55% year-over-year growth in the month. The outperformance is helped by the rebound of global equity markets and easy comparable from last year. For first 4 months of year 2021, HKEx ADT has accelerated the year-over-year growth rate to 77%. IPO market remains robust. Total raised fund has reached HK$137 billion in 32 IPO deals. New economy and biotech stocks account 95% of IPO deals.
We maintain our sanguine view on trading activities and IPO pipeline in Hong Kong market in 2021, and believe these are the driver to further lift market activities. HKEx delivered HK$3,840mn profit in 21Q1, up 31% quarter-over-quarter, 70% year-over-year. Total ADT is up 86% year-over-year and reached HK$244 bn. Excluding Southbound Stock Connect, ADT grew 76% year-over-year. Commodity trading volume at LME also rebounded 5% quarter-over-quarter. 
We forecast Securities ADT of HK$240bn in FY 21 (excluding Stock Connect Northbound volume) and have TP HKD 550 for HKEX (388 HK). Mr. Nicolas Aguzin will become HKEx new CEO effective next Monday May 24 and will deliver his first public speech as HKEx new CEO at LME Asia2021 Metal Seminar on May 25, 2021.  We expect Mr Aguzin will continue to strengthen HKEx market leading position in China New Economy sector and Stock Connect program.     


HKEx(388.HK): New Economy and Stock Connect to Continue Lift Trading Activities

The Hang Seng Indexes Company Limited (HSIL) will announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a>, we see <a href="https://www.smartkarma.com/entities/zte-corp-h" target="_blank" data-smartkarma-citation="entities:6922:1" rel="noopener">Zte Corp H (763 HK)</a> as a deletion to bring the number of index constituents back to 30.If <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili Inc (9626 HK)</a> is added to the index, then <a href="https://www.smartkarma.com/entities/archosaur-games" target="_blank" data-smartkarma-citation="entities:28948:1" rel="noopener">Archosaur Games (9990 HK)</a> could be deleted.One-way turnover for the June rebalance is estimated at 5.47% and the one-way trade will be HK$1,190m.Short interest on both potential deletions is high at over 7 days of ADV to cover. There will be some support for the stocks at lower levels.

The Hang Seng Indexes Company Limited (HSIL) will announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hang Seng Tech Index (HSTECH INDEX), we see Zte Corp H (763 HK) as a deletion to bring the number of index constituents back to 30.If Bilibili Inc (9626 HK) is added to the index, then Archosaur Games (9990 HK) could be deleted.One-way turnover for the June rebalance is estimated at 5.47% and the one-way trade will be HK$1,190m.Short interest on both potential deletions is high at over 7 days of ADV to cover. There will be some support for the stocks at lower levels.

Hang Seng TECH Index Rebalance Preview: 1 Deletion & Another Potential Change

Quantitative Analysis

After outperforming its global peers over the last year, the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> has had a big drawdown that has brought its performance closer to its peers. Today's drop has closed the gap even further.With a backdrop of heightened US-China tensions, increased regulatory pressure from the State Administration for Market Regulation (SAMR) and an increased focus on monopolies (or perceived monopolies), investors have been happy to sell first given the gains they were sitting on, plus the valuation premium.With valuations now lining up with their global peers, Hang Seng Indexes has announced that the China Securities Regulatory Commission (CSRC) had approved 7 ETFs and 1 Index Fund that will track the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a>. The mainland ETFs could garner a large amount of assets quickly given that most index members are household names. Additionally, stocks like <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> are not eligible for Southbound Stock Connect and the ETFs will offer investors access to those names.With the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> (or the "NASDAQ of the East" as it is called) underperforming the <a href="https://www.smartkarma.com/entities/nasdaq-100-stock-index" target="_blank" data-smartkarma-citation="entities:26197:1" rel="noopener">Nasdaq-100 Stock Index (NDX INDEX)</a> (of the West) over the last few months, there could be an opportunity to buy the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> futures and hedge with <a href="https://www.smartkarma.com/entities/nasdaq-100-stock-index" target="_blank" data-smartkarma-citation="entities:26197:1" rel="noopener">Nasdaq-100 Stock Index (NDX INDEX)</a> futures.

After outperforming its global peers over the last year, the Hang Seng Tech Index (HSTECH INDEX) has had a big drawdown that has brought its performance closer to its peers. Today's drop has closed the gap even further.With a backdrop of heightened US-China tensions, increased regulatory pressure from the State Administration for Market Regulation (SAMR) and an increased focus on monopolies (or perceived monopolies), investors have been happy to sell first given the gains they were sitting on, plus the valuation premium.With valuations now lining up with their global peers, Hang Seng Indexes has announced that the China Securities Regulatory Commission (CSRC) had approved 7 ETFs and 1 Index Fund that will track the Hang Seng Tech Index (HSTECH INDEX). The mainland ETFs could garner a large amount of assets quickly given that most index members are household names. Additionally, stocks like Alibaba Group (9988 HK), Baidu (9888 HK) and JD.com Inc. (9618 HK) are not eligible for Southbound Stock Connect and the ETFs will offer investors access to those names.With the Hang Seng Tech Index (HSTECH INDEX) (or the "NASDAQ of the East" as it is called) underperforming the Nasdaq-100 Stock Index (NDX INDEX) (of the West) over the last few months, there could be an opportunity to buy the Hang Seng Tech Index (HSTECH INDEX) futures and hedge with Nasdaq-100 Stock Index (NDX INDEX) futures.

Hang Seng TECH Index: How Much Lower Can It Go? CSRC Approves 7 ETFs

China

Baidu, Inc. operates an Internet search engine. The Company offers algorithmic search, enterprise search, news, MP3, and image searches, voice assistance, online storage, and navigation services. Baidu serves clients globally.

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Baidu (9888 HK)

HSTECH Index Rebalance: Back to 30 with 2 Adds and 3 Deletes

There are 2 adds and 3 deletes for the HSTECH Index. One-way turnover is estimated at 5.61% and will result in a one-way trade of HK$1.41bn. 2518...

Brian Freitas

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

The 2 adds and 3 deletes for the HSCEI are just what we expected. BYD is an inclusion in the HSI too and could move higher over the next 2 weeks....

Brian Freitas

HKEx(388.HK): New Economy and Stock Connect to Continue Lift Trading Activities

HKEx will continue to strengthen its market leading position in China New Economy sector and Stock Connect program. We forecast Securities ADT of...

Roger Xie

Hang Seng TECH Index Rebalance Preview: 1 Deletion & Another Potential Change

ZTE could be deleted from the HSTECH Index at the June review. If Bilibili is added to the index, Archosaur Games could be deleted. One-way...

Brian Freitas

Hang Seng TECH Index: How Much Lower Can It Go? CSRC Approves 7 ETFs

The Hang Seng TECH Index has had a large drawdown over the last couple of months on regulatory pressure and stretched valuations. With new ETFs...

Brian Freitas

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