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• Local market information indicates potential collaboration between KRX, FSS, and KSD to create a Korean EquiLend, aiming to centralize the stock lending channel.
• Unprecedented globally, President Yoon aims to centralize short selling. The challenge lies in mandating foreign investors to use Korea’s platform, necessitating a complex legal framework.
• Despite the difficulty, local authorities are compelled to pursue this initiative, raising the likelihood of a Korean EquiLend. Developing strategic plans in response is imperative.

• The Kishida administration put out a Doubling Asset-Based Income Plan in 2022. The goal? To get cash savings (corporate/individual) into growth assets and increase asset-based return contribution to income.
• The goal included doubling the number of NISA accounts, and the amount invested in the next five years. On 1 January 2024, NEW NISA account contribution totals were trebled.
• If accounts double, and contribution totals treble, and exemptions are now permanent, investment doubling is a quasi-certainty. The question is how it turns into income-producing assets. That’s MUCH tougher.

• Nearing the end of the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
• Estimated one-way turnover is 13.9% resulting in a one-way trade of INR 26.9bn. There will be more than 1.5x ADV to sell on nearly all deletes.
• The potential adds have outperformed the potential deletes by 35% over the last two months and some stocks are looking extremely frothy.

• In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 1Q 2024. 
• The excessive gaps in the preferred and common shares of Kumho Petro Chemical, Amorepacific Corp, and Samsung Electronics could reverse in the next several months.
• We see some attractive longer-term opportunities for Amorepacific, Doosan Fuel Cell, LG Electronics, and CJ Cheiljedang which have especially high discounts for the preferred shares versus their counterpart common shares.

• While domestic revenues may have slowed, Uniqlo’s domestic OP shows upside potential driven by gross margin growth and a gradual reduction in SG&A costs.
• Meanwhile, we expect Uniqlo’s International business OP to surpass ¥75bn, driven by a rebound in China demand  and strong momentum in South Korea, SE Asia & Ocenia.
• Thus, we see the upcoming earnings as a compelling opportunity for trading Fast Retailing (9983 JP).

• In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in March 2024.
• The index changes for the March 2024 index rebal will be announced on 16th February 2024.
• While the Hang Seng Index selection process is highly subjective, we continue to believe that identifying eligible names and grouping them by conviction level could be a valuable exercise.

• The family which owns and controls ubiquitous Nagoya supermarket chain Aoki Super (9977 JP) will acquire the 47% it does not own in an MBO. 
• This appears to be an estate planning exercise, creating a context to hand off ownership from the 77yr old former CEO to his 44yr old son and current CEO. 
• This comes in at a 44% premium, an all-time high price, and 15+x forecast FCF (even if the forecast looks a little light). This gets done easily.

• Our base case valuation of Hyundai Hyms is implied target price of 8,025 won per share, which is 27% higher than the high end of the IPO price range. 
• We believe Hyundai Hyms’ valuation premium to the comps is appropriate due to much stronger operating profit growth and its strong relationships with HD Hyundai Heavy Industries.
• Hyundai Hyms’s main business includes shipbuilding equipment and related services. The company manufactures a wide variety of items necessary for ship construction, such as ship unit blocks and piping manufacturing.

• Last week Kerry Logistics Network (636 HK) (KLN) announced it would in-specie its entire 52.1% stake in Kerry Express Thailand (KEX TB) (KET).
• As S.F. Holding (002352 CH) holds a controlling 51.5% stake in KLN after the 2021 partial Offer, it will hold 26.8% in KET post-in-specie. That triggers an unconditional MTO.  
• The MTO price will be THB5.50/share. The key regulatory approval is Thai SFC. That won’t be an issue. 

• Aoki Super (9977 JP) has recommended an MBO tender offer of JPY3,800 per share, a 43.9% premium to the undisturbed (5 January). 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 13.35% ownership ratio. 
• Based on the irrevocables, the minimum acceptance condition requires a 28.6% minority acceptance rate. This acceptance rate is achievable as the offer represents an all-time high. 

• Allkem Ltd (AKE AU) saw its last day of trading on 21 December. There was large volume at the close as one major index provider gave it the boot. 
• Another delayed their treatment at the last minute, and eliminated a cross-flow.
• But there is still a lot of net buy flow tomorrow (3 Jan) and the next day in the US. Perhaps more than I expected. 

