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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

With one week left to go for Hang Seng Indexes (HSIL) to announce the 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> constituents as part of the December 2020 index review, we take a look at the performance of the expected inclusions and exclusions and try to formulate some trades.HSIL will make the index review announcement after the close of trading on 13 November, with all changes becoming effective after the close of trading on 4 December. There are 15 trading days between the announcement of the index review and the implementation date.The suspension of the <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> means that we are back our original expectation of 9 inclusions and 9 exclusions at the upcoming review.<div>
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.
<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> are very close to the buffer zone and 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.
In this Insight, we take a look at the updated short interest, the recent performance on the stocks and stocks that could see positions being built up in the week to announcement.
</div>

With one week left to go for Hang Seng Indexes (HSIL) to announce the changes to the Hang Seng China Enterprises Index (HSCEI INDEX) constituents as part of the December 2020 index review, we take a look at the performance of the expected inclusions and exclusions and try to formulate some trades.HSIL will make the index review announcement after the close of trading on 13 November, with all changes becoming effective after the close of trading on 4 December. There are 15 trading days between the announcement of the index review and the implementation date.The suspension of the Ant Group (6688 HK) means that we are back our original expectation of 9 inclusions and 9 exclusions at the upcoming 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.
NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) are very close to the buffer zone and could be included in the index, which would see Want Want (151 HK) and PICC Property &amp; Casualty H (2328 HK) being deleted.
In this Insight, we take a look at the updated short interest, the recent performance on the stocks and stocks that could see positions being built up in the week to announcement.


HSCEI Dec20 Index Rebalance Preview: One Week to Announcement

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

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

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 Bottom-Up

<ul>
<li>U.S. Secretary of State, Pompeo, suggests Chinese cloud companies should be banned.</li>
<li>If the users in China face the choice between WeChat and iPhone, we believe they will choose WeChat.</li>
<li>Online game sales increased 22.3% YoY in China in 1H20.</li>
</ul>


U.S. Secretary of State, Pompeo, suggests Chinese cloud companies should be banned.
If the users in China face the choice between WeChat and iPhone, we believe they will choose WeChat.
Online game sales increased 22.3% YoY in China in 1H20.


China Internet Weekly (10Aug2020): Pompeo Mentioned Decoupling List, How About Apple in China?

<ul class="">
<li>JD.com (JD) acquired 100% of Five Star, a store chain of household appliance.</li>
<li>Xiaomi (1810 HK)’s smartphone sales decreased by 35% YoY in 2Q20.</li>
<li>The State Post Bureau of China announced that the revenue from express parcel increased by 23.5% YoY in 2Q20 versus a decrease of 0.6% YoY in 1Q20.</li>
<li>The National Development and Reform Commission requires internet broadband providers to reduce prices by 15% for corporate users.</li>
</ul>


JD.com (JD) acquired 100% of Five Star, a store chain of household appliance.
Xiaomi (1810 HK)’s smartphone sales decreased by 35% YoY in 2Q20.
The State Post Bureau of China announced that the revenue from express parcel increased by 23.5% YoY in 2Q20 versus a decrease of 0.6% YoY in 1Q20.
The National Development and Reform Commission requires internet broadband providers to reduce prices by 15% for corporate users.


China Internet Weekly (3Aug2020): JD Acquired Appliance Store, Xiaomi Phone Sales Plunged

