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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the Hong Kong Hang Seng Index (HSI INDEX) as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the Hong Kong Hang Seng Index (HSI INDEX) as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

HSI Market Consultation - Name Changes as We Await the Conclusions

Hang Seng China Enterprises Index / Event-Driven

As we have said many time before, 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> 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from 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> in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and 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> methodology that will impact the dividend futures.

As we have said many time before, the Hang Seng China Enterprises Index (HSCEI INDEX) 2021 and 2022 dividend futures are a structural sell due to changes to the index composition that will lower the fair value of the futures.There were 18 inclusions and 17 deletions from the Hang Seng China Enterprises Index (HSCEI INDEX) in 2020 with a shift from higher dividend yield Financials and Energy stocks to lower dividend yield stocks (or zero dividend yield stocks) from the Consumer Discretionary and Information Technology sectors.We see this trend continuing in 2021 with quite a few changes front-loaded that will affect the fair value of the HSCEI 2021 dividend futures. More changes at the back end along with potential changes to the index methodology could lower the fair value of the HSCEI 2022 dividend futures too.In this Insight, we lay out the possible changes to the index constituents and to the Hang Seng China Enterprises Index (HSCEI INDEX) methodology that will impact the dividend futures.

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

There are a lot of changes expected 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> over the next 6 months.<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> lists on 5 February and we expect the stock to get Fast Entry to the index with the change implemented at the close of trading on 22 February.The Hang Seng Indexes Company Limited (HSIL) will announce the results of the March 2021 review of the Hang Seng Family of Indexes on 26 February. The constituent changes will be effective after the close of trading on 12 March. We expect 1 inclusion and 3 exclusions at the review.At the current time, we expect 3 changes at the June 2021 review. There are a few stocks that are close adds and deletes and the actual number of changes could be higher.There are a few large IPOs that could take place this year that could get those stocks Fast Entry/ regular entry into the index. The main ones are <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (1284375D CH)</a>, JD Logistics, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>'s Douyin and a possible revival of the shelved <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> IPO.Then there is the possibility of some large 'homecoming' listings getting 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> over the next few reviews. <a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> is rumored to have picked banks and is said to plan a listing in Hong Kong in the first half of the year, with <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> and <a href="https://www.smartkarma.com/entities/bilibili-inc" target="_blank" data-smartkarma-citation="entities:26793:1" rel="noopener">Bilibili Inc (BILI US)</a> as other names on the list.In this Insight, we lay out the potential roadmap of upcoming 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> along with the impact on the stocks.

There are a lot of changes expected to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months.Kuaishou Technology (1024 HK) lists on 5 February and we expect the stock to get Fast Entry to the index with the change implemented at the close of trading on 22 February.The Hang Seng Indexes Company Limited (HSIL) will announce the results of the March 2021 review of the Hang Seng Family of Indexes on 26 February. The constituent changes will be effective after the close of trading on 12 March. We expect 1 inclusion and 3 exclusions at the review.At the current time, we expect 3 changes at the June 2021 review. There are a few stocks that are close adds and deletes and the actual number of changes could be higher.There are a few large IPOs that could take place this year that could get those stocks Fast Entry/ regular entry into the index. The main ones are DiDi Chuxing (1284375D CH), JD Logistics, ByteDance (1460967D CH)'s Douyin and a possible revival of the shelved Ant Group (6688 HK) IPO.Then there is the possibility of some large 'homecoming' listings getting included in the Hang Seng China Enterprises Index (HSCEI INDEX) over the next few reviews. Baidu (BIDU US) is rumored to have picked banks and is said to plan a listing in Hong Kong in the first half of the year, with Pinduoduo (PDD US) and Bilibili Inc (BILI US) as other names on the list.In this Insight, we lay out the potential roadmap of upcoming changes to the Hang Seng China Enterprises Index (HSCEI INDEX) along with the impact on the stocks.

HSCEI Index Rebalances - The Year of the Ox and of More Change

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Japan Post, JD.com, Toyota, NTT, Jardines, Indices/Exec. Orders, Tianneng

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review 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> to have only 1 deletion, though there is a low probability of another set of changes. Post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is <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 the stock should be deleted at the March review.There was a medium probability of <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> being included in the index. That has now become a low probability event post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s inclusion in the index. If <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> is included in the index, then <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> could be deleted.The potential 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> over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the Hang Seng China Enterprises Index (HSCEI INDEX) to have only 1 deletion, though there is a low probability of another set of changes. Post JD Health (6618 HK)'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is Petrochina Co Ltd H (857 HK) and the stock should be deleted at the March review.There was a medium probability of Country Garden Services Holdings (6098 HK) being included in the index. That has now become a low probability event post JD Health (6618 HK)'s inclusion in the index. If Country Garden Services Holdings (6098 HK) is included in the index, then Hengan Intl Group (1044 HK) could be deleted.The potential changes to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

China

Hengan International Group Company Limited, through its subsidiaries, manufactures and sells personal hygiene products such as sanitary napkins and disposable baby diapers in China.  The Company's products are sold under the Anerle brand name.

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Hengan International Group (1044 HK)

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Brian Freitas

HSCEI Dividends - Structural Sell; Bank Dividends the Swing Factor

We see downside in the HSCEI 2021 and 2022 div futures due to changes in the index composition and potential changes in the index methodology....

Brian Freitas

HSCEI Index Rebalances - The Year of the Ox and of More Change

There will be a lot of changes to the HSCEI this year that will impact the sectoral composition and open up trading opportunities on the stocks and...

Brian Freitas

Last Week in Event SPACE: Japan Post, JD.com, Toyota, NTT, Jardines, Indices/Exec. Orders, Tianneng

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Following JD Health's Fast Entry into the HSCEI, PetroChina is a high probability deletion in March. There is a low probability of Country Garden...

Brian Freitas

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