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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Last evening post market close in Hong Kong, Hang Seng Indexes released an <a href="https://www.hsi.com.hk/static/uploads/contents/en/news/indexChgNotice/20201030T100000.pdf" target="_blank" rel="noopener">index notice</a> announcing a new Fast Entry rule for the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>.As one can imagine, this is being done solely to ensure the early inclusion of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> in the index. Index investors would then look at buying index futures and other derivatives on the HSCEI to play the upside. The early inclusion could also help the HSCEI to catch up with other China focused indices, where it has been a laggard for some time now.<a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a>'s Fast Entry into the index will also mean that one stock needs to be deleted, though from the index rules it is not very clear if that would happen at the regular index review in December 2020 or March 2021.In this Insight, we take a look at the impact of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a>'s inclusion in the HSCEI on the stock and what it means for the other stocks in the index.

Last evening post market close in Hong Kong, Hang Seng Indexes released an index notice announcing a new Fast Entry rule for the Hang Seng China Enterprises Index (HSCEI INDEX).As one can imagine, this is being done solely to ensure the early inclusion of Ant Group (6688 HK) in the index. Index investors would then look at buying index futures and other derivatives on the HSCEI to play the upside. The early inclusion could also help the HSCEI to catch up with other China focused indices, where it has been a laggard for some time now.Ant Group (6688 HK)'s Fast Entry into the index will also mean that one stock needs to be deleted, though from the index rules it is not very clear if that would happen at the regular index review in December 2020 or March 2021.In this Insight, we take a look at the impact of Ant Group (6688 HK)'s inclusion in the HSCEI on the stock and what it means for the other stocks in the index. 

Ant Group: Everyone Wants a Piece of The Action - HSCEI Fast Entry

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.There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade.With passive tracking products holding around US$28bn of AUM, plus another US$35bn in open interest on the listed futures, there could be significant moves in the inclusion/exclusion names ahead of the rebalance announcement. 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.

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.There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade.With passive tracking products holding around US$28bn of AUM, plus another US$35bn in open interest on the listed futures, there could be significant moves in the inclusion/exclusion names ahead of the rebalance announcement. 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.

CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December

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

China (MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while Brazil (Bovespa) and India (SENSEX) display improving price and RS trends -

China (MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while Brazil (Bovespa) and India (SENSEX) display improving price and RS trends -

US Dollar Weakness Remains A Tailwind For EM

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>Our text-mined CNY diffusion index, which measures the relative momentum of Yuan-positive vs. Yuan-negative expressions in the global financial media, is showing signs of peaking</li>
<li>News attribution suggests this is a result of the debate over Chinese FX intervention given the backdrop of tightening domestic financial conditions (and concerns over property sector leverage)</li>
<li>When optimizing a trading strategy based on the CNY diffusion index, the signal has now turned neutral on CNY; conversely, the levels of momentum on the indicator seen in September have been previously associated with negative returns on FXI and A-Shares</li>
<li>In the US, our indicators suggest the recent spike in inflation breakevens is mostly a function of surging Biden victory expectations, less so due to persistent stimulus chatter, and unlikely a function of a particularly buoyant earnings season</li>
</ul>


Our text-mined CNY diffusion index, which measures the relative momentum of Yuan-positive vs. Yuan-negative expressions in the global financial media, is showing signs of peaking
News attribution suggests this is a result of the debate over Chinese FX intervention given the backdrop of tightening domestic financial conditions (and concerns over property sector leverage)
When optimizing a trading strategy based on the CNY diffusion index, the signal has now turned neutral on CNY; conversely, the levels of momentum on the indicator seen in September have been previously associated with negative returns on FXI and A-Shares
In the US, our indicators suggest the recent spike in inflation breakevens is mostly a function of surging Biden victory expectations, less so due to persistent stimulus chatter, and unlikely a function of a particularly buoyant earnings season


TMI Thematics:  CNY Momentum Peaking? / Blue Wave Drives US Inflation Expectations, Not Earnings

The <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.
Four asset managers were approved by the CSRC to launch ETFs on the <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.
With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.
<a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a> could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.

The SSE STAR 50 (STAR50 INDEX) (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.
Four asset managers were approved by the CSRC to launch ETFs on the SSE STAR 50 (STAR50 INDEX) and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.
With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.
Ant Financial (1051260D CH) could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.

STAR Board: STAR50 Index - The December Rebalance Is Going to Be BIG

China

The CSI 300 Index is a free-float weighted index that consists of 300 A-share stocks listed on the Shanghai or Shenzhen Stock Exchanges. Index has a base level of 1000 on 12/31/2004. * Due to our agreement with CSI, shares in the index is restricted, please visit SSIS<go> for more information and access. This ticker holds prices fed from Shenzhen Stock Exchange.

Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX EQUITY)

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Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX EQUITY)

Ant Group: Everyone Wants a Piece of The Action - HSCEI Fast Entry

Hang Seng Indexes has introduced a Fast Entry rule for the HSCEI which ensures the inclusion of Ant Group in the index after the close of trading...

Brian Freitas

CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December

There could be 24 changes to the CSI300 index at the December review with an estimated one-way turnover of 4.06%. 4 inclusions and 11 deletions are...

Brian Freitas

US Dollar Weakness Remains A Tailwind For EM

China accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within EM, while Brazil...

Vermilion Research

TMI Thematics: CNY Momentum Peaking? / Blue Wave Drives US Inflation Expectations, Not Earnings

Our indicators see signs of peaking in CNY momentum, and attribute the recent spike in US breakevens to increased conviction on a Biden victory...

Elan Gore

STAR Board: STAR50 Index - The December Rebalance Is Going to Be BIG

The STAR50 index has seen a lot of interest following its launch in July with over CNY 20bn raised by 4 ETFs. We look at the index methodology, the...

Brian Freitas

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