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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On Friday evening, the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>, <a href="https://www.hkex.com.hk/News/Regulatory-Announcements/2020/201030news?sc_lang=en" target="_blank" rel="noopener">published</a> the conclusions to its consultation on the Corporate WVR beneficiaries.The SEHK will treat Greater China issuers that are controlled by corporate Weighted Voting Rights (WVRR) beneficiaries and have a primary listing on a Qualifying Exchange in the same manner as current grandfathered Greater China issuers. The cut-off date for the grandfathered issues is 30 October 2020.Qualifying corporate WVR issuers will need to meet the following requirements:<ul>
<li>a minimum market cap threshold of at least HK$40bn, or a market cap of at least HK$10bn and revenue of at least HK$1bn in its most recent audited financial year.</li>
<li>be an 'innovative company' as part of the suitability for listing</li>
<li>demonstrate that the laws, rules and regulations provide certain shareholder protection standards</li>
</ul>The secondary listing applicant would also need to demonstrate that it is controlled by a single corporate WVR beneficiary, or a group of corporate beneficiaries acting in concert, controlling at least 30% of the total shareholder votes.This paves the way for <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a> and <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a>, among others, to pursue a secondary listing on the <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>.

On Friday evening, the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of HKEX (388 HK), published the conclusions to its consultation on the Corporate WVR beneficiaries.The SEHK will treat Greater China issuers that are controlled by corporate Weighted Voting Rights (WVRR) beneficiaries and have a primary listing on a Qualifying Exchange in the same manner as current grandfathered Greater China issuers. The cut-off date for the grandfathered issues is 30 October 2020.Qualifying corporate WVR issuers will need to meet the following requirements:
a minimum market cap threshold of at least HK$40bn, or a market cap of at least HK$10bn and revenue of at least HK$1bn in its most recent audited financial year.
be an 'innovative company' as part of the suitability for listing
demonstrate that the laws, rules and regulations provide certain shareholder protection standards
The secondary listing applicant would also need to demonstrate that it is controlled by a single corporate WVR beneficiary, or a group of corporate beneficiaries acting in concert, controlling at least 30% of the total shareholder votes.This paves the way for Tencent Music (TME US) and iQIYI Inc (IQ US), among others, to pursue a secondary listing on the HKEX (388 HK). 

Conclusions of the Corporate WVR Consultation: Small Changes for Now

Last evening post market close in Hong Kong, Hang Seng Indexes released an <a href="https://www.hsi.com.hk/static/uploads/contents/en/news/indexChgNotice/20201030T100000.pdf" target="_blank" rel="noopener">index notice</a> announcing a new Fast Entry rule for the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>.As one can imagine, this is being done solely to ensure the early inclusion of <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> in the index. Index investors would then look at buying index futures and other derivatives on the HSCEI to play the upside. The early inclusion could also help the HSCEI to catch up with other China focused indices, where it has been a laggard for some time now.<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>'s Fast Entry into the index will also mean that one stock needs to be deleted, though from the index rules it is not very clear if that would happen at the regular index review in December 2020 or March 2021.In this Insight, we take a look at the impact of <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>'s inclusion in the HSCEI on the stock and what it means for the other stocks in the index.

Last evening post market close in Hong Kong, Hang Seng Indexes released an index notice announcing a new Fast Entry rule for the Hang Seng China Enterprises Index (HSCEI INDEX).As one can imagine, this is being done solely to ensure the early inclusion of Ant Group (6688 HK) in the index. Index investors would then look at buying index futures and other derivatives on the HSCEI to play the upside. The early inclusion could also help the HSCEI to catch up with other China focused indices, where it has been a laggard for some time now.Ant Group (6688 HK)'s Fast Entry into the index will also mean that one stock needs to be deleted, though from the index rules it is not very clear if that would happen at the regular index review in December 2020 or March 2021.In this Insight, we take a look at the impact of Ant Group (6688 HK)'s inclusion in the HSCEI on the stock and what it means for the other stocks in the index. 

Ant Group: Everyone Wants a Piece of The Action - HSCEI Fast Entry

The <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.
Four asset managers were approved by the CSRC to launch ETFs on the <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.
With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.
<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> could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.

The SSE STAR 50 (STAR50 INDEX) (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.
Four asset managers were approved by the CSRC to launch ETFs on the SSE STAR 50 (STAR50 INDEX) and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.
With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.
Ant Financial (1051260D CH) could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.

STAR Board: STAR50 Index - The December Rebalance Is Going to Be BIG

The AH premium for Ping An Insurance (<a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</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>) has continued to move in cycles. After hitting a high of 10% a year ago, and a low of -2.5% earlier this year, the AH premium is trading near the 98th percentile using data going back to January 2015.At a premium of close to 13% now, the reward to risk of buying the H-shares and selling the A-shares is attractive and we expect a reversion over the next few months.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to a reversion in the premium.

The AH premium for Ping An Insurance (Ping An Insurance Group Co Of China (601318 CH) / Ping An Insurance (H) (2318 HK)) has continued to move in cycles. After hitting a high of 10% a year ago, and a low of -2.5% earlier this year, the AH premium is trading near the 98th percentile using data going back to January 2015.At a premium of close to 13% now, the reward to risk of buying the H-shares and selling the A-shares is attractive and we expect a reversion over the next few months.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to a reversion in the premium.

Ping An A/H Premium - Back Near The Highs

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

China

The Hang Seng China Enterprises Index is a free-float capitalization-weighted index comprised of H-Shares listed on the Hong Kong Stock Exchange and included in the Hang Seng Mainland Composite Index. The base value of this index is 2000 as of Jan 3, 2000. This index replaced the old HSCE index on Oct. 3, 2001.

Hang Seng China Enterprises Index (HSCEI INDEX)

Hang Seng China Enterprises Index (HSCEI INDEX)

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