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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that are listed by the review cut-off date are eligible for inclusion in the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a>.Along with the announcement of the changes at the September rebalance, the index universe was expanded to cover a new theme - 'Autonomous' and examples include self-driving, autonomous robots, internet of things, smart lifestyle etc.The expansion to the universe could see <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> added to the index while <a href="https://www.smartkarma.com/entities/weimob-inc" target="_blank" data-smartkarma-citation="entities:27394:1" rel="noopener">Weimob Inc. (2013 HK)</a> could be deleted from the index.<a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> and <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a> fail the velocity test for tradable indices and should not be included in the index.Estimated one-way turnover is 9.23% and will result in a one-way turnover of HK$3.65bn. There will be a lot of selling on the smaller index constituents due to the funding trade.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that are listed by the review cut-off date are eligible for inclusion in the Hang Seng Tech Index (HSTECH INDEX).Along with the announcement of the changes at the September rebalance, the index universe was expanded to cover a new theme - 'Autonomous' and examples include self-driving, autonomous robots, internet of things, smart lifestyle etc.The expansion to the universe could see BYD (1211 HK) added to the index while Weimob Inc. (2013 HK) could be deleted from the index.XPeng (9868 HK) and Li Auto (2015 HK) fail the velocity test for tradable indices and should not be included in the index.Estimated one-way turnover is 9.23% and will result in a one-way turnover of HK$3.65bn. There will be a lot of selling on the smaller index constituents due to the funding trade.

Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that have at least 3 month of trading history by the review cut-off date are eligible for inclusion in 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>.At the December review, we see a high probability of <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a> being included in the index and of <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> being deleted.<a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK)</a> is a close add for now and its inclusion would put <a href="https://www.smartkarma.com/entities/china-pacific-insurance-group" target="_blank" data-smartkarma-citation="entities:6177:1" rel="noopener">China Pacific Insurance (2601 HK)</a> at risk of deletion from the index.<a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> and <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a> are unlikely to be included in 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> at the December rebalance since they have failed the velocity test in August.With the one change, estimated one-way index turnover is 1.26% and will result in one-way turnover of HK$995m. This number will change over the next couple of months as stocks move around and the turnover increases due to capping changes on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that have at least 3 month of trading history by the review cut-off date are eligible for inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX).At the December review, we see a high probability of Xinyi Solar Holdings (968 HK) being included in the index and of Evergrande Real Estate Group (3333 HK) being deleted.Innovent Biologics Inc (1801 HK) is a close add for now and its inclusion would put China Pacific Insurance (2601 HK) at risk of deletion from the index.XPeng (9868 HK) and Li Auto (2015 HK) are unlikely to be included in the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance since they have failed the velocity test in August.With the one change, estimated one-way index turnover is 1.26% and will result in one-way turnover of HK$995m. This number will change over the next couple of months as stocks move around and the turnover increases due to capping changes on Alibaba Group (9988 HK), Tencent (700 HK) and Meituan (3690 HK).

HSCEI Index Rebalance Preview: Xinyi Solar Should Replace China Evergrande

China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of August is not available yet, CPCA believed it would decline.Looking forward, the uncertainty of auto chips supply would remain a main interruption in auto sector in 2021-2022. Because underinvestment in auto chip capacity, rising risk of new vaccine-resistant Covid variants would take time to be released.We expect share performance of  auto stocks remain under pressure until availability of chips getting improved. Focus on long-term winner candidates, such as Xpeng. We also believe Geely and Xpeng would gain positive momentums when their new models (Zeekr 001, Xpeng P5) start delivery in 4Q, for which the companies have ordered plenty components in advance.

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of August is not available yet, CPCA believed it would decline.Looking forward, the uncertainty of auto chips supply would remain a main interruption in auto sector in 2021-2022. Because underinvestment in auto chip capacity, rising risk of new vaccine-resistant Covid variants would take time to be released.We expect share performance of  auto stocks remain under pressure until availability of chips getting improved. Focus on long-term winner candidates, such as Xpeng. We also believe Geely and Xpeng would gain positive momentums when their new models (Zeekr 001, Xpeng P5) start delivery in 4Q, for which the companies have ordered plenty components in advance. 

