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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>For the week from 22-26 March, Hong Kong saw shorts rise on <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>, <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/yihai-int-l-holding-ltd" target="_blank" data-smartkarma-citation="entities:22803:1" rel="noopener">Yihai Int’L Holding (1579 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> and <a href="https://www.smartkarma.com/entities/lenovo-group-ltd" target="_blank" data-smartkarma-citation="entities:13359:1" rel="noopener">Lenovo (992 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/sino-biopharmaceutical" target="_blank" data-smartkarma-citation="entities:230:1" rel="noopener">Sino Biopharmaceutical (1177 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>, <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> and <a href="https://www.smartkarma.com/entities/china-literature-ltd" target="_blank" data-smartkarma-citation="entities:24388:1" rel="noopener">China Literature (772 HK)</a>. Shorts increased in the Communication Services, Financials, Information Technology and Consumer Discretionary sectors.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP)</a>, <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon Co Ltd (8267 JP)</a> and <a href="https://www.smartkarma.com/entities/peptidream-inc" target="_blank" data-smartkarma-citation="entities:13514:1" rel="noopener">Peptidream Inc (4587 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a>, <a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>, <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a> and <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a>. Shorts increased in the Industrials sectors, and decreased in the Financials, Communication Services and Health Care sectors.</p></div><div><p>In Korea, shorts decreased on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-biologics-co-ltd" target="_blank" data-smartkarma-citation="entities:22932:1" rel="noopener">Samsung Biologics Co., (207940 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a> during the week. </p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a>, <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a> and <a href="https://www.smartkarma.com/entities/novatek-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:10904:1" rel="noopener">Novatek Microelectronics Corp (3034 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/unimicron-technology-corp" target="_blank" data-smartkarma-citation="entities:18778:1" rel="noopener">Unimicron Technology (3037 TT)</a>, <a href="https://www.smartkarma.com/entities/elite-semiconductor-memory" target="_blank" data-smartkarma-citation="entities:9373:1" rel="noopener">Elite Semiconductor Memory (3006 TT)</a>, <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">AU Optronics (2409 TT)</a> and <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>. </p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.For the week from 22-26 March, Hong Kong saw shorts rise on Baidu (9888 HK), Tencent Holdings (700 HK), Yihai Int’L Holding (1579 HK), Kuaishou Technology (1024 HK) and Lenovo (992 HK) while there was short covering on Meituan (3690 HK), Sino Biopharmaceutical (1177 HK), Haier Smart Home Co Ltd (6690 HK), JD.com Inc. (9618 HK) and China Literature (772 HK). Shorts increased in the Communication Services, Financials, Information Technology and Consumer Discretionary sectors.In Japan, stocks that saw the most shorts were Yaskawa Electric (6506 JP), BASE Inc (4477 JP), Toshiba Corp (6502 JP), Aeon Co Ltd (8267 JP) and Peptidream Inc (4587 JP) while shorts decreased on Takeda Pharmaceutical (4502 JP), Monex Group Inc (8698 JP), Pan Pacific International Holdings (7532 JP), Nexon (3659 JP) and Mizuho Financial Group (8411 JP). Shorts increased in the Industrials sectors, and decreased in the Financials, Communication Services and Health Care sectors.In Korea, shorts decreased on Celltrion Inc (068270 KS), Samsung Biologics Co., (207940 KS), Samsung Electronics (005930 KS), SK Hynix (000660 KS) and Hyundai Motor Co (005380 KS) during the week. Stocks in Taiwan that saw the highest increase in shorts were Largan Precision (3008 TT), Pegatron Corp (4938 TT), Yageo Corporation (2327 TT) and Novatek Microelectronics Corp (3034 TT) while shorts were covered on Unimicron Technology (3037 TT), Elite Semiconductor Memory (3006 TT), AU Optronics (2409 TT) and TSMC (2330 TT). 

