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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.The June review will see the inclusion of stocks that were newly listed from 1 January to 31 March and meet the criteria for joining the index.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.<div>There are a lot of stocks that will join the HSCI and will subsequently be included as a part of the Southbound Stock Connect program - these stocks could be bought by mainland investors and could outperform their peers and the market.</div><div>There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list while some stocks will be deleted from the HSCI but maintained in Stock Connect since they have listed A-shares.</div><div>Read on for more details and the stocks affected by the changes.</div>

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.The June review will see the inclusion of stocks that were newly listed from 1 January to 31 March and meet the criteria for joining the index.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.There are a lot of stocks that will join the HSCI and will subsequently be included as a part of the Southbound Stock Connect program - these stocks could be bought by mainland investors and could outperform their peers and the market.There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list while some stocks will be deleted from the HSCI but maintained in Stock Connect since they have listed A-shares.Read on for more details and the stocks affected by the changes.

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.

HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions

Global Cross-Asset Energy Analyst, VAC Investments

Aaditya Chintalapati, CFA

Global Cross-Asset Energy Analyst

VAC Investments

Equity Bottom-Up

Kuwait Energy's recently announced 1H18 results were broadly in-line with expectations, both operationally and financially. However, we are concerned about the firm's ongoing disputes at Block 9 (Iraq) and Block 43 (Yemen).  We believe these could potentially impact the proposed acquisition by <a href="https://www.smartkarma.com/entities/6754" target="_blank" data-smartkarma-citation="entities:6754:1">United Energy (467 HK)</a> . For further details about the proposed acquisition of Kuwait Energy by <a href="https://www.smartkarma.com/entities/6754" target="_blank" data-smartkarma-citation="entities:6754:1">United Energy (467 HK)</a> , please see our recent report - <a href="https://www.smartkarma.com/insights/united-energy-467-hk-acquires-kuwait-energy-for-usd-900m-implied-ev" target="_blank" data-smartkarma-citation="insights:24428">United Energy (467 HK) Acquires Kuwait Energy for USD 900m Implied EV</a> .

Kuwait Energy's recently announced 1H18 results were broadly in-line with expectations, both operationally and financially. However, we are concerned about the firm's ongoing disputes at Block 9 (Iraq) and Block 43 (Yemen).  We believe these could potentially impact the proposed acquisition by United Energy (467 HK) . For further details about the proposed acquisition of Kuwait Energy by United Energy (467 HK) , please see our recent report - United Energy (467 HK) Acquires Kuwait Energy for USD 900m Implied EV .

United Energy (467 HK): Kuwait Energy's Ongoing Disputes Add Deal Risk

<a href="https://www.smartkarma.com/entities/6754" target="_blank" data-smartkarma-citation="entities:6754:1">United Energy (467 HK) </a>has announced the acquisition of 100% of Kuwait Energy's ordinary shares outstanding for a cash consideration of USD 491m via a Scheme of Arrangement. In addition, the company will pay USD 160m for outstanding Preference Shares, taking the total cash consideration on the transaction to USD 651m. With net debt of c.USD 230m, the transaction gives us an EV for Kuwait Energy of c.USD 900m, implying 3.5x 2019E EV/EBITDA and c.1.5x EV/2P reserves. We belive the transaction is immediately NAV accretive and adds c.30Kboe/day of high-margin oil and gas production to United Energy. It also provides substantial resource development opportunity in a region otherwise dominated by super-majors. With the shareholder circular expected to be released by end-November, we would anticipate deal completion by year-end/early-2019.

United Energy (467 HK) has announced the acquisition of 100% of Kuwait Energy's ordinary shares outstanding for a cash consideration of USD 491m via a Scheme of Arrangement. In addition, the company will pay USD 160m for outstanding Preference Shares, taking the total cash consideration on the transaction to USD 651m. With net debt of c.USD 230m, the transaction gives us an EV for Kuwait Energy of c.USD 900m, implying 3.5x 2019E EV/EBITDA and c.1.5x EV/2P reserves. We belive the transaction is immediately NAV accretive and adds c.30Kboe/day of high-margin oil and gas production to United Energy. It also provides substantial resource development opportunity in a region otherwise dominated by super-majors. With the shareholder circular expected to be released by end-November, we would anticipate deal completion by year-end/early-2019.  

United Energy (467 HK) Acquires Kuwait Energy for USD 900m Implied EV

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Thematic (Sector/Industry)

<ul><li>Singapore’s Energy Sector was the strongest of Singapore’s stock Sectors in October, with a 10.4% market capitalisation weighted total return on oil and coal price swings. This followed on from Energy also being the strongest of the Sectors back in September.</li><li>The 10 largest capitalised stocks of Singapore’s Energy Sector averaged a 12.5% total return in October, consisting of seven advancing stocks and three declining stocks. CAO, the largest capitalised stock of Singapore’s Energy Sector is scheduled to report 3Q16 results Wednesday.</li><li>Two of the 10 largest capitalised Energy stocks, Geo Energy Resources and KrisEnergy also ranked amongst the 10 actively traded stocks that saw the biggest increase in their October traded volume, compared to respective three month average volumes. Geo Energy Resources was the fifth biggest volume leader while KrisEnergy was the sixth biggest volume leader.</li></ul>

Singapore’s Energy Sector was the strongest of Singapore’s stock Sectors in October, with a 10.4% market capitalisation weighted total return on oil and coal price swings. This followed on from Energy also being the strongest of the Sectors back in September.The 10 largest capitalised stocks of Singapore’s Energy Sector averaged a 12.5% total return in October, consisting of seven advancing stocks and three declining stocks. CAO, the largest capitalised stock of Singapore’s Energy Sector is scheduled to report 3Q16 results Wednesday.Two of the 10 largest capitalised Energy stocks, Geo Energy Resources and KrisEnergy also ranked amongst the 10 actively traded stocks that saw the biggest increase in their October traded volume, compared to respective three month average volumes. Geo Energy Resources was the fifth biggest volume leader while KrisEnergy was the sixth biggest volume leader.

Energy the Strongest Sector in October on Oil & Coal Price Swings

Hong Kong

United Energy Group, Ltd. is engaged in the exploration and production of oil and natural gas. The Company owns and operates a producing oilfield Liaohe Province of the P.R. of China and owns an interest in an exploration field in Madura PSC, Java, Indonesia.  UEG mainly engages in the upstream oil and natural gas business.

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United Energy (467 HK)

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A look at the potential changes to the HSCI at the June & September reviews and stocks that could be included in/excluded from Stock Connect. These...

Brian Freitas

HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions

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Brian Freitas