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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Beijing Kingsoft Office Softwa / Event-Driven

The <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a> consists of stocks from the Shanghai Stock Exchange and the Shenzhen Stock Exchange and is one of the most widely tracked A-share indices with passive tracking products listed in multiple markets globally. There are CFFEX listed futures that trade actively as well.China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.There were 21 changes to the index at the June 2020 review and 26 changes at the December 2020 review. We expect 30 changes at the upcoming June 2021 index review - this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.56%.With passive tracking products holding around US$32bn of AUM, plus another US$53bn in open interest on the listed futures, plus active managers benchmarked to the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a>, there could be significant moves in the inclusion/exclusion names from now to the end of the review period. There will only be 9-10 trading days between the announcement of the changes and the implementation, so having a pre-position should pay off. There should not be too many changes in the possible list of inclusions and exclusions due to the averaging process over the last year of trading.

The Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) consists of stocks from the Shanghai Stock Exchange and the Shenzhen Stock Exchange and is one of the most widely tracked A-share indices with passive tracking products listed in multiple markets globally. There are CFFEX listed futures that trade actively as well.China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.There were 21 changes to the index at the June 2020 review and 26 changes at the December 2020 review. We expect 30 changes at the upcoming June 2021 index review - this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.56%.With passive tracking products holding around US$32bn of AUM, plus another US$53bn in open interest on the listed futures, plus active managers benchmarked to the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX), there could be significant moves in the inclusion/exclusion names from now to the end of the review period. There will only be 9-10 trading days between the announcement of the changes and the implementation, so having a pre-position should pay off. There should not be too many changes in the possible list of inclusions and exclusions due to the averaging process over the last year of trading.

CSI300 Index Rebalance Preview: Maxing Out the Number of Changes

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

Supporting our global bull market thesis, uptrends remain intact for the major global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM). At this point, concerns surrounding the Wuhan coronavirus have led to some market setbacks and deterioration in market indicators, however they have not resulted in breakdowns. This is true even for areas of the market most-directly affected, including China (MSCI China) and emerging markets (MSCI EM). For these reasons and, as long as there is no significant additional damage, we view recent weakness as a buying opportunity - especially within EM. We see coronavirus concerns as helping correct the excess bullish sentiment and optimism in the short-term.

Supporting our global bull market thesis, uptrends remain intact for the major global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM). At this point, concerns surrounding the Wuhan coronavirus have led to some market setbacks and deterioration in market indicators, however they have not resulted in breakdowns. This is true even for areas of the market most-directly affected, including China (MSCI China) and emerging markets (MSCI EM). For these reasons and, as long as there is no significant additional damage, we view recent weakness as a buying opportunity - especially within EM. We see coronavirus concerns as helping correct the excess bullish sentiment and optimism in the short-term.

Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Bottom-Up

Guangzhou Baiyunshan Pharmaceutical Holdings / Equity Bottom-Up

Guangzhou Baiyunshan Pharmaceutical Holdings

The restructuring of China's drug distribution industry continues with <a href="https://www.smartkarma.com/entities/276" target="_blank" data-smartkarma-citation="entities:276:1">Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)</a>'s pending buyout of <a href="https://www.smartkarma.com/entities/1118" target="_blank" data-smartkarma-citation="entities:1118:1">Walgreens Boots Alliance Inc (WBA US)</a>'s stake in the two companies' 50/50 JV. The transaction comes on the heels of <a href="https://www.smartkarma.com/entities/1533" target="_blank" data-smartkarma-citation="entities:1533:1">Cardinal Health Inc (CAH US)</a>'s sale of its China drug distribution business to <a href="https://www.smartkarma.com/entities/228" target="_blank" data-smartkarma-citation="entities:228:1">Shanghai Pharmaceuticals H (2607 HK)</a>. This Insight will discuss the transaction, industry backdrop, and implications. The transaction looks slightly accretive on Baiyunshan's 2016's pro forma results. Even though we think that the transaction is positive for Baiyunshan Pharmaceutical Holdings, we are not fans of the stock because of the company's plodding financial performance (as reflected in declining ROA and ROE).