Asia Short Interest: Baidu, Kuaishou, Smoore, Yaskawa, BASE, Toshiba, Celltrion, Samsung, Largan

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/lenovo-group-ltd" target="_blank" data-smartkarma-citation="entities:13359:1" rel="noopener">Lenovo (992 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 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> 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> while there was short covering on <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/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-apptec-co-ltd-bf4a1265-beef-48b6-b82d-29308426030f" target="_blank" data-smartkarma-citation="entities:27795:1" rel="noopener">WuXi AppTec Co. Ltd. (2359 HK)</a> and <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>. Shorts increased in Communication Services, Information Technology and Materials stocks, while decreasing in Utilities, Consumer Staples, Energy, Consumer Discretionary and Health Care stocks.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a> and <a href="https://www.smartkarma.com/entities/nihon-m-a-center-inc" target="_blank" data-smartkarma-citation="entities:17616:1" rel="noopener">Nihon M&amp;A Center (2127 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a> and <a href="https://www.smartkarma.com/entities/rohm-co-ltd" target="_blank" data-smartkarma-citation="entities:2953:1" rel="noopener">ROHM Co Ltd (6963 JP)</a>. Shorts increased in Consumer Staples, Industrials, Financials and Materials, while shorts covered in the Consumer Discretionary sector.</p></div><div><p>In Korea, short increased on <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS)</a>, <a href="https://www.smartkarma.com/entities/lotte-chemical-corp" target="_blank" data-smartkarma-citation="entities:8757:1" rel="noopener">Lotte Chemical (011170 KS)</a>, <a href="https://www.smartkarma.com/entities/posco-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:12421:1" rel="noopener">Posco Chemical Co Ltd (003670 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a>, <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/korea-electric-power-corp" target="_blank" data-smartkarma-citation="entities:16:1" rel="noopener">Korea Electric Power (015760 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a>. </p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a>, <a href="https://www.smartkarma.com/entities/fitipower-integrated-tech" target="_blank" data-smartkarma-citation="entities:8712:1" rel="noopener">Fitipower Integrated Tech (4961 TT)</a> and <a href="https://www.smartkarma.com/entities/walsin-technology-corp" target="_blank" data-smartkarma-citation="entities:11084:1" rel="noopener">Walsin Technology (2492 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/taiwan-cement" target="_blank" data-smartkarma-citation="entities:19736:1" rel="noopener">Taiwan Cement (1101 TT)</a>, <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/innolux-corp" target="_blank" data-smartkarma-citation="entities:4509:1" rel="noopener">Innolux Corp (3481 TT)</a> and <a href="https://www.smartkarma.com/entities/richwave-technology-corp" target="_blank" data-smartkarma-citation="entities:18629:1" rel="noopener">Richwave Technology (4968 TT)</a>.</p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Xinyi Solar Holdings (968 HK), Lenovo (992 HK), Ping An Insurance (H) (2318 HK), Kuaishou Technology (1024 HK) and JD Health (6618 HK) while there was short covering on Alibaba Group (9988 HK), Xiaomi Corp (1810 HK), Haier Smart Home Co Ltd (6690 HK), WuXi AppTec Co. Ltd. (2359 HK) and AIA Group Ltd (1299 HK). Shorts increased in Communication Services, Information Technology and Materials stocks, while decreasing in Utilities, Consumer Staples, Energy, Consumer Discretionary and Health Care stocks.In Japan, stocks that saw the most shorts were Seven &amp; I Holdings (3382 JP), Toshiba Corp (6502 JP), Monex Group Inc (8698 JP) and Nihon M&amp;A Center (2127 JP) while shorts decreased on Rakuten Inc (4755 JP), Fast Retailing (9983 JP), Itochu Corp (8001 JP) and ROHM Co Ltd (6963 JP). Shorts increased in Consumer Staples, Industrials, Financials and Materials, while shorts covered in the Consumer Discretionary sector.In Korea, short increased on Doosan Infracore (042670 KS), Lotte Chemical (011170 KS), Posco Chemical Co Ltd (003670 KS) and Hyundai Motor Co (005380 KS) while shorts decreased on SK Hynix (000660 KS), Celltrion Inc (068270 KS), Korea Electric Power (015760 KS) and LG Display (034220 KS). Stocks in Taiwan that saw the highest increase in shorts were TSMC (2330 TT), Pegatron Corp (4938 TT), Fitipower Integrated Tech (4961 TT) and Walsin Technology (2492 TT) while shorts were covered on Taiwan Cement (1101 TT), Evergreen Marine Corp (2603 TT), Innolux Corp (3481 TT) and Richwave Technology (4968 TT).

