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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Haidilao International Holding / Event-Driven

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September <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> review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing (981 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> being 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>, and of <a href="https://www.smartkarma.com/entities/china-taiping-insurance-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:489:1" rel="noopener">China Taiping Insurance Hldgs (966 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>, <a href="https://www.smartkarma.com/entities/china-minsheng-banking-h" target="_blank" data-smartkarma-citation="entities:8983:1" rel="noopener">China Minsheng Banking H (1988 HK)</a>, <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd-h" target="_blank" data-smartkarma-citation="entities:18368:1" rel="noopener">China Vanke Co Ltd (H) (2202 HK)</a>, <a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a>, <a href="https://www.smartkarma.com/entities/china-citic-bank-corp-ltd-ea6c25fd-4b20-45cb-a4a6-df7a60136f03" target="_blank" data-smartkarma-citation="entities:653:1" rel="noopener">China Citic Bank Corp Ltd H (998 HK)</a> and <a href="https://www.smartkarma.com/entities/china-shenhua-energy-co-h" target="_blank" data-smartkarma-citation="entities:382:1" rel="noopener">China Shenhua Energy Co H (1088 HK)</a> being deleted from the index.Depending on price movements between now and 30 September, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> and <a href="https://www.smartkarma.com/entities/hansoh-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:23675:1" rel="noopener">Hansoh Pharmaceutical (3692 HK)</a> could be included in the index, which would see <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a> and <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a> being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of China Overseas Land &amp; Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property &amp; Casualty H (2328 HK) being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div><a href="https://www.smartkarma.com/entities/ke-holdings-inc" target="_blank" data-smartkarma-citation="entities:29213:1" rel="noopener">KE Holdings Inc (BEKE US)</a> (BEKE), a company backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and Hillhouse, aims to raise up to US$2.01bn in its US listing.</div><div>BEKE combines Lianjia, China's leading real estate brokerage brand with more than 18 years of history, and Beike, China's leading integrated online and offline platform for housing transactions and services with two years of history.</div><div>In my previous insight, <a href="https://www.smartkarma.com/insights/ke-holdings-beike-pre-ipo-the-positives-fast-growth-high-market-share" target="_blank" rel="noopener">KE Holdings/​Beike Pre-IPO - The Positives - Fast Growth, High Market Share</a>, and <a href="https://www.smartkarma.com/insights/ke-holdings-beike-pre-ipo-the-negatives-questions-margins-p2p" target="_blank" rel="noopener">KE Holdings/​​Beike Pre-IPO - The Negatives - Questions, Margins, P2P</a> I spoke about the positive and negative aspects of the deal. In <a href="https://www.smartkarma.com/insights/ke-holdings-beike-pre-ipo-recent-updates-peer-comparison" target="_blank" rel="noopener">KE Holdings/​​Beike Pre-IPO - Recent Updates, Peer Comparison</a> I spoke about the recent updates. In <a href="https://www.smartkarma.com/insights/ke-holdings-beike-pre-ipo-thoughts-on-valuation-rumoured-valuation-might-be-a-stretch" target="_blank" rel="noopener">KE Holdings/​​​Beike Pre-IPO - Thoughts on Valuation, Rumoured Valuation Might Be a Stretch</a>, I spoke about valuations.</div><div>In this insight, I'll talk about deal dynamics and run it through our ECM framework.</div>

KE Holdings Inc (BEKE US) (BEKE), a company backed by Tencent Holdings (700 HK), Softbank Group (9984 JP) and Hillhouse, aims to raise up to US$2.01bn in its US listing.BEKE combines Lianjia, China's leading real estate brokerage brand with more than 18 years of history, and Beike, China's leading integrated online and offline platform for housing transactions and services with two years of history.In my previous insight, KE Holdings/​Beike Pre-IPO - The Positives - Fast Growth, High Market Share, and KE Holdings/​​Beike Pre-IPO - The Negatives - Questions, Margins, P2P I spoke about the positive and negative aspects of the deal. In KE Holdings/​​Beike Pre-IPO - Recent Updates, Peer Comparison I spoke about the recent updates. In KE Holdings/​​​Beike Pre-IPO - Thoughts on Valuation, Rumoured Valuation Might Be a Stretch, I spoke about valuations.In this insight, I'll talk about deal dynamics and run it through our ECM framework.

