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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>The review period nearly complete, we see 7 potential adds and 9 potential deletes at the December rebalance. However, there can be a maximum of 5 changes at a rebalance.</li>
<li>We estimate a one-way turnover of 4.28% at the December rebalance leading to a one-way trade of CNY 3.42bn. Index arb activity could add to the impact on the stocks.</li>
<li>The potential adds have dropped over the last month while the potential deletes have moved higher over the last couple of weeks.</li>
</ul>


The review period nearly complete, we see 7 potential adds and 9 potential deletes at the December rebalance. However, there can be a maximum of 5 changes at a rebalance.
We estimate a one-way turnover of 4.28% at the December rebalance leading to a one-way trade of CNY 3.42bn. Index arb activity could add to the impact on the stocks.
The potential adds have dropped over the last month while the potential deletes have moved higher over the last couple of weeks.


SSE50 Index Rebalance Preview: Sector Shift as IT and Financials Drop

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Energy Engineering / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a> witnessed a good acceleration in quarterly new contracts in this year. We estimate current backlog equals to 6.4x its FY21 revenue.</li>
<li>It is well geared towards China's new energy development, as reflected by a 108.3% YoY surge in new energy contracts. Its pumped storage new contract value leaped 144x in 1H22.</li>
<li>The spin-off of Gezhouba Explosive in the A-share market is progressing well with approval from shareholders in Sep. The stock's 4.1x PER and 0.33x P/B look undemanding.</li>
</ul>



China Energy Engineering (3996 HK) witnessed a good acceleration in quarterly new contracts in this year. We estimate current backlog equals to 6.4x its FY21 revenue.
It is well geared towards China's new energy development, as reflected by a 108.3% YoY surge in new energy contracts. Its pumped storage new contract value leaped 144x in 1H22.
The spin-off of Gezhouba Explosive in the A-share market is progressing well with approval from shareholders in Sep. The stock's 4.1x PER and 0.33x P/B look undemanding.


Energy China (3996 HK): Positive Developments in All Fronts

<ul>
<li>Over 80% of the way through the review period for the December rebalance, we see 7 stocks in inclusion/exclusion zone. However, there can be a maximum of 5 changes.</li>
<li>We estimate a one-way turnover of 3.9% at the December rebalance leading to a one-way trade of CNY 2.85bn.</li>
<li>The potential adds have outperformed the potential deletes and the <a href="https://www.smartkarma.com/entities/shanghai-stock-exchange-sse-50-a-share-index" target="_blank" data-smartkarma-citation="entities:31073:1" rel="noopener">SSE50 Index (SSE50 INDEX)</a> by a wide margin over the last few months.</li>
</ul>


Over 80% of the way through the review period for the December rebalance, we see 7 stocks in inclusion/exclusion zone. However, there can be a maximum of 5 changes.
We estimate a one-way turnover of 3.9% at the December rebalance leading to a one-way trade of CNY 2.85bn.
The potential adds have outperformed the potential deletes and the SSE50 Index (SSE50 INDEX) by a wide margin over the last few months.


SSE50 Index Rebalance Preview: Sector Rotation To Continue

<ul>
<li>We believe strong orders and backlog, increase in installed capacity and development of new business initiatives are the key drivers for brighter outlook of <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a>. </li>
<li>Its new orders grew 51% YoY in FY21, with its backlog is enough to cover the revenue more than the next three years mean solid earnings security and visibility.</li>
<li>Development of hydrogen energy and pumped storage businesses may take longer to contribute, but they also represent significant upside when enter into commercial launch. </li>
</ul>


We believe strong orders and backlog, increase in installed capacity and development of new business initiatives are the key drivers for brighter outlook of China Energy Engineering (3996 HK). 
Its new orders grew 51% YoY in FY21, with its backlog is enough to cover the revenue more than the next three years mean solid earnings security and visibility.
Development of hydrogen energy and pumped storage businesses may take longer to contribute, but they also represent significant upside when enter into commercial launch. 


Energy China (3996 HK): Multiple Drivers for Bright Prospects

Thematic (Sector/Industry)

<ul>
<li>Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.</li>
<li>The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. </li>
<li>Key beneficiaries include <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">Energy China (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/power-construction-corporation-of-china-limited" target="_blank" data-smartkarma-citation="entities:24220:1" rel="noopener">Power China (601669 CH)</a> and the gas utilities.</li>
</ul>


Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.
The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. 
Key beneficiaries include Xinjiang Goldwind (2208 HK), Dongfang Electric (1072 HK), China Longyuan Power (916 HK), Energy China (3996 HK), Power China (601669 CH) and the gas utilities.


Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

China

Power Construction Corporation of China, Ltd provides electric utility line construction services. The Company develops and constructs hydropower engineering, water works engineering, thermal power engineering, new energy engineering, and other projects. Power Construction China also operates property development.

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Power Construction of Chi (601669 CH)

SSE50 Index Rebalance Preview: Sector Shift as IT and Financials Drop

We forecast 5 changes in December as Energy, Industrials and Materials weights increase and IT and Financials drop. One-way turnover will be over...

Brian Freitas

Energy China (3996 HK): Positive Developments in All Fronts

Energy China saw a 48.4% surge in new contract signed in 3Q22, making its backlog equal to an estimated 6.4x of FY21 revenue. Spin-off of Gezhouba...

Osbert Tang, CFA

SSE50 Index Rebalance Preview: Sector Rotation To Continue

We forecast 5 changes for the SSE50 Index in December. There are a few names that are close to add/delete zone and price/volume changes can lead to...

Brian Freitas

Energy China (3996 HK): Multiple Drivers for Bright Prospects

Strong orders and backlog, increase in installed capacity and new business initiatives are key drivers for brighter outlook of Energy China. Its...

Osbert Tang, CFA

Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

We should not overlook the potential long term impact of the Russia-Ukraine war on the Chinese utilities and energy companies as we find some...

Osbert Tang, CFA

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Market Cap (USDm)

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