Asia Short Interest: Kuaishou, JD Health, Xiaomi, 7&I, Monex, Rakuten, Hynix, Hyundai, Fitipower

Event-Driven

<p>The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.</p><p>For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.</p><p>Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.</p><p>Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.</p><p>Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.</p><p>We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.</p>

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.

HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p>Germany's chancellor Angela Merkel is on the way out. After 16 years she will resign as Chancellor later this year. Her likely successor, Mr. Laschet, has just been elected as CDU party leader.</p><p>During Merkel's reign, her commitment to China was clear. She paid at least 12 official state visits to China to promote German interests. In hindsight, this led to debacles such as the promotion of <a href="https://www.smartkarma.com/entities/wirecard-ag" target="_blank" data-smartkarma-citation="entities:21743:1" rel="noopener">Wirecard AG (WDI GR)</a> to Chinese authorities.</p><p>Another <a href="http://smart-home.haier.com/en/gsgg/P020200604563919508265.pdf" target="_blank" rel="noopener">interesting development was the 2018 announcement</a> between the Shanghai and German stock exchanges to list Chinese companies in Germany. They would be called "D Shares", D standing for Deutschland. The poster boy would be <a href="http://smart-home.haier.com/en/gsgg/P020200604563919508265.pdf" target="_blank" rel="noopener">Qingdao Haier</a>.</p><p>Fast forward to 2021 and it is a late 2020 announcement by Haier that caught our attention. The company has announced in an official filing it will be aggressively buying D shares going forward.</p><p><strong>Why?</strong> After the recent Haier restructuring exercise, the D shares are now pari-passu with the H shares which are freely trading in HK. The D share experiment was clearly a flop and there is no logical reason for these D shares existing anymore. </p><p><strong>Outcome?</strong> Haier will buy 66 million EUR worth of D shares. It makes financial sense. Shareholders, in theory, should also be able to exchange D shares for H shares. Although, in practice, there is just one D share in the world and it has never been done before.</p><p><strong>Arbitrage Opportunity: </strong></p><p><a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK) closed at 35.20 HKD</a></p><p>Haier Smart Home D shares were recently trading at +/-2.48 EUR</p><p>As a shareholder, you have the same rights (including dividends) when you are a D shareholder as an H shareholder. If this is true, the disconnect makes no sense, and once arbitrage funds find out it will disappear. ADTV for D shares is above 10M USD/day. This trade can be put on in size.</p><p><strong>The fair value of at today's FX is 3.74 EUR, which equates to +/-50% upside. The trade has more upside if the HK list-co does well, but has no downside unless the HK listing collapses significantly.</strong></p>