• The review period for the March rebalance ends on 31 January, the changes will be announced early March and implemented at the close of trading on 14 March.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. There are two changes for the BBIG Index.
• There will be big flow on Ecopro BM (247540 KS) and Posco Future M (003670 KS) and big impact on Douzone Bizon (012510 KS) and DearU (376300 KS). 

• Local market information indicates potential collaboration between KRX, FSS, and KSD to create a Korean EquiLend, aiming to centralize the stock lending channel.
• Unprecedented globally, President Yoon aims to centralize short selling. The challenge lies in mandating foreign investors to use Korea’s platform, necessitating a complex legal framework.
• Despite the difficulty, local authorities are compelled to pursue this initiative, raising the likelihood of a Korean EquiLend. Developing strategic plans in response is imperative.

• Nearing the end of the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
• Estimated one-way turnover is 13.9% resulting in a one-way trade of INR 26.9bn. There will be more than 1.5x ADV to sell on nearly all deletes.
• The potential adds have outperformed the potential deletes by 35% over the last two months and some stocks are looking extremely frothy.

• The Kishida administration put out a Doubling Asset-Based Income Plan in 2022. The goal? To get cash savings (corporate/individual) into growth assets and increase asset-based return contribution to income.
• The goal included doubling the number of NISA accounts, and the amount invested in the next five years. On 1 January 2024, NEW NISA account contribution totals were trebled.
• If accounts double, and contribution totals treble, and exemptions are now permanent, investment doubling is a quasi-certainty. The question is how it turns into income-producing assets. That’s MUCH tougher.

• In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 1Q 2024. 
• We highlight 38 pair trades that involve Korean holdcos and opcos.
• Of the 38 pair trades, 26 of them involved holdcos outperforming opcos in the past six months and 12 of them involved opcos outperforming holdcos in the same period.

• In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 1Q 2024. 
• The excessive gaps in the preferred and common shares of Kumho Petro Chemical, Amorepacific Corp, and Samsung Electronics could reverse in the next several months.
• We see some attractive longer-term opportunities for Amorepacific, Doosan Fuel Cell, LG Electronics, and CJ Cheiljedang which have especially high discounts for the preferred shares versus their counterpart common shares.

• Back in October, I wrote in PICC’s (1339 HK) Lifetime Low Implied Stub that People’s Insurance (1339 HK) was trading at an all-time low implied stub. It’s widened further since. 
• Over the past 12-months, excluding PICC’s 68.98% stake in PICC Property & Casualty (2328 HK), the market has assigned HK$42.6bn less for PICC’s steady and profitable life/health insurance stub ops.
• What gives? Falling interest rates is one. EV insurance in another. Yet this bifurcation is extreme.

• Ola Electric (1700674D IN), the largest Indian electric two-wheel vehicles (E2W) player, is seeking US$660 million from a primary raise along with a secondary raise at a US$7-8 billion valuation. 
• Ola is the best-selling E2W brand in India in terms of monthly E2W registrations on the VAHAN Portal of the Ministry of Road Transport and Highways.
• The bull case rests on rising market share in a growing market, a rapid growth phase, increasing gross margin and a favourable cash conversion cycle.   

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Indika Energy
• Lippo Malls Indonesia Retail Trust
• SK Hynix
• Vedanta Resources

• Yesterday during the day, Allkem Ltd (AKE AU) shareholders approved the Scheme and Livent (LTHM US) shareholders approved the merger. The deal is done. Allkem last trades 21 Dec.
• NEWCO starts trading 4 January in the US but the Arcadium Lithium CDIs start trading 22 Dec in Australia. S&P/ASX announced they will replace Allkem in the ASX200.
• But I have been asked for a breakdown of flows and timing again, so I have put it into a handy table which I hope makes it less confusing.

• We see 30 potential adds (including plenty of new listings) and 28 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in March.
• We expect 26 stocks to be added to Southbound Stock Connect following the rebalance while 25 stocks could be deleted from the trading link and become Sell-only.
• There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.

• Allkem Ltd (AKE AU) saw its last day of trading on 21 December. There was large volume at the close as one major index provider gave it the boot. 
• Another delayed their treatment at the last minute, and eliminated a cross-flow.
• But there is still a lot of net buy flow tomorrow (3 Jan) and the next day in the US. Perhaps more than I expected. 

• BYD’s sales volume grew by 45% YoY in December, higher than 31% YoY in November.
• For the whole year 2023, BYD’s total sales volume rose by 62%.
• We conclude the stock has an upside of 74% for 2024.

