Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

Korea's financial regulators, the Financial Services Commission, had advised the local banks and bank holding companies to keep a dividend payout ratio below 20%. The purpose was clear. It was to secure a sufficient capital buffer to absorb potential losses resulting from COVID-19.This recommendation for the 20% cap is effective until the end of this month.The market widely expects the FSC to not renew this 20% dividend cap after this month amid the fast-rebounding economy.

Korea's financial regulators, the Financial Services Commission, had advised the local banks and bank holding companies to keep a dividend payout ratio below 20%. The purpose was clear. It was to secure a sufficient capital buffer to absorb potential losses resulting from COVID-19.This recommendation for the 20% cap is effective until the end of this month.The market widely expects the FSC to not renew this 20% dividend cap after this month amid the fast-rebounding economy.

Korea Banks 20% Dividend Cap Scrapping: Projected Div Payout & Yield of 8 Bank Stocks

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

Short selling has finally resumed in Korea and it has been a busy couple of days on that front with foreign investors piling into stocks that have run up more than their peers over the last year and are potentially overvalued.Long/short pairs could be implemented in Korea during the short sell ban if you had long inventory or if there were listed single stock futures on the short leg.With short selling permitted on constituents of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a>, we take a look at long/short pairs where both stocks are members of the index. These pairs belong to the same GICS sub-industry, are correlated and exhibit mean-reversion. We also use short sale data from the last couple of trading sessions to see which stocks are being targeted by short sellers.

Short selling has finally resumed in Korea and it has been a busy couple of days on that front with foreign investors piling into stocks that have run up more than their peers over the last year and are potentially overvalued.Long/short pairs could be implemented in Korea during the short sell ban if you had long inventory or if there were listed single stock futures on the short leg.With short selling permitted on constituents of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX), we take a look at long/short pairs where both stocks are members of the index. These pairs belong to the same GICS sub-industry, are correlated and exhibit mean-reversion. We also use short sale data from the last couple of trading sessions to see which stocks are being targeted by short sellers.

Korea Pair Trades: High Risk/Reward Names with Short Sell Screen

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: <a href="https://www.smartkarma.com/compose/insight/50971/Bank%20Credit%20Strategy:%20Melt-Up%20Before%20Meltdown,%20Where%20to%20Position.%20Read%20more:%20https:/skr.ma/W1NcQ" target="_blank" rel="noopener">Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</a>. In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tighteningWith peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.

Executive Summary: The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position. In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tighteningWith peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Bull Steepening, but Is It Sustainable?