Germany's chancellor Angela Merkel is on the way out. After 16 years she will resign as Chancellor later this year. Her likely successor, Mr. Laschet, has just been elected as CDU party leader.During Merkel's reign, her commitment to China was clear. She paid at least 12 official state visits to China to promote German interests. In hindsight, this led to debacles such as the promotion of Wirecard AG (WDI GR) to Chinese authorities.Another interesting development was the 2018 announcement between the Shanghai and German stock exchanges to list Chinese companies in Germany. They would be called "D Shares", D standing for Deutschland. The poster boy would be Qingdao Haier.Fast forward to 2021 and it is a late 2020 announcement by Haier that caught our attention. The company has announced in an official filing it will be aggressively buying D shares going forward.Why? After the recent Haier restructuring exercise, the D shares are now pari-passu with the H shares which are freely trading in HK. The D share experiment was clearly a flop and there is no logical reason for these D shares existing anymore. Outcome? Haier will buy 66 million EUR worth of D shares. It makes financial sense. Shareholders, in theory, should also be able to exchange D shares for H shares. Although, in practice, there is just one D share in the world and it has never been done before.Arbitrage Opportunity: Haier Smart Home Co Ltd (6690 HK) closed at 35.20 HKDHaier Smart Home D shares were recently trading at +/-2.48 EURAs a shareholder, you have the same rights (including dividends) when you are a D shareholder as an H shareholder. If this is true, the disconnect makes no sense, and once arbitrage funds find out it will disappear. ADTV for D shares is above 10M USD/day. This trade can be put on in size.The fair value of at today's FX is 3.74 EUR, which equates to +/-50% upside. The trade has more upside if the HK list-co does well, but has no downside unless the HK listing collapses significantly.

Haier Smart Home: Forgotten D Shares = Equal to H Shares. Creates a Minimum 50% Return Opportunity

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors


Last Week in Event SPACE ...



The list of China Military Cos in which US persons are banned from investing continues to be a VERY big deal. It would be best to operate on a "better safe than sorry" basis. If you were not already out of these names, get out as soon as possible. 

Haier Smart Home (600690 CH)'s H/A discount has only been narrower on three trading days in the past year, all of which occurred in the second half of July, ahead of the pre-conditional proposal. to privatise Haier Electronics Group Co (1169 HK).

Avex Inc (7860 JP)'s ToSTNeT-3 stock repurchase would indicate activist Dalton exiting.

Beijing Jingneng Clean Energy (579 HK) is trading wide to terms following the despatch of the Composite Doc.
We still have a very large look-through discount on Naspers (NPN SJ).  As March approaches, the likelihood that investors realise there could be another large offering increases, which could put pressure on Tencent Holdings (700 HK) shares.
Plus, other events, CCASS movements, and Mood Spins.



(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)




EVENTS




OFAC Makes a Longer List of Trump Names of China Military Cos
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. New guidance from OFAC has been released. Based on these updates, Travis expects that MSCI, FTSE, and S&amp;P will likely have to delete the major telcos, including China Unicom Hong Kong (762 HK), China Mobile (941 HK), and China Telecom Corp Ltd (H) (728 HK) as well as CNOOC Ltd (883 HK). I expect that they would have to delete China Tower (788 HK) as well because it is more than 50% owned by the three major telcos. Cgn Power Co Ltd H (1816 HK) appears not to be addressed in previous iterations of the index providers lists but I expect it gets the boot. 

Travis estimates roughly 20-25% of the float of major names appears to be held by US persons. And it isn't just index holders who have to sell. Other major fundamental holders ALSO have to sell. This event creates a multitude of problems which need to be addressed. The index holders "have to" sell at the time the names are deleted from the indices.
Hedge funds which would normally buy the dip are stuck too. They have US investors. If they do not, they might be OK, but normally hedge funds which buy the dip also have to sell to someone later, and all US persons may be out of commission for a while. Hedge funds who own long positions or short positions would have to unwind them if they have US persons as fund investors, or as SMA clients. Hedge funds, pensions, and other investors who have long or short positions in futures and options which are linked to these indices will also have to liquidate their positions.


Overall, it is a BIG list of names targeted (Travis has 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.