The restructuring of China's drug distribution industry continues with Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)'s pending buyout of Walgreens Boots Alliance Inc (WBA US)'s stake in the two companies' 50/50 JV. The transaction comes on the heels of Cardinal Health Inc (CAH US)'s sale of its China drug distribution business to Shanghai Pharmaceuticals H (2607 HK). This Insight will discuss the transaction, industry backdrop, and implications. The transaction looks slightly accretive on Baiyunshan's 2016's pro forma results. Even though we think that the transaction is positive for Baiyunshan Pharmaceutical Holdings, we are not fans of the stock because of the company's plodding financial performance (as reflected in declining ROA and ROE).

China Drug Distribution: More "Two Invoice" Changes

Sinopharm Group Co Ltd H / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/1118" target="_blank" data-smartkarma-citation="entities:1118:1">Walgreens Boots Alliance Inc (WBA US)</a> has agreed to buy a 40% stake in <a href="https://www.smartkarma.com/entities/32" target="_blank" data-smartkarma-citation="entities:32:1">Sinopharm Group Co H (1099 HK)</a> 's Guoda Drug Store chain (held by Shenzhen-listed subsidiary Sinopharm Accord SZ:000028). Walgreens will pay CNY2.8 billion which values the business at CNY7 billion. The valuation is 0.6x estimated 2017 revenue and 12.9x estimated 2017 EBITDA (based on annualized H1 results). The valuation is in line with other pharmacy deals globally (11-14x trailing EBITDA), but note that this is a minority…

Walgreens Boots Alliance Inc (WBA US) has agreed to buy a 40% stake in Sinopharm Group Co H (1099 HK) 's Guoda Drug Store chain (held by Shenzhen-listed subsidiary Sinopharm Accord SZ:000028). Walgreens will pay CNY2.8 billion which values the business at CNY7 billion. The valuation is 0.6x estimated 2017 revenue and 12.9x estimated 2017 EBITDA (based on annualized H1 results). The valuation is in line with other pharmacy deals globally (11-14x trailing EBITDA), but note that this is a minority…

Walgreens Invests in Sinopharm Retail Arm

Shanghai Pharmaceuticals Holding / Equity Bottom-Up

One of the questions posed during the discussion of <a href="https://www.smartkarma.com/entities/1533" target="_blank" data-smartkarma-citation="entities:1533:1">Cardinal Health Inc (CAH US)</a> 's plan to sell its China drug distribution business was the undemanding valuation of US$1.2-1.5 billion (estimated 6.0-7.5x trailing EBITDA). We now have several quarters' results from the leading distributors which reflect the impact of the introduction of the "two invoice" policy and elimination of the 15% markup on drugs for hospitals. As shown below, industry growth is decelerating. The impact varies by company…

One of the questions posed during the discussion of Cardinal Health Inc (CAH US) 's plan to sell its China drug distribution business was the undemanding valuation of US$1.2-1.5 billion (estimated 6.0-7.5x trailing EBITDA). We now have several quarters' results from the leading distributors which reflect the impact of the introduction of the "two invoice" policy and elimination of the 15% markup on drugs for hospitals. As shown below, industry growth is decelerating. The impact varies by company…

Deceleration Likely Driving Cardinal Valuation

China

Jointown Pharmaceutical Group Co Ltd. is a drug company. The Company is mainly focused on the wholesale, logistics and distribution, retail of drugs as well as e-commerce of the medicines and medical appliances.

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Jointown Pharmaceutical A (600998 CH)

CSI300 Index Rebalance Preview: Maxing Out the Number of Changes

We see 30 potential inclusions/exclusions to the CSI300 index at the June review that will become effective COB 11 June. With a lot of benchmarked...

Brian Freitas

EM Pullback Opportunity

Supporting our global bull market thesis, uptrends remain intact for the major global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM). At this point,...

Vermilion Research

China Drug Distribution: More "Two Invoice" Changes

The restructuring of China's drug distribution industry continues with Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)'s pending buyout of Walgreens Boots...

Kemp Dolliver, CFA

Walgreens Invests in Sinopharm Retail Arm

Walgreens Boots Alliance Inc (WBA US) has agreed to buy a 40% stake in Sinopharm Group Co H (1099 HK) 's Guoda Drug Store chain (held by...

Kemp Dolliver, CFA

Deceleration Likely Driving Cardinal Valuation

One of the questions posed during the discussion of Cardinal Health Inc (CAH US) 's plan to sell its China drug distribution business was the...

Kemp Dolliver, CFA

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