China Auto: Chip Shortage Getting Worse and Might Last Longer than Expected

Equity Bottom-Up

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&amp;D cost and SG&amp;A expenses for coming P5 and lately launched new models. Meanwhile, total revenue and gross margin increased healthily with increasing vehicle delivery and higher sales contribution from software.Looking forward, the management conservatively guided its 3Q vehicle delivery at 21,500-22,500 vehicles, which might have factored in the worsening chip shortage issue. P5 would be launched at mid-Sep and start delivery in October.Mr. He mentioned with Zhaoqing factory's capacity utilisation stabilized, the company's monthly delivery could reach 15,000 per month.From 2023 onwards, Xpeng plans to launch 2-3 new models per year and expand its product price range to Rmb150-400k or higher.Reiterate BUY

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&amp;D cost and SG&amp;A expenses for coming P5 and lately launched new models. Meanwhile, total revenue and gross margin increased healthily with increasing vehicle delivery and higher sales contribution from software.Looking forward, the management conservatively guided its 3Q vehicle delivery at 21,500-22,500 vehicles, which might have factored in the worsening chip shortage issue. P5 would be launched at mid-Sep and start delivery in October.Mr. He mentioned with Zhaoqing factory's capacity utilisation stabilized, the company's monthly delivery could reach 15,000 per month.From 2023 onwards, Xpeng plans to launch 2-3 new models per year and expand its product price range to Rmb150-400k or higher.Reiterate BUY

Xpeng: 2Q2021Results Solid, Bright Outlook Guided

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 20 August. The constituent changes will be effective after the close of trading on 3 September.For the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> there is one set of changes with Trip.com (9961 HK) / <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> replacing <a href="https://www.smartkarma.com/entities/koolearn-technology-holding" target="_blank" data-smartkarma-citation="entities:27796:1" rel="noopener">Koolearn (1797 HK)</a>.One-way turnover is estimated at 6.29% and will result in a one-way trade of HK$2.12bn.There will be over 2 days of ADV to trade on Trip.com while the impact of passive fund selling on <a href="https://www.smartkarma.com/entities/koolearn-technology-holding" target="_blank" data-smartkarma-citation="entities:27796:1" rel="noopener">Koolearn (1797 HK)</a> will be a lot smaller.Hang Seng has also announced that a market review and feedback will result in 'Autonomous' being added to the list of eligible technology themes for index inclusion. This means that <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> and <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a> will be eligible for inclusion in the index at the December rebalance.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 20 August. The constituent changes will be effective after the close of trading on 3 September.For the Hang Seng Tech Index (HSTECH INDEX) there is one set of changes with Trip.com (9961 HK) / Trip.com (TCOM US) replacing Koolearn (1797 HK).One-way turnover is estimated at 6.29% and will result in a one-way trade of HK$2.12bn.There will be over 2 days of ADV to trade on Trip.com while the impact of passive fund selling on Koolearn (1797 HK) will be a lot smaller.Hang Seng has also announced that a market review and feedback will result in 'Autonomous' being added to the list of eligible technology themes for index inclusion. This means that XPeng (9868 HK) and Li Auto (2015 HK) will be eligible for inclusion in the index at the December rebalance.

HSTECH Index Rebalance: One Change; More at the Next Review

China

XPeng Inc. designs, produces, and distributes electric vehicles. The Company designs, develops, manufactures and markets smart smart electric vehicles, as well as finance, parts, and maintenance services. XPeng serves customers in China.

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XPeng (9868 HK)

Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change

Following the addition of the 'Autonomous' theme, BYD could be added to the HSTECH Index replacing Weimob. There will be a large impact of the...

Brian Freitas

HSCEI Index Rebalance Preview: Xinyi Solar Should Replace China Evergrande

Xinyi Solar could replace China Evergrande at the HSCEI December rebalance. Over 20% of Xinyi Solar is held by passive investors and the stock...

Brian Freitas

China Auto: Chip Shortage Getting Worse and Might Last Longer than Expected

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of...

Victoria Li

Xpeng: 2Q2021Results Solid, Bright Outlook Guided

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&D cost and SG&A...

Victoria Li

HSTECH Index Rebalance: One Change; More at the Next Review

Trip.com replaces Koolearn in the HSTECH Index. Alibaba's weight will drop by over 3%. Benchmarked assets have risen a lot. One-way turnover is...

Brian Freitas

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