(link to Travis' insight: OFAC Makes a Longer List of Trump Names of China Military Cos)




SHARE CLASS





Haier Smart Home (600690 CH) (HSH) / Haier Smart Home Co Ltd (6690 HK) 

On the 31 July this year, Haier Electronics Group Co (1169 HK) (HEG) announced a pre-conditional Scheme such that HEG shareholders would receive 1.6 new HSH H shares plus HK$1.95 in cash.  HEG's shares were suspended on the 11 December subsequent to its privatisation, with an implied look-through discount for HSH's H shares to the As of  30.4%. The Hs received by HEG shareholders commenced trading under the code Haier Smart Home Co Ltd (6690 HK) on the 23 December with a closing discount to the As of 22.1%. It was 21.6% at the time of my insight. This is not sustainable. 




What is a "fair" discount for the Hs? The mid-point price from the independent valuer of $38.03 - see page 75 - implied a 32% discount - H to the As. The average A/H premium for the Hang Seng Stock Connect China AH Premium Index is currently ~43%, or a ~31% discount. 
Key peer Hisense Home Appliances Group Co., Ltd. H (921 HK) is trading at a ~37% discount to  Hisense Kelon Electrical-A (000921 CH) versus a one-year average of 32%. 


A  basket of liquid A/Hs trade at a 44% discount and one of HSH's closest peers is at 37%. The implied discount via the independent advisor was 32%.


The trade here is to short the Hs and go long the As, with a target discount of at least 30%. 



(link to my insight: Haier Smart Homes (6690 HK): H-Shares Trading Tight To A-Shares)




M&amp;A - ASIA





China Logistics Property Holdings (1589 HK) (CLPH) (Mkt Cap: $1.7bn; Liquidity: $1mn)




CLPH has announced its two largest shareholders - Li Shifa (chairman, holding ~28.2%) and RRJ Capital (~22.8%) - are "conducting a preliminary strategic review of their stakes in the Company, which involves up to approximately 51.5% shareholding of the Company." The media is reporting these two shareholders are seeking a 20% premium to the unaffected price or around ~$4.70/share, roughly a four-year high. A sale could potentially trigger an unconditional mandatory general offer; or it may be structured by way of a Scheme in which Li/RRJ provide irrevocables to vote in favour of the delisting resolutions.


 CLPH is trading at a FY20E/FY21E EV/EBITDA of 35x/31x vs. 20x/18x for peers.  CLPH has consistently traded at a premium to peers on an EV/EBITDA metric. Daniel Hellberg analyses CLPH's EV/portfolio (the book value of property, equity investments, PP&amp;E). A further 20-25% upside from here places CLPH EV/portfolio at ~1x versus 1.2x for GLP at the time of its privatisation.
This is, as yet, a pre-event. There is no guarantee an Offer is forthcoming. Yet the company is very much in play, one that is likely to garner considerable interest from prospective suitors given the scarcity of logistic asset disposals. I would be buying the dips here, with a possible fair value range of $4.75-HK$5.00.





links to: Daniel Hellberg's insight: Major Shareholders of CLPH (1589:HK) Selling! Revisiting Narrative &amp; Valuations my insight: China Logistics (1589 HK): Possible Offer As Major Shareholders Seek Exit


Avex Inc (7860 JP) (Mkt Cap: $0.5bn; Liquidity: $3mn)

On 28 December, Avex announced that it would buy back up to 2.7mm shares at a price of ¥1,078/share in a ToSTNeT-3 stock repurchase transaction. This appears to be activist Dalton exiting.

Given the pro-forma financials for March-end, you could not pay Travis Lundy to be short this company. There was a sharp pop on shares on the 25th after the news and the stock traded significant volume, but it opened high and then fell. There were sellers. 
Travis expects the company will have significant enough cash to pay off all debt and buy back a lot more shares should it want to do so.  While numerous commentators have mourned the slow-moving death of Japanese pop, Avex is so ubiquitous that he would expect the company to have considerable staying power on the music scene. Travis would buy here. 




