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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Contemporary Amperex Technology (CATL) / Event-Driven

<div><p>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 are actively traded as well.</p></div><div>
<p>China Securities Index Co (CSI) will most likely announce the changes for the December rebalance after market close on 26 November and the changes will be effective after the close of trading on 10 December.</p>
<p>The review period ended on 29 October and we see 26 potential changes at the December rebalance. Of these, 23 are high probability changes with another 3 likely to take place.</p>
<p>Since our last Insight a month ago, the potential inclusions have outperformed the potential deletion by 13% with the inclusions rising on average and the deletions dropping on average. 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> was flat over the period. We recommend trimming positions and waiting for an opportunity to re-enter the trade at lower levels in the next couple of weeks.</p>
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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 are actively traded as well.
China Securities Index Co (CSI) will most likely announce the changes for the December rebalance after market close on 26 November and the changes will be effective after the close of trading on 10 December.
The review period ended on 29 October and we see 26 potential changes at the December rebalance. Of these, 23 are high probability changes with another 3 likely to take place.
Since our last Insight a month ago, the potential inclusions have outperformed the potential deletion by 13% with the inclusions rising on average and the deletions dropping on average. The Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) was flat over the period. We recommend trimming positions and waiting for an opportunity to re-enter the trade at lower levels in the next couple of weeks.


CSI300 Index Rebalance Preview (Dec 2021): It Was A Good Entry Point

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Qi An Xin Technology Group  / Forensic Accounting

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<p>In the Second of this Three part SK Originals series, we discuss how China's Company Accounting Standard No. 14 - Revenue ("CAS No. 14") could impact the revenue recognition policy of <a href="https://www.smartkarma.com/entities/qi-an-xin-technology-group-a" target="_blank" data-smartkarma-citation="entities:31069:1" rel="noopener">Qi An Xin Technology Group (688561 CH)</a>.  This impact includes, amongst others, the timing of revenue recognition and differing revenue recognition across a company's business segments. </p>
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<p>Similar to before. we discuss the materiality threshold used to identify the listed software companies that have made changes to their accounting polices in lieu of CAS No. 14, the key implications and what this all means for Qi An Xin, with reference to industry dynamics, relative valuation, and company fundamentals.</p>
<p>Further, Qi An Xin is the official Cyber Security Services and Anti-Virus Software Sponsor of the Beijing 2022 Olympic and Paralympic Winter Games. We discuss the potential uplift for Qi An Xin in terms of greater awareness derived from the Olympic event.</p>



In the Second of this Three part SK Originals series, we discuss how China's Company Accounting Standard No. 14 - Revenue ("CAS No. 14") could impact the revenue recognition policy of Qi An Xin Technology Group (688561 CH).  This impact includes, amongst others, the timing of revenue recognition and differing revenue recognition across a company's business segments. 


Similar to before. we discuss the materiality threshold used to identify the listed software companies that have made changes to their accounting polices in lieu of CAS No. 14, the key implications and what this all means for Qi An Xin, with reference to industry dynamics, relative valuation, and company fundamentals.
Further, Qi An Xin is the official Cyber Security Services and Anti-Virus Software Sponsor of the Beijing 2022 Olympic and Paralympic Winter Games. We discuss the potential uplift for Qi An Xin in terms of greater awareness derived from the Olympic event.

Qi An Xin (688561 CH) - Potential Uplift as Cyber Security Vendor for Beijing 2022 Winter Olympics

<div><p>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.</p></div><div>
<p>China Securities Index Co (CSI) will most likely announce the changes for the December rebalance after market close on 26 November and the changes will be effective after the close of trading on 10 December.</p>
<p>With over 90% of the review period complete, we see 26 potential changes at the upcoming December 2021 review. Estimated one-way turnover at the rebalance is 9.30% and will result in a one-way trade of slightly less than US$3bn.</p>
<p>The potential inclusions have outperformed the potential exclusions over the last 3 months but have given up a large part of the gains over the last couple of weeks. Given the trading history of past rebalances, we recommend buying the potential inclusions and selling the potential exclusions over the next couple of weeks and unwinding the positions post the end of the review period. There will then be more trading opportunities as we near the announcement date and implementation date.</p>
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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 most likely announce the changes for the December rebalance after market close on 26 November and the changes will be effective after the close of trading on 10 December.
With over 90% of the review period complete, we see 26 potential changes at the upcoming December 2021 review. Estimated one-way turnover at the rebalance is 9.30% and will result in a one-way trade of slightly less than US$3bn.
The potential inclusions have outperformed the potential exclusions over the last 3 months but have given up a large part of the gains over the last couple of weeks. Given the trading history of past rebalances, we recommend buying the potential inclusions and selling the potential exclusions over the next couple of weeks and unwinding the positions post the end of the review period. There will then be more trading opportunities as we near the announcement date and implementation date.