• Shriram Finance (SHFL IN) is a high probability add and UPL Ltd (UPLL IN) is a high probability delete at the NIFTY Index (NIFTY INDEX) rebalance in March.
• There is a lower probability of Bharat Electronics (BHE IN) or Trent Ltd (TRENT IN) replacing Bharat Petroleum Corp (BPCL IN) at the rebalance.
• Jio Financial Services (JIOFIN IN), Avenue Supermarts Ltd (DMART IN) and Zomato (ZOMATO IN) will enter the running once added to the F&O segment of the market.

• After biopharmaceuticals developer and producer Celltrion Inc (068270 KS) recently completed its merger with Celltrion Healthcare (091990 KS), Celltrion Pharm (068760 KS) came (more) into focus.
• Pharma is now up ~37% since Inc and Healthcare merged.
• That’s quite a lot of expectation baked in.  Probably too much.

• We discuss the end of the mandatory lock-up periods for 41 stocks in Korea in January 2024, among which 4 are in KOSPI and 37 are in KOSDAQ.
• These 41 stocks on average could be subject to further selling pressures in January and could underperform relative to the market.
• Among these 41 stocks, top five market cap stocks include Posco International, Doosan Robotics, Rainbow Robotics, Qualitas Semiconductor, and PhilEnergy.

• In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 1Q 2024. 
• We highlight 38 pair trades that involve Korean holdcos and opcos.
• Of the 38 pair trades, 26 of them involved holdcos outperforming opcos in the past six months and 12 of them involved opcos outperforming holdcos in the same period.

• The review period for the March rebalance ends on 31 January, the changes will be announced early March and implemented at the close of trading on 14 March.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. There are two changes for the BBIG Index.
• There will be big flow on Ecopro BM (247540 KS) and Posco Future M (003670 KS) and big impact on Douzone Bizon (012510 KS) and DearU (376300 KS). 

• Overseas: SPX -0.8%, Nasdaq -1.2% extending losses for second day; Apple downgraded. 10Y yields above 4%. 
• Today: NKY Futs -1.2% v cash. JPY143; Expect weak start to year’s trading. Oil prices up +3%
• Japan: Earthquake aftermath disrupts retail, services, and transport; 55 confirmed dead, with widespread destruction. Despite short-term challenges, Japanese equity markets historically resilient to earthquake impacts.

• Zhongsheng Group (881 HK) pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.
• With BeiGene (6160 HK) failing the Velocity Test for Tradeable Indexes, Zhongsheng Group (881 HK)‘s deletion from the index should result in China Unicom Hong Kong (762 HK)‘s inclusion. 
• Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.

• Canara Bank (CBK IN) could replace Bandhan Bank Ltd (BANDHAN IN) in the NSE Nifty Bank Index (NSEBANK INDEX) at the March rebalance.
• Passive trackers will need to buy 2 days of ADV on Canara Bank (CBK IN) while selling over 1 day of ADV on Bandhan Bank Ltd (BANDHAN IN). 
• The impact is even higher where passives will need to buy nearly 6x delivery volumes in Canara Bank and sell 3x delivery volumes in Bandhan Bank Ltd.

• Allkem Ltd (AKE AU) saw its last day of trading on 21 December. There was large volume at the close as one major index provider gave it the boot. 
• Another delayed their treatment at the last minute, and eliminated a cross-flow.
• But there is still a lot of net buy flow tomorrow (3 Jan) and the next day in the US. Perhaps more than I expected. 

• We see 30 potential adds (including plenty of new listings) and 28 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in March.
• We expect 26 stocks to be added to Southbound Stock Connect following the rebalance while 25 stocks could be deleted from the trading link and become Sell-only.
• There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.

• The discounts to NAV of covered holdcos have mainly widened during December. Discounts to NAV: C.F.Alba, 49.1% (vs. 47.1%); GBL, 36.6% (vs. 34.9%); Heineken Holding, 16.7% (vs. 14.5%);
• Industrivärden C, 5.4% (vs.4.9%); Investor B, 13.5% (vs. 14.6%); Porsche Automobile Holding, 37.1% (vs. 39.9%).  The spread of Rio DLC widened to 24.2% (vs.17.2%).
• What seems interesting: in holding trades, Porsche SE/vs. listed assets and the Rio DLC: long RIO LN/short RIO AU.