(link to Travis' insight: Avex (7860) ToSTNeT-3 Buyback After HUGE News)

Beijing Jingneng Clean Energy (579 HK)  (Mkt Cap: $2.7bn; Liquidity: $2mn)
The Composite Doc is now out. Beginning on page 29, Gram Capital (IFA) traversed familiar ground in concluding the Offer was fair and reasonable. Gram analysed 10 peers (with an average PER and P/B of 6.87x and 0.48x vs. 9.05x and 0.81x for Jingneng under the Offer) and past privatization (for all industries, not energy specifically). Gram also flagged Jingneng's issue obtaining equity financing. This was also used as one of the reasons for the H-share Offer and delisting.

The EGM/H-share class meeting will be held on the 19 February, following which the Offer will remain open to acceptance up until the 1 March.  Payment under the Offer is expected on or before the 10 March. 96.43% of shares out are in CCASS, which should assist the bankers in rustling up shareholders to tender once the delisting is (or should be) approved at the H-class meeting. 
Trading (at the time of the insight) at a gross/annualised spread of 6.3%/38.1%, assuming payment on the 10 March. The tendering condition is the key risk, as seen in the Harbin Electric Co Ltd H (1133 HK)  fiasco. However, this appears a solid entry point.
This is the fourth Hong Kong-listed, clean-energy company subject to a privatisation or change of control since last year - and seventh in which interested parties have been circling. This Offer continues a clear directive to privatise clean energy plays. Some other possible names which could be targeted next include China Datang Corp Renewable Power (1798 HK).

(link to my insight: Beijing Jingneng (579 HK): Doc Out. IFA Says Fair &amp; Reasonable)







STUBS






Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK) 


Back on the 30 October, Prosus announced it would conduct a US$5bn buyback of Prosus shares and Naspers shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). This was discussed at length by Travis Lundy in Naspers &amp; Prosus - A $5bn Catalyst Arrives. The buyback of Prosus shares and Naspers shares wasn't a lot in the grand scheme of things, but $5bn is $5bn, and the Naspers discount was quite wide. Prosus' discount to NAV has subsequently narrowed to ~23% (at the time of the insight), from a pre-buyback discount of 38%. 

The three-year anniversary of the sale of shares of Tencent is coming up in March, just before the fiscal year-end. That means Prosus/Naspers comes off lockup and could sell more shares of Tencent. There is nothing keeping Prosus from selling another US$10-15bn of Tencent (the position is currently worth US$211bn) and locking themselves up for another year, then continuing to buy Naspers and Prosus shares at a wide-ish discount. 
Stay long Naspers vs Tencent at the current look-through value. I would expect Tencent's operations to come under greater scrutiny, under a wider regulatory mandate.
If Naspers+Prosus decide to sell some more Tencent in late March 2021 while the Naspers discount is still 50%, I would expect that Naspers+Prosus might decide to buy more Naspers shares back rather than pay too much for something. 




(link to my insight: StubWorld: Tencent Under Pressure From Antitrust Push) 





TOPIX INCLUSIONS!






Odk Solutions (3839 JP) (Mkt Cap: $0.1bn; Liquidity: &lt;$1mn)  


after the close on 22nd December 2020, ODK announced they had received approval to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 29th December 2020.  TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. 


Janaghan Jeyakumar, CFA estimates the Inclusion quantity to be 615,000-738,000 shares. This translates to an Inclusion Size of ¥0.45-0.54bn and an Impact of 24-28 days of volume based on 3-month ADV.
According to the company's most recent "Long-term Management Plan" the company's revenue target for FY22E is ¥7bn which is 36% higher than their FY20A revenue. This translates to a revenue CAGR of ~16.6% from FY20A to FY22E. Going by FY20A numbers, the current price translates to EV/Revenue and EV/EBITDA multiples of 0.8x and 4.6x, respectively, which are significantly lower than the estimated average for peers. 
Janaghan would be Bullish until the Inclusion Date (28th January 2021).