CSI300 Index Rebalance Preview (Dec 2021): Pullback Provides Entry Point

Venustech Group Inc A / Forensic Accounting

<p>China's cybersecurity market growth is set to reaccelerate given increased digitisation of the economy, emphasis on data security, and increase in cybersecurity spending.  While pandemic disruptions had led to an inevitable slowdown in 2020, recent cybersecurity spending trends by corporates and government bodies suggest a cyclical rebound. </p>
<p>In the First of this Three part<strong> SK Originals</strong> series, we discuss how China's Company Accounting Standard No. 14 - Revenue ("<strong>CAS No. 14</strong>")'s application and consequent changes in accounting policy could result in material changes to the revenue recognition policy of <a href="https://www.smartkarma.com/entities/venustech-group-inc-a" target="_blank" data-smartkarma-citation="entities:2773:1" rel="noopener">Venustech Group Inc A (002439 CH)</a>, such as changing the timing of revenue recognition and the amount being recognised across the company's various revenue segments.  </p>
<p>Most Chinese software companies started adopting CAS No. 14 in 2020.  Broadly, the net impact of CAS No. 14 is that recognition of software product revenue shifts from from multiple milestones based on a percentage of delivery completion to the transfer of actual control of the software products to customers, subject to specific terms of contract and management judgement. </p>
<p>We also discuss the materiality threshold used to identify the listed software companies that have made changes in lieu of CAS No. 14, the key implications, and what this all means for Venustech with reference to industry dynamics, relative valuation, and company fundamentals.</p>
<p>We are constructive on Venustech's prospects given its market leading position in software products, security operation centers and related services.  At forward P/E of 21.9x and market leading ROE and operating margin relative to peer average, we believe that Venustech is attractively valued. </p>

China's cybersecurity market growth is set to reaccelerate given increased digitisation of the economy, emphasis on data security, and increase in cybersecurity spending.  While pandemic disruptions had led to an inevitable slowdown in 2020, recent cybersecurity spending trends by corporates and government bodies suggest a cyclical rebound. 
In the First of this Three part SK Originals series, we discuss how China's Company Accounting Standard No. 14 - Revenue ("CAS No. 14")'s application and consequent changes in accounting policy could result in material changes to the revenue recognition policy of Venustech Group Inc A (002439 CH), such as changing the timing of revenue recognition and the amount being recognised across the company's various revenue segments.  
Most Chinese software companies started adopting CAS No. 14 in 2020.  Broadly, the net impact of CAS No. 14 is that recognition of software product revenue shifts from from multiple milestones based on a percentage of delivery completion to the transfer of actual control of the software products to customers, subject to specific terms of contract and management judgement. 
We also discuss the materiality threshold used to identify the listed software companies that have made changes in lieu of CAS No. 14, the key implications, and what this all means for Venustech with reference to industry dynamics, relative valuation, and company fundamentals.
We are constructive on Venustech's prospects given its market leading position in software products, security operation centers and related services.  At forward P/E of 21.9x and market leading ROE and operating margin relative to peer average, we believe that Venustech is attractively valued. 

Accounting Standards Series - CAS No. 14 Impact on China Software Companies - Venustech (2439 CH)

<div><p>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.</p></div><div>
<p>China Securities Index Co (CSI) will announce the changes for the December rebalance at the end of  November or beginning December and the changes will be effective after the close of trading on 10 December.</p>
<p>Half way through the review period that runs from May to October, we see 26 changes at the upcoming December 2021 review. Estimated one-way turnover at the rebalance is 9.24% and will result in a one-way trade of just shy of US$3bn.</p>
<p>The Information Technology and Materials sectors gain 4 spots each in the index while Financials are the biggest losers with 7 spots gone.</p>
<p>The potential inclusions have outperformed the potential exclusions and 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> by a wide margin on a year to date basis. We recommend building up positions gradually and scaling in on a correction.</p>
</div>

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 for the December rebalance at the end of  November or beginning December and the changes will be effective after the close of trading on 10 December.
Half way through the review period that runs from May to October, we see 26 changes at the upcoming December 2021 review. Estimated one-way turnover at the rebalance is 9.24% and will result in a one-way trade of just shy of US$3bn.
The Information Technology and Materials sectors gain 4 spots each in the index while Financials are the biggest losers with 7 spots gone.
The potential inclusions have outperformed the potential exclusions and the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) by a wide margin on a year to date basis. We recommend building up positions gradually and scaling in on a correction.


CSI300 Index Rebalance Preview: Large Turnover as Potential Inclusions Keep Rallying

China

Qi An Xin Technology Group Inc. develops and distributes cyber security products. The Company produces infrastructure security products, next generation information technology infrastructure protection products, big data intelligent security detection and control products, and others. Qi An Xin Technology Group also produces computer software and hardware products.

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Qi An Xin Technology Group (688561 CH)

CSI300 Index Rebalance Preview (Dec 2021): It Was A Good Entry Point

We forecast 26 changes to the CSI300 Index at the December rebalance. The inclusions outperformed the deletions by 13% in October. Trim positions...

Brian Freitas

Qi An Xin (688561 CH) - Potential Uplift as Cyber Security Vendor for Beijing 2022 Winter Olympics

In this Insight, we discuss how CAS No. 14 Standards could affect the revenue recognition policies of Qi An Xin. We also explore its business...

Jason Yap, CFA

CSI300 Index Rebalance Preview (Dec 2021): Pullback Provides Entry Point

With 90% of the review period complete, we see 26 changes to the CSI300 at the Dec rebal. One-way turnover is 9.3% and the one-way trade is US$3bn....

Brian Freitas

Accounting Standards Series - CAS No. 14 Impact on China Software Companies - Venustech (2439 CH)

In this SK Originals series, we discuss how CAS No. 14 Standards could affect the revenue recognition policy of Venustech, such as changing the...

Jason Yap, CFA

CSI300 Index Rebalance Preview: Large Turnover as Potential Inclusions Keep Rallying

Half way through the review period, we see 26 changes to the CSI300 Index. Estimated one-way turnover is 9%+ & would result in a one way trade of...

Brian Freitas

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