Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Poor Results See No Signs Of Near-Term Abatement: Singapore Exchange (SGX.SP) [SGX] reported FY 1H21 results of SGD 240.4 mn, declining SGD 18.2 mn (7.0%) HOH. Excluding the SGD 15.6 mn in gains primarily attributed to non-cash fair value on its BidFX acquisition, SGX’core operating result would have declined SGD 33.9 mn (13.1%) over the period; and*Derivatives Challenges Led By Taiwan: The largest semi-annual results delta was attributed to derivatives, which declined SGD 33.6 mn or 12.2%. SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 with their move to the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Until recently, 99.8% of the Taiwan index futures volumes has were held by SGX, but its dominant market share position is beginning to crack. As time passes, we will get an idea of how much volume of the Taiwan index futures will remain with MSCI indices and move to HKEx which has significant implications for SGX's lucrative A50 contract.

*Poor Results See No Signs Of Near-Term Abatement: Singapore Exchange (SGX.SP) [SGX] reported FY 1H21 results of SGD 240.4 mn, declining SGD 18.2 mn (7.0%) HOH. Excluding the SGD 15.6 mn in gains primarily attributed to non-cash fair value on its BidFX acquisition, SGX’core operating result would have declined SGD 33.9 mn (13.1%) over the period; and*Derivatives Challenges Led By Taiwan: The largest semi-annual results delta was attributed to derivatives, which declined SGD 33.6 mn or 12.2%. SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 with their move to the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Until recently, 99.8% of the Taiwan index futures volumes has were held by SGX, but its dominant market share position is beginning to crack. As time passes, we will get an idea of how much volume of the Taiwan index futures will remain with MSCI indices and move to HKEx which has significant implications for SGX's lucrative A50 contract.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Just over two years ago, the FSA and TSE set themselves on a journey to "Review" and then revise the "TSE's Cash Equity Market Structure".There was a Council of Experts on the change in market structure, there were proposals for public comment, leaks of ideas in the papers and business magazines, a scandal where a major domestic broker got non-public info about the situation and told its clients, a delay, hints at corporate governance code changes, changes of plans, changes to the TSE Listing Criteria announced last summer and implemented on 1 November 2020, then in December 2020, the JPX and FSA announced the Outline of The Second Revision and put it out for public comment. The most recent Revision sets out the names of the new Market Segments (which have basically been known or imagined for two years and are irrelevant anyway), the details of the listing requirements (which were basically known from spring 2020), the details of the transition process (which were roughly laid out in 2019), and the grandfathering rules (which were insinuated in other announcements in previous council recommendations. What's new? It's all in one place. This process has been discussed at some length for Smartkarma readers because it promises significant changes to the major benchmark index for public equities in Japan. That would affect futures markets, options markets, ETFs, passive funds which track the major domestic indices, and not least, a bunch of companies. <table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 104.8px;"><h2>Insights on the Topic</h2></td></tr>
<tr>
<td style="width: 104.8px;">Date</td>
<td style="width: 599.2px;">Title</td>
</tr>
<tr>
<td style="width: 104.8px;">4 Jan 2019</td>
<td style="width: 599.2px;">
<a href="https://www.smartkarma.com/insights/big-trouble-in-little-stocks-maybe-tse-mulls-changing-topix" target="_blank" data-smartkarma-citation="insights:27039" rel="noopener">Big Trouble in Little Stocks? Maybe TSE Mulls Changing TOPIX</a> </td>
</tr>
<tr>
<td style="width: 104.8px;">30 Jan 2019</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/comments-on-tse-review-of-cash-equity-market-structure" target="_blank" rel="noopener">Comments On TSE Review Of Cash Equity Market Structure</a></td>
</tr>
<tr>
<td style="width: 104.8px;">3 Apr 2019</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/tse-s-market-structure-review-public-comments-as-expected-but-miss-the-mark" target="_blank" rel="noopener">TSE’s Market Structure Review: Public Comments As Expected, But Miss The Mark</a></td>
</tr>
<tr>
<td style="width: 104.8px;">31 May 2019</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/tse-market-structure-review-back-to-the-drawing-board" target="_blank" rel="noopener">TSE Market Structure Review - Back to the Drawing Board</a></td>
</tr>
<tr>
<td style="width: 104.8px;">21 Nov 2019</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/tse-fsa-think-prime-the-world-yawns" target="_blank" rel="noopener">TSE &amp; FSA Think “Prime” - The World Yawns</a></td>
</tr>
<tr>
<td style="width: 104.8px;">5 Jan 2020</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/much-ado-about-nothing-the-fsa-s-big-market-restructuring" target="_blank" rel="noopener">Much Ado About Nothing: The FSA’s BIG Market Restructuring?</a></td>
</tr>
<tr>
<td style="width: 104.8px;">11 Sep 2020</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/the-tse-s-listing-criteria-revisions-part-i" target="_blank" rel="noopener">The TSE’s Listing Criteria Revisions - Part I</a></td>
</tr>
<tr>
<td style="width: 104.8px;">29 Nov 2020</td>
<td style="width: 599.2px;"><a href="https://www.smartkarma.com/insights/topix-inclusions-new-regulations-who-is-ready-2-0" target="_blank" rel="noopener">TOPIX Inclusions:  New Regulations! Who Is READY? 2.0</a></td>
</tr>
</tbody></table>Unfortunately, there has been little new, and things have progressed quite slowly. Building consensus among people who have received guidance on what the results of their "study" should be seems to take longer than it should. And the fact that there has been no Official Japan effort to accelerate the content of the revisions to the Corporate Governance Code, or accelerate consideration of what might happen to hundreds of smallcap stocks which will be affected seems odd. The big picture - that there are three major market segments with one for blue chips, one for pre-profit growth stocks, and one for everyone else - has been known since the start.The market cap cutoff was mooted in the paper 2+yrs ago and it is the least impactful change among the possible cutoffs proposed. The fact that everyone would be grandfathered in has been known. And the campaign by corporates against radical change has been known since the first comments because nobody wants to cause pain to the hundreds (or thousands) of small caps which should not be in a major benchmark index with global aspirations in the first place. So what's new? Now we have a timeline. This new timeline and the comments which come out of the Public Comment Period for the Second Revision will make waves in Japan. Most foreign investors will ignore the whole thing, as they should. But people who care about impact on benchmarks should pay attention to the details. Below the fold, we have details.

Just over two years ago, the FSA and TSE set themselves on a journey to "Review" and then revise the "TSE's Cash Equity Market Structure".There was a Council of Experts on the change in market structure, there were proposals for public comment, leaks of ideas in the papers and business magazines, a scandal where a major domestic broker got non-public info about the situation and told its clients, a delay, hints at corporate governance code changes, changes of plans, changes to the TSE Listing Criteria announced last summer and implemented on 1 November 2020, then in December 2020, the JPX and FSA announced the Outline of The Second Revision and put it out for public comment. The most recent Revision sets out the names of the new Market Segments (which have basically been known or imagined for two years and are irrelevant anyway), the details of the listing requirements (which were basically known from spring 2020), the details of the transition process (which were roughly laid out in 2019), and the grandfathering rules (which were insinuated in other announcements in previous council recommendations. What's new? It's all in one place. This process has been discussed at some length for Smartkarma readers because it promises significant changes to the major benchmark index for public equities in Japan. That would affect futures markets, options markets, ETFs, passive funds which track the major domestic indices, and not least, a bunch of companies. 
Insights on the Topic

Date
Title


4 Jan 2019

Big Trouble in Little Stocks? Maybe TSE Mulls Changing TOPIX 


30 Jan 2019
Comments On TSE Review Of Cash Equity Market Structure


3 Apr 2019
TSE’s Market Structure Review: Public Comments As Expected, But Miss The Mark


31 May 2019
TSE Market Structure Review - Back to the Drawing Board


21 Nov 2019
TSE &amp; FSA Think “Prime” - The World Yawns


5 Jan 2020
Much Ado About Nothing: The FSA’s BIG Market Restructuring?


11 Sep 2020
The TSE’s Listing Criteria Revisions - Part I


29 Nov 2020
TOPIX Inclusions:  New Regulations! Who Is READY? 2.0

Unfortunately, there has been little new, and things have progressed quite slowly. Building consensus among people who have received guidance on what the results of their "study" should be seems to take longer than it should. And the fact that there has been no Official Japan effort to accelerate the content of the revisions to the Corporate Governance Code, or accelerate consideration of what might happen to hundreds of smallcap stocks which will be affected seems odd. The big picture - that there are three major market segments with one for blue chips, one for pre-profit growth stocks, and one for everyone else - has been known since the start.The market cap cutoff was mooted in the paper 2+yrs ago and it is the least impactful change among the possible cutoffs proposed. The fact that everyone would be grandfathered in has been known. And the campaign by corporates against radical change has been known since the first comments because nobody wants to cause pain to the hundreds (or thousands) of small caps which should not be in a major benchmark index with global aspirations in the first place. So what's new? Now we have a timeline. This new timeline and the comments which come out of the Public Comment Period for the Second Revision will make waves in Japan. Most foreign investors will ignore the whole thing, as they should. But people who care about impact on benchmarks should pay attention to the details. Below the fold, we have details.

TSE Market Structure & Major Index Revision: Still Much Ado About Nothing

*Joint Announcement For Stock Connect Expansion: Just when we thought that Hong Kong Exchanges &amp; Clearing (388.HK) [KKEx] had no other rabbits to pull out of its hat in 2020, the HKEx, Shanghai Stock Exchange (SSE), and Shenzhen Stock Exchange (SZSE) jointly announced further scope for Stock Connect expansion in early 2021 on November 27, 2020 regarding the STAR Market and biotech companies;  *Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and*Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Joint Announcement For Stock Connect Expansion: Just when we thought that Hong Kong Exchanges &amp; Clearing (388.HK) [KKEx] had no other rabbits to pull out of its hat in 2020, the HKEx, Shanghai Stock Exchange (SSE), and Shenzhen Stock Exchange (SZSE) jointly announced further scope for Stock Connect expansion in early 2021 on November 27, 2020 regarding the STAR Market and biotech companies;  *Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and*Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV. 

Hong Kong Exchanges & Clearing – Making Another Connection

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

A brief thinkpiece about where <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a> sits vs its peers and history. Conclusions are that NEXON is not dramatically expensive to its peers on a Forward EV/EBIT multiple basis. You would need another 5+% into the close to be comfortable with a clean short-term trade given the change in Real World FloatOriginal insight is <a href="https://www.smartkarma.com/insights/familymart-delisting-and-its-nikkei-225-replacement-is-nexon-3659" target="_blank" data-smartkarma-citation="insights:44429" rel="noopener">Familymart Delisting and Its Nikkei 225 Replacement Is Nexon (3659)</a>.More below the fold.

A brief thinkpiece about where Nexon (3659 JP) sits vs its peers and history. Conclusions are that NEXON is not dramatically expensive to its peers on a Forward EV/EBIT multiple basis. You would need another 5+% into the close to be comfortable with a clean short-term trade given the change in Real World FloatOriginal insight is Familymart Delisting and Its Nikkei 225 Replacement Is Nexon (3659).More below the fold.  

Is It Safe to Short NEXON into the Inclusion?

Japan

Japan Exchange Group Inc is the holding company created through the merger of Tokyo Stock Exchange Group, Inc and Osaka Securities Exchange Co., Ltd. The group provides and operates a marketplace for the trading of equities, futures, and options. The Group manages the trading, as well as administers listed stocks and registered members.

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Japan Exchange Group (8697 JP)

Singapore Exchange - Going South

SINGAPORE EXCHANGE: SGX FY 1H21 results declined 7.0% HOH. Excluding the BidFX gain, SGX’ core operating result would have declined 13.1%. SGX...

Thomas J. Monaco

TSE Market Structure & Major Index Revision: Still Much Ado About Nothing

The Great TSE Cash Equity Market Structure Review of 2019-2021 will end up being a dud. It will do little other than organize the TSE internally....

Travis Lundy

Hong Kong Exchanges & Clearing – Making Another Connection

HONG KONG EXCHANGES & CLEARING: The Three Exchanges Have Added To The Stock Connect With STAR Market and Biotech Additions

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

HONG KONG EXCHANGES & CLEARING: HKEX Results Were Great And We've Just Witnessed Vaccine Euphoria. How Much Higher Than 10.4x P/BV Can HKEX...

Thomas J. Monaco

Is It Safe to Short NEXON into the Inclusion?

Nexon has bounced on the Nikkei 225 inclusion. It may not have bounced enough to be aggressively short. The forward fundamental multiple isn't...

Travis Lundy

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