(link to Janaghan's insight: TOPIX Inclusion: ODK Solutions (3839 JP): High Impact BLUE Name) 


In  TOPIX Inclusion Trade Summary: Dec 2020, Janaghan provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 





M&amp;A - EUROPE




On 18 December, Castellum AB (CAST SS) increased its bid for Entra ASA (ENTRA NO) by 13.9% to NOK 185/share in cash and shares. On 23 December, SBB raised its cash (65%) and stock bid for Entra to NOK 190 per share. SBB's bid also offers a larger cash component. In Entra - SBB - Castellum: Bidding War Heats Up, Jesus Rodriguez Aguilar recommends a long in Entra. 




H/A MONITOR





The previous week saw a gentle rebound in Quiddity H/A Share Recommendations (mixed long/short the spreads). Spread momentum continues to rule the day in most sectors, but finally not all. There were 54 delta-neutral spread recommendations which gained 0.97% on average. We have ~50 spread recommendations for this past week.



(link to Travis' insight: Quiddity H/A: National Team Buys Continue in Industrials; Recos Gain 97bp, 50 Recos This Week)





M&amp;A - 2020 ROUND-UP





The average premium for the new deals announced (or first discussed) in December was ~27% and the YTD average premium for all deals discussed on Smartkarma (158 all-in) is ~31%.  The average for all deals discussed on Smartkarma in 2019 (145 deals all-in) was, coincidentally, 31.5%.
(link to my insight: (Mostly) Asia M&amp;A: 2020 Roundup)





OTHER M&amp;A &amp; EVENT UPDATES







WPP AUNZ (WPP AU) has entered into a Scheme Implementation Deed with WPP PLC (WPP LN).
Shandong now holds 61.54% in Cardinal Resources (CDV AU).

Nitori Holdings (9843 JP) announced that it had successfully completed the Tender Offer for Shimachu Co Ltd (8184 JP), gaining 77.04% of the shares outstanding. This is lower than I expected, but it will allow them to squeeze out minorities. 


Noted activist (or noisy engagement investor) Asset Value Investors announced today that it had gone from 6.03% holding in Kanaden Corp (8081 JP) to 0.74%  by selling 1.4mm shares (4.91%) of the company at JPY 1260/share.  


The bidder for Joban Kaihatsu (1782 JP) announced a change in the end date for the Tender Offer, changing the end date from 28 December 2020 to 25 January 2021.


Eco World Development (ECW MK) and Uem Sunrise Bhd (UEMS MK) are exploring the feasibility of a merger. 

Cowell E Holdings (1415 HK) delays the dispatch of the Composite Doc to the 22 January. 



CCASS


My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 


Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   






Name


% chg


Into


Out of




Coolpad (2369 HK) 
13.74%
Chiyu
Kingkey



360 Ludashi (3601 HK) 
30.76%
China Int'l
Outside CCASS



China Tontine Wines (389 HK) 
14.90%
CNI
Yuet Sheung



China Regenerative Medicine (8158 HK) 
10.25%
Prime
Outside CCASS


K Group (8475 HK)
34.37%
Sun Int'l
Quasar


Source: HKEx 




The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.





Name


% chg


Into


Out of



Wenling (1379 HK)
29.15%
Realord
Outside of CCASS


Source: HKEx 








Last Week in Event SPACE: OFAC's Longer List, Haier, Avex, Beijing Jingneng, Naspers/Tencent

China

Haier Smart Home Co. Ltd. manufactures and distributes appliances. The Company produces air conditioners, refrigerators, freezers, small household electrical appliances, and other related products. Haier Smart Home markets its products domestically and internationally.

Gree Electric Appliances, Inc. of Zhuhai manufactures and sells a series of air conditioners.  The different series of air conditioners include window type, split type, floor type, mobile type, mobile split type and ceiling type.  The Company also produces air purifier.

TCL Corporation manufactures electronic products, telecommunication products, home appliances, and electrical products.  The Company's products include televisions, mobile phones, personal computers, air-conditioners, washing machines, refrigerators, and other related products.

