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

Shanghai Pudong Development Bank Co. / Event-Driven

<ul>
<li>There are 5 changes for 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</a> that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.</li>
<li>Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.</li>
<li>The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.</li>
</ul>


There are 5 changes for the SSE50 Index that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.
Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.
The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.


SSE50 Index Rebalance: Some Large Impact Changes

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

<ul>
<li>
This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; </li>
<li>
Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and</li>
<li>
Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.</li>
</ul>



This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; 

Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and

Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.


<ul>
<li>
”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;</li>
<li>
Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and</li>
<li>
Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.</li>
</ul>



”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;

Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and

Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.


China Evergrande Group – Bank Fallout Coming

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. <h3>The Search For Compelling Spreads</h3><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/378/original/image_82700697241635169253114.png?1635169255" class="editor-image img-responsive" data-smartkarma-image-id="237378"></figure>Source: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a>  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. The Search For Compelling SpreadsSource: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ MagnaChip Semiconductor Corp (MX US) situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  51 Job Inc Adr (JOBS US)  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

China Evergrande Group – China’s Wrecking Ball

China

Shanghai Pudong Development Bank Co., Ltd. provides banking services. The Company provides loans, deposits, accounts settlement, foreign exchange, and other services. Shanghai Pudong Development Bank provides its services to individuals, companies, and other groups.

Shanghai Pudong Development Bank Co. (600000 CH)

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Shanghai Pudong Development Bank Co. (600000 CH)

SSE50 Index Rebalance: Some Large Impact Changes

There are 5 changes to the SSE50 Index in June that will have one-way turnover estimated at 3.95% and will result in a one-way trade of CNY 3,187m....

Brian Freitas

China Evergrande – Repo’d

EVERGRANDE: Under mainland China law, the government can repossess idle land sold to developers without compensation. Mainland Chinese banks no...

Thomas J. Monaco

China Evergrande Group – Bank Fallout Coming

EVERGRANDE: Fitch declared Evergrande in “restricted default”. 367 civil actions have been filed, as they compete with offshore bondholders. Most...

Thomas J. Monaco

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Precedent suggests that the odds heavily favor that this Go-Private deal will be consummated. With JOBS only 4% above its undisturbed price, the ...

Robert Sassoon

China Evergrande Group – China’s Wrecking Ball

EVERGRANDE: Evergrande magically made an interest payment to bondholders, escaping default by the skin of its teeth. This self-inflicted wound...

Thomas J. Monaco

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