• KRX’s lack of a standardized English translation platform may lead to non-standardized terminology and varying translation quality. KRX stresses cross-checking Korean and English disclosures due to potential errors. 
• The 3-day lag between Korean and English disclosures poses timeliness challenges, requiring consistent cross-checking. Overall, the process for foreign investors using Korean market disclosure sites remains largely unchanged.
• The common procedure should still be to first check disclosures using English titles, then convert to Korean for reading. If English disclosures exist, utilize them for cross-checking.

• Under the requirements of the Amended Mongolian Banking Law (Feb 2021), Khan Bank (KHAN MO) needed to IPO. It did, and HS Holdings (8699 JP)‘s stake fell to 49.77%. 
• It was de-consolidated. They were locked up for 6mos. The look-through financials are easier now. The company has bought back stock and trades at <0.5x book.
• But the Mongolian Banking Law required one more thing. All D-SIBs had to get all shareholders below 20% by 31 December 2023. It’s not clear that happened. 

• Japan Airline’s Flight JL516 operated by a two-year-old Airbus A350-900 burst into flames upon landing at Haneda Airport, apparently hitting a small Japanese Coast Guard aircraft  
• 379 passengers and crew were safely evacuated, but five of six crew on a Japanese coast guard aircraft were unaccounted for
• Haneda Airport runaways are all closed, aircraft heading to Haneda are diverted to other airports or flights aborted altogether   

• Hyundai Hyms is getting ready to complete its IPO in KOSDAQ in January. The total IPO offering amount is 43.5 billion to 54.9 billion won. 
• The company is offering 8.7 million shares in this IPO, of which 40% are old shares and 60% are new shares. 
• Hyundai Hyms specializes in shipbuilding equipment. Hyundai Hyms’s main business includes shipbuilding equipment and related services. 

• There are a bunch of stocks that have underperformed the Nikkei 225 (NKY INDEX) and their peers and could be deleted from global passive portfolios early next year.
• The deletion from passive portfolios will lead to a liquidity event at the end of February where passive trackers will need to sell multiple days of ADV.
• Shorts have started to increase on some of the stocks and there will be further positioning as we near the liquidity event.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU). 
• Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group Holdings (PGH AU). 

• The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND flows flat/light and NORTHBOUND flows a significant net buy, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 200+bp. 
• STILL time to go long Hs vs As for the new year. 52wk wide discounts were just last week. Wide A/H premia in renewables space look vulnerable.

• The BIG Risk is that Fujitsu Ltd (6702 JP) sells its stake in Fujitsu General (6755 JP) to someone in a below-market tender offer.
• Swire Pacific (A) (19 HK) may still see more outperformance from its  latest buyback. But it’s up ~29% since the company announced it was buying both the As and Bs. 
• Li Ning (2331 HK)‘s shares continue to edge up after its founder recently increased its stake. 

• For the month of December 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$10bn.
• The average premium for the new deals announced (or first discussed) in December was 44.7%. The average YTD is 39% (117 deals).
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• Zhongsheng Group (881 HK) pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.
• With BeiGene (6160 HK) failing the Velocity Test for Tradeable Indexes, Zhongsheng Group (881 HK)‘s deletion from the index should result in China Unicom Hong Kong (762 HK)‘s inclusion. 
• Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.

• APR is getting ready to complete an IPO in KOSPI in February 2024. The IPO price range is from 147,000 won to 200,000 won. 
• According to the bankers’ valuation, the company’s valuation is expected to range from 1.1 trillion won to 1.6 trillion won post IPO. 
• The company’s best selling product is its skin care beauty device product called Medicube Age-R. 

• TSMC: 9.2% Premium — Spread Fell But Remains Historically High; Short Interest Spiked for ADRs
• UMC: Trading at -1.2% Discount — Still Uncompelling, Wait for Lower Levels
• ASE: Drops to 7% Premium — Could Soon Be at a Level to Go Long

• On 29 December, Ecopro Group announced large selling of Ecopro Co Ltd (086520 KS) and Ecopro BM (247540 KS) by Daisy Partners worth 272 billion won in December.
• Daisy Partners is a company 100% owned by Chairman of Ecopro Group Lee Dong-Chae and his family members.
• Daisy Partners is likely to sell more shares in Ecopro Co and Ecopro BM in the next several years to increase the foundation’s capital to about 500 billion won.

• The Allkem/Livent “merger of equals” discussed in Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises and Allkem/​Livent: Enlarged Charging Unit is on track.
• As of the end of last month, all approvals are received or are expected to be received. The Scheme Booklet is expected next month. Deal is expected to close end-CY2023.
• The deal STILL has interesting side issues with index. Even more interesting than Newcrest/Newmont. This is an update with more detail as we probably have 8-10 weeks left.