Hang Zhou Great Star Industrial Company Ltd. develops, manufactures and sells hand tools hardware products. The Company's products are hand tools and electric hand-held tools.

Hangzhou Great Star Industrial Co., (002444 CH)

Zhejiang Supor Co., Ltd. manufactures and markets cookware and home appliance products. The Company produces non-stick pans, pressure cookers, stainless steel cookware, rice cookers, air purifiers, thermos cups, and more. Zhejiang Supor markets its to Japan, Europe, and South East Asia.

Hisense Visual Technology Co., Ltd. manufactures and markets electronic products and household electrical appliances.  The Company's products include television sets, refrigerators, freezers, communication products.

Hisense Visual Technology Co., Ltd. A (600060 CH)

Oppein Home Group Inc. manufactures household furniture products. The Company designs, produces, and sells kitchen cabinets, wardrobes, wooden doors, bathroom products, and other home decoration products. Oppein Home Group markets its products worldwide.

Hisense Home Appliances Group Co., Ltd. manufactures and sells household appliances. The Company produces refrigerators, air conditioners, freezers, and other equipment. Hisense Home Appliances Group markets its products worldwide.

Hisense Home Appliances Group (000921 CH)

Hangzhou Robam Appliances Company Limited develops, manufactures and sells household electrical kitchen appliances. The Company's major products include range hoods, gas stoves, disinfection cabinets, electric pressure cookers, induction cookers, electric kettles and food processing machines.

Shenzhen MTC Co., Ltd. develops, designs, manufactures and sells consumer electronics.  The Company's products include LCD television, digital set-top box, disc player, and multimedia audio system.

Panasonic Corporation manufactures electric and electronic products. The Company produces home appliances, car navigation systems, digital devices, computer peripherals, telecommunications, industrial equipment, and electronic parts. Panasonic has associated companies around the world.

Sekisui House, Ltd. builds and sells steel-frame and wooden housings. The Company constructs single-family houses, condominiums, and apartment buildings.  Sekisui House also operates real estate brokerage and leasing businesses.  Additionally, the Company sells construction materials.

Techtronic Industries Company Limited designs, manufactures, and markets power tools, outdoor power equipment, accessories, hand tools, layout and measuring tools, and floorcare and appliances. The Company's products are used by consumers, professional, and industrial users in the home improvement, repair, and construction industries.

Toll Brothers, Inc. builds luxury homes, serving both move-up and empty nester buyers in several regions of the United States.  The Company builds customized single and attached homes, primarily on land that it develops and improves. Toll Brothers also operates its own architectural, engineering, mortgage, title, security, landscape, insurance brokerage, and manufacturing operations.

Tempur Sealy International Inc., through its primary subsidiary manufactures and markets foam mattresses, pillows, and miscellaneous products under its own and other brand names.

LG Electronics Inc. manufactures and markets digital display equipment and home appliances. The Company produces and markets flat panel televisions, A/V products, washing machines, air conditioners and refrigerators as well as telecommunications equipment such as smart phones and tablets.

TopBuild Corp. provides insulation installation services. The Company offers residential insulation products and related accessories. TopBuild serves customers in the United States.

D.R. Horton, Inc. constructs and sells single-family homes designed primarily for the entry-level and move-up markets.  The Company operates in the Midwest, Mid-Atlantic, Southeast, Southwest, and Western regions of the United States. D.R. Horton also, through its financial services operations, provide mortgage financing and title agency services to homebuyers.

NVR, Inc. builds and markets homes and conducts mortgage banking activities. The Company builds single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and other tradenames.  NVR provides a number of mortgage related services to its homebuilding customers and to other customers through its mortgage banking operations.

PulteGroup Inc. sells and constructs homes, and purchases, develops, and sells residential land and develops active adult communities.  The Company also provides mortgage financing, title insurance, and other services to home buyers. Pulte has operations in various markets across the United States and Puerto Rico.

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Haier Smart Home (6690 HK)

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