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

<ul type="disc">
<li>
In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For investors looking for 5G thematic ideas, we provide a snapshot of the sectors in the 5G value chain.  To distill our ideas, we focus on three positive factors: 1) does 5G generate new customers or revenue sources? 2) does it lead to market share changes? And 3) are the sectors in the upward cycle still in play? </li>
<li>
The sectors we like in the 5G context are Internet technology platforms, smartphones/devices, 5G infrastructure vendors, PCB and small cell technology providers, and selective telecom operators. We are bullish on Southeast Asian telcos but bearish on North Asian telcos.  </li>
</ul><ul type="disc"><li>
Our contrarian buys in the telecom sector are <a href="https://www.smartkarma.com/entities/advanced-info-service-pcl" target="_blank" data-smartkarma-citation="entities:947:1" rel="noopener">Advanced Info Service (ADVANC TB)</a> and <a href="https://www.smartkarma.com/entities/globe-telecom-inc" target="_blank" data-smartkarma-citation="entities:1926:1" rel="noopener">Globe Telecom (GLO PM)</a>. They operate in markets with low fixed broadband penetration and weak incumbent fixed broadband operators.  5G FWA (fixed wireless access) will allow these operators to expand fixed broadband penetration and also gain market share.  </li></ul><ul type="disc">
<li>
Avoid North Asia telecom operators. North Asian telecom stocks languished because they did not generate sufficient returns on 3G and 4G. 5G is no different.    </li>
<li>
5G provides low priced smartphone maker <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> another opportunity to gain market share as did 4G, but it will not lead to total handset shipment growth for top brands, in our view. </li>
<li>
The best time to take a position in telecom equipment vendors is pre-launch and in the first two years of the new generation technology launch. <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> is trading below its 10-year mean P/E.  </li>
</ul><hr><div class="content-highlight">
<h2>What’s Original?</h2>
We set out in this report to be different from others by avoiding a menu of stocks and the size of the markets in the 5G ecosystem and, instead, recommend several key thematic ideas distilled by analyzing more in-depth the drivers of three key sectors to determine where the market is overly bullish or overlooking the opportunities or where the 5G factor has not yet been priced-in. 
<ul>
<li>We analyzed the stock price performances of these sectors to review how they behaved during the 4G deployment to ascertain how they may react to 5G.</li>
<li>We conducted a proprietary analysis of the size of the potential revenue from billions of IoT connections that the industry is touting in the long term.</li>
<li>We provide a RoIC analysis of the Chinese telecom operators' 3G/4G investments to better understand why the Chinese telecom operators invest less in 5G than the figures promoted by the governments or the industry research firms.   </li>
<li>We compare our Capex forecasts with the industry projection to assess the opportunities and risks. </li>
</ul>
</div>



In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For investors looking for 5G thematic ideas, we provide a snapshot of the sectors in the 5G value chain.  To distill our ideas, we focus on three positive factors: 1) does 5G generate new customers or revenue sources? 2) does it lead to market share changes? And 3) are the sectors in the upward cycle still in play? 

The sectors we like in the 5G context are Internet technology platforms, smartphones/devices, 5G infrastructure vendors, PCB and small cell technology providers, and selective telecom operators. We are bullish on Southeast Asian telcos but bearish on North Asian telcos.  

Our contrarian buys in the telecom sector are Advanced Info Service (ADVANC TB) and Globe Telecom (GLO PM). They operate in markets with low fixed broadband penetration and weak incumbent fixed broadband operators.  5G FWA (fixed wireless access) will allow these operators to expand fixed broadband penetration and also gain market share.  

Avoid North Asia telecom operators. North Asian telecom stocks languished because they did not generate sufficient returns on 3G and 4G. 5G is no different.    

5G provides low priced smartphone maker Xiaomi Corp (1810 HK) another opportunity to gain market share as did 4G, but it will not lead to total handset shipment growth for top brands, in our view. 

The best time to take a position in telecom equipment vendors is pre-launch and in the first two years of the new generation technology launch. Zte Corp H (763 HK) is trading below its 10-year mean P/E.  

What’s Original?
We set out in this report to be different from others by avoiding a menu of stocks and the size of the markets in the 5G ecosystem and, instead, recommend several key thematic ideas distilled by analyzing more in-depth the drivers of three key sectors to determine where the market is overly bullish or overlooking the opportunities or where the 5G factor has not yet been priced-in. 

We analyzed the stock price performances of these sectors to review how they behaved during the 4G deployment to ascertain how they may react to 5G.
We conducted a proprietary analysis of the size of the potential revenue from billions of IoT connections that the industry is touting in the long term.
We provide a RoIC analysis of the Chinese telecom operators' 3G/4G investments to better understand why the Chinese telecom operators invest less in 5G than the figures promoted by the governments or the industry research firms.   
We compare our Capex forecasts with the industry projection to assess the opportunities and risks. 



China

China Telecom Corporation Limited, through its subsidiaries, provides wireline telephone, data, and Internet, as well as leased line services in China.

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China Telecom (H) (728 HK)

HSCEI Dec20 Index Rebalance Preview: One Week to Announcement

With 6 trading days to go to the announcement of the HSCEI December index review, we take a look at the performance of the expected inclusions/...

Brian Freitas

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

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...

Brian Freitas

China Internet Weekly (10Aug2020): Pompeo Mentioned Decoupling List, How About Apple in China?

U.S. Secretary of State, Pompeo, suggests Chinese cloud companies should be banned. If the users in China face the choice between WeChat and...

Ming Lu

China Internet Weekly (3Aug2020): JD Acquired Appliance Store, Xiaomi Phone Sales Plunged

JD.com (JD) acquired 100% of Five Star, a store chain of household appliance. Xiaomi (1810 HK)’s smartphone sales decreased by 35% YoY in...

Ming Lu

Road to 5G: How to Make Money in 5G

In this report, we highlight the best money making ideas by identifying the winners and the losers of the sectors in the 5G value chain. For...

Mitchell Kim

Price Gauge

52-week Range

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