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.<table class="table table-striped">
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<tr><td colspan="5" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Closely correlated &amp; co-integrated sector pairs in Korea"}'>Closely correlated &amp; co-integrated sector pairs in Korea</td></tr>
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<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"Ticker"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Ticker</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":2,"2":"180-day correlation"}'>180-day correlation</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}' data-sheets-formula="=Data!R[-2]C[1]">Shinhan Financial Group Co., Ltd.</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"055550"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-1]C[0]">055550</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}' data-sheets-formula="=Data!R[-2]C[0]">KB Financial Group Inc</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"105560"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-1]C[-1]">105560</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.9610517352067552}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('1'!R870C10:R994C10, '1'!R870C11:R994C11)">0.96105</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"LG Uplus Corp"}' data-sheets-formula="=Data!R[-3]C[3]">LG Uplus Corp</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"032640"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-2]C[2]">032640</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"SK Telecom Co Ltd"}' data-sheets-formula="=Data!R[-3]C[2]">SK Telecom Co Ltd</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"017670"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-2]C[1]">017670</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.8992786663054949}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('2'!R870C10:R994C10, '2'!R870C11:R994C11)">0.89928</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Kia Corp"}' data-sheets-formula="=Data!R[-4]C[5]">Kia Corp</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"000270"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-3]C[4]">000270</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Hyundai Motor Co"}' data-sheets-formula="=Data!R[-4]C[4]">Hyundai Motor Co</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"005380"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-3]C[3]">005380</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.8668911065680154}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('3'!R870C10:R994C10, '3'!R870C11:R994C11)">0.86689</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd"}' data-sheets-formula="=Data!R[-5]C[7]">Celltrion HealthCare Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"091990"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-4]C[6]">091990</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Celltrion, Inc."}' data-sheets-formula="=Data!R[-5]C[6]">Celltrion, Inc.</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"068270"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-4]C[5]">068270</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.850526307159412}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('4'!R870C10:R994C10, '4'!R870C11:R994C11)">0.85053</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd"}' data-sheets-formula="=Data!R[-6]C[9]">BGF Retail Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"282330"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-5]C[8]">282330</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula="=Data!R[-6]C[8]">GS Retail Co Ltd</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"007070"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-5]C[7]">007070</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.7760017852780396}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('5'!R870C10:R994C10, '5'!R870C11:R994C11)">0.77600</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd"}' data-sheets-formula="=Data!R[-7]C[11]">Hyundai Department Store Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"069960"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-6]C[10]">069960</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Shinsegae Inc"}' data-sheets-formula="=Data!R[-7]C[10]">Shinsegae Inc</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"004170"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-6]C[9]">004170</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.9327816777063404}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('6'!R870C10:R994C10, '6'!R870C11:R994C11)">0.93278</td>
</tr>
<tr><td colspan="5" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
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</table>In the light of the short-selling resumption next week, these sector pairs will likely draw attention.Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.<ol>
<li>Shinhan Financial and KB Financial: +2.16σ</li>
<li>Kia Corp and Hyundai Motor: -2.04σ</li>
<li>Hyundai Department Store and Shinsegae: -1.81σ</li>
</ol><table class="table table-striped">
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Sigma (σ) on a 20-day moving average"}'>Sigma (σ) on a 20-day moving average</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"Today"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Today</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":2,"2":"T-1"}'>T-1</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-2"}'>T-2</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-3"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-3</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-4"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-4</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-5"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-5</td>
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<tr>
<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd./KB Financial Group Inc"}' data-sheets-formula='=Data!R[-11]C[1]&amp;"/"&amp;Data!R[-11]C[2]'>Shinhan Financial Group Co., Ltd./KB Financial Group Inc</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":2.160993227615466}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>2.16</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":2.542772683735228}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>2.54</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":1.786381555409661}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>1.79</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":1.1128800501751042}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>1.11</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.181530165798035}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>0.18</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.22641999615163677}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-0.23</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"LG Uplus Corp/SK Telecom Co Ltd"}' data-sheets-formula='=Data!R[-12]C[3]&amp;"/"&amp;Data!R[-12]C[4]'>LG Uplus Corp/SK Telecom Co Ltd</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.24660010671563912}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-0.25</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-0.10403426571856596}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-0.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.6117954095017157}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.61</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.6376484979254156}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-1.64</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.4249128627679264}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-1.42</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.087684413507805}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-2.09</td>
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<tr>
<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Kia Corp/Hyundai Motor Co"}' data-sheets-formula='=Data!R[-13]C[5]&amp;"/"&amp;Data!R[-13]C[6]'>Kia Corp/Hyundai Motor Co</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.0407109696616685}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-2.04</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.0025888653486463}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.00</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.1695043509161958}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.17</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.004698906236027549}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>0.00</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.10273148905333784}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>0.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.0802292544899608}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-1.08</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd/Celltrion, Inc."}' data-sheets-formula='=Data!R[-14]C[7]&amp;"/"&amp;Data!R[-14]C[8]'>Celltrion HealthCare Co Ltd/Celltrion, Inc.</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.31044173489418}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-0.31</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-0.7388105592067177}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-0.74</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.0110561898756243}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.01</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.0565672498648304}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-0.06</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.1863196550598434}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-0.19</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.5127886597937376}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>0.51</td>
</tr>
<tr>
<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd/GS Retail Co Ltd"}' data-sheets-formula='=Data!R[-15]C[9]&amp;"/"&amp;Data!R[-15]C[10]'>BGF Retail Co Ltd/GS Retail Co Ltd</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.2360588141562515}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>0.24</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.102593735245234}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.5568836748773385}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-2.56</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.3214237049099196}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-2.32</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.024092449046153583}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-0.02</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.4712110272418423}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>0.47</td>
</tr>
<tr>
<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd/Shinsegae Inc"}' data-sheets-formula='=Data!R[-16]C[11]&amp;"/"&amp;Data!R[-16]C[12]'>Hyundai Department Store Co Ltd/Shinsegae Inc</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.807722354711979}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-1.81</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.309293992473888}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.31</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.530789825470454}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-2.53</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.733312375711856}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-1.73</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.3190244950375916}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-1.32</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.03766239765956894}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-0.04</td>
</tr>
<tr><td colspan="7" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.








Closely correlated &amp; co-integrated sector pairs in Korea

Name
Ticker
Name
Ticker
180-day correlation


Shinhan Financial Group Co., Ltd.
055550
KB Financial Group Inc
105560
0.96105


LG Uplus Corp
032640
SK Telecom Co Ltd
017670
0.89928


Kia Corp
000270
Hyundai Motor Co
005380
0.86689


Celltrion HealthCare Co Ltd
091990
Celltrion, Inc.
068270
0.85053


BGF Retail Co Ltd
282330
GS Retail Co Ltd
007070
0.77600


Hyundai Department Store Co Ltd
069960
Shinsegae Inc
004170
0.93278

Source: KRX

In the light of the short-selling resumption next week, these sector pairs will likely draw attention.Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.
Shinhan Financial and KB Financial: +2.16σ
Kia Corp and Hyundai Motor: -2.04σ
Hyundai Department Store and Shinsegae: -1.81σ












Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4
T-5


Shinhan Financial Group Co., Ltd./KB Financial Group Inc
2.16
2.54
1.79
1.11
0.18
-0.23


LG Uplus Corp/SK Telecom Co Ltd
-0.25
-0.10
-1.61
-1.64
-1.42
-2.09


Kia Corp/Hyundai Motor Co
-2.04
-2.00
-1.17
0.00
0.10
-1.08


Celltrion HealthCare Co Ltd/Celltrion, Inc.
-0.31
-0.74
-1.01
-0.06
-0.19
0.51


BGF Retail Co Ltd/GS Retail Co Ltd
0.24
-2.10
-2.56
-2.32
-0.02
0.47


Hyundai Department Store Co Ltd/Shinsegae Inc
-1.81
-2.31
-2.53
-1.73
-1.32
-0.04

Source: KRX

Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.

Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

South Korea

KB Financial Group Inc. (the "Company"), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfer with the former shareholders of its subsidiaries including Kookmin Bank in order to provide management services and financing to associated companies. The headquarters are located at Seoul, Korea

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KB Financial ADR (KB US)

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