KE Holdings/​​​Beike IPO - Can't See Much Upside

Hang Seng China Enterprises Index / Event-Driven

The 2021 HSCEI dividend futures have been on a roller coaster ride since January this year when the HSIL published a consultation paper on the inclusion eligibility of WVR securities and secondary listings 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>.The spread between the 2020/21 dividend futures dropped from -10 to -110 and is currently trading at -74 using mid-market prices.We see a much higher probability of the 2020/21 dividend spread dropping towards its earlier lows due to:<ul>
<li>The HSIL decision to allow WVR securities and secondary listings in the index and the removal of extra eligibility criteria on P-chips and Red chips that will result in a LOT of changes to the index constituents in the September and December reviews where the expected inclusions have a much higher weight and much lower dividend yield as compared to the expected exclusions;</li>
<li>The potential index inclusion of new large cap listings in Hong Kong like <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a> and secondary listings of Chinese companies listed in the US where the dividend yield will be lower than that on the excluded stocks;</li>
<li>Possible increase in the index weight cap on WVR securities and secondary listings from 5% to 10% next year;</li>
<li>Possible cuts to bank dividends following the Government asking them to 'sacrifice' profits to bolster their balance sheets and lend to SMEs;</li>
<li>Company results - companies will start announcing interim results in the next few weeks and the impact of the Coronavirus on their revenues/profits will be known.</li>
</ul>The risks to this thesis are:<ul>
<li>Stocks that have never paid dividends start to pay dividends in 2021. Looking at you, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> </li>
<li>Possible special dividends from <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">Petrochina Co Ltd H (857 HK)</a> and <a href="https://www.smartkarma.com/entities/china-petroleum-chemical-h" target="_blank" data-smartkarma-citation="entities:369:1" rel="noopener">China Petroleum &amp; Chemical (386 HK)</a> following the sale of their pipeline assets to Pipe China</li>
<li>Company results that are better than last year even with the coronavirus pandemic raging and global trade sharply lower than last year.</li>
</ul>

The 2021 HSCEI dividend futures have been on a roller coaster ride since January this year when the HSIL published a consultation paper on the inclusion eligibility of WVR securities and secondary listings in the Hang Seng China Enterprises Index (HSCEI INDEX).The spread between the 2020/21 dividend futures dropped from -10 to -110 and is currently trading at -74 using mid-market prices.We see a much higher probability of the 2020/21 dividend spread dropping towards its earlier lows due to:
The HSIL decision to allow WVR securities and secondary listings in the index and the removal of extra eligibility criteria on P-chips and Red chips that will result in a LOT of changes to the index constituents in the September and December reviews where the expected inclusions have a much higher weight and much lower dividend yield as compared to the expected exclusions;
The potential index inclusion of new large cap listings in Hong Kong like Ant Financial (1051260D CH) and secondary listings of Chinese companies listed in the US where the dividend yield will be lower than that on the excluded stocks;
Possible increase in the index weight cap on WVR securities and secondary listings from 5% to 10% next year;
Possible cuts to bank dividends following the Government asking them to 'sacrifice' profits to bolster their balance sheets and lend to SMEs;
Company results - companies will start announcing interim results in the next few weeks and the impact of the Coronavirus on their revenues/profits will be known.
The risks to this thesis are:
Stocks that have never paid dividends start to pay dividends in 2021. Looking at you, Alibaba Group (9988 HK) 
Possible special dividends from Petrochina Co Ltd H (857 HK) and China Petroleum &amp; Chemical (386 HK) following the sale of their pipeline assets to Pipe China
Company results that are better than last year even with the coronavirus pandemic raging and global trade sharply lower than last year.


Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Wirecard, Skyworth, Nichii Gakkan, Yixin, Perennial, 58.Com, Keppel

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The constituent changes will be effective from 7 September 2020 and the rebalancing trades will need to be done at the closing auction on 4 September 2020.
There are a few methodology changes from the upcoming rebalance and one constraint specifically for the September rebalance.
The methodology changes are:
<ul>
<li>Eligibility of WVR securities and secondary listings for inclusion 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>,</li>
<li>A maximum weight in the index of 5% for any WVR security and secondary listing</li>
<li>The removal of additional eligibility criteria for non-constituent Red chips and P-chips</li>
</ul>
The constraint specifically for the September rebalance requires no more than 3 changes to the index constituents.
At the current time, we see a very high probability of <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan Dianping (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> being included in the HSCEI and of <a href="https://www.smartkarma.com/entities/sinopharm-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:32:1" rel="noopener">Sinopharm Group Co Ltd H (1099 HK)</a>, <a href="https://www.smartkarma.com/entities/citic-securities-h" target="_blank" data-smartkarma-citation="entities:463:1" rel="noopener">Citic Securities (H) (6030 HK)</a> and <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> being deleted from the HSCEI.
The third inclusion will either be <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a> or <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>. Currently, <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a> ranks higher than <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> and has a higher probability of being included in the index.

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The constituent changes will be effective from 7 September 2020 and the rebalancing trades will need to be done at the closing auction on 4 September 2020.
There are a few methodology changes from the upcoming rebalance and one constraint specifically for the September rebalance.
The methodology changes are:

Eligibility of WVR securities and secondary listings for inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX),
A maximum weight in the index of 5% for any WVR security and secondary listing
The removal of additional eligibility criteria for non-constituent Red chips and P-chips

The constraint specifically for the September rebalance requires no more than 3 changes to the index constituents.
At the current time, we see a very high probability of Meituan Dianping (3690 HK) and Alibaba Group (9988 HK) being included in the HSCEI and of Sinopharm Group Co Ltd H (1099 HK), Citic Securities (H) (6030 HK) and BYD (1211 HK) being deleted from the HSCEI.
The third inclusion will either be China Overseas Land &amp; Investment Ltd (688 HK) or Xiaomi Corp (1810 HK). Currently, China Overseas Land &amp; Investment Ltd (688 HK) ranks higher than Xiaomi Corp (1810 HK) and has a higher probability of being included in the index.

HSCEI Index Rebalance Preview - September 2020

Hong Kong

China Overseas Land & Investment Limited provides real estate services. The Company develops, manages, and invests in commercial properties. China Overseas Land & Investment serves customers globally.

China Overseas Land & Investment (688 HK)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

China Overseas Land & Investment (688 HK)

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Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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