• The KRX has preliminarily approved Posco DX (022100 KS)‘s listing transfer from the KOSDAQ Market to the KOSPI Market.
• Posco DX (022100 KS) has announced that its stock will start trading on the KOSPI Market from the open on 2 January.
• We expect Temc (425040 KS) to replace Posco DX (022100 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) at the close on 28 December.

• Tongcheng Travel Holdings (780 HK) is expected to replace GDS Holdings (9698 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the March review.
• Constituent changes and capping changes will result in a one-way turnover of 2.32% and that will result in a round-trip trade of US$628m.
• Short interest on Tongcheng Travel Holdings (780 HK) is near its lows while there has been some recent short covering in GDS Holdings (9698 HK). 

• It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
• The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
• There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.

• Yesterday during the day, Allkem Ltd (AKE AU) shareholders approved the Scheme and Livent (LTHM US) shareholders approved the merger. The deal is done. Allkem last trades 21 Dec.
• NEWCO starts trading 4 January in the US but the Arcadium Lithium CDIs start trading 22 Dec in Australia. S&P/ASX announced they will replace Allkem in the ASX200.
• But I have been asked for a breakdown of flows and timing again, so I have put it into a handy table which I hope makes it less confusing.

• In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
• In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
• The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.

• Kurabo announced a bigly buyback on Tuesday. At last price it is equivalent to 8+% of shares out. Most likely to target buybacks from cross-holders. 
• The company is not cash-rich, but it is financial asset and real estate-rich. And it trades at cheap multiples without even thinking about those assets (themselves worth the market cap).
• The TSE’s “PBR1 OR BUST” movement combined with starting low valuation, high payout, excess assets, mean this value trap has room to move. 

• Posco DX (022100 KS) will move from the KOSDAQ Market to the KOSPI Market on 2 January. That means KOSDAQ150 Index (KOSDQ150 INDEX) deletion at the close on 28 December.
• In line with our forecast, Temc (425040 KS) will be added to the KOSDAQ 150 Index (KOSDQ150 INDEX) as a replacement.
• Short interest increased in Posco DX (022100 KS) following its inclusion in a global index and there should continue to be unwinding over the next week.

• The adhoc KOSDAQ 150 Index rebalance and the regular Nifty200 Momentum30 Index rebalance will be implemented on Thursday and the SET 50 Index rebalance will be implemented on Friday.
• The review cutoff period for a whole bunch of indices ends on 29 December and the announcement of the results and implementation will take place early next year.
• There were big inflows to China ETFs and to Emerging Market ETFs including iShares Core Emerging Mar (IEMG US), Vanguard Emerging Markets (VWO US) and iShares Emerging Markets (EMXC US). 

• The KRX has preliminarily approved Posco DX (022100 KS)‘s listing transfer from the KOSDAQ Market to the KOSPI Market.
• Posco DX (022100 KS) has announced that its stock will start trading on the KOSPI Market from the open on 2 January.
• We expect Temc (425040 KS) to replace Posco DX (022100 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) at the close on 28 December.

• Tongcheng Travel Holdings (780 HK) is expected to replace GDS Holdings (9698 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the March review.
• Constituent changes and capping changes will result in a one-way turnover of 2.32% and that will result in a round-trip trade of US$628m.
• Short interest on Tongcheng Travel Holdings (780 HK) is near its lows while there has been some recent short covering in GDS Holdings (9698 HK). 

• It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
• The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
• There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.

• Posco DX (022100 KS) will move from the KOSDAQ Market to the KOSPI Market on 2 January. That means KOSDAQ150 Index (KOSDQ150 INDEX) deletion at the close on 28 December.
• In line with our forecast, Temc (425040 KS) will be added to the KOSDAQ 150 Index (KOSDQ150 INDEX) as a replacement.
• Short interest increased in Posco DX (022100 KS) following its inclusion in a global index and there should continue to be unwinding over the next week.

• The adhoc KOSDAQ 150 Index rebalance and the regular Nifty200 Momentum30 Index rebalance will be implemented on Thursday and the SET 50 Index rebalance will be implemented on Friday.
• The review cutoff period for a whole bunch of indices ends on 29 December and the announcement of the results and implementation will take place early next year.
• There were big inflows to China ETFs and to Emerging Market ETFs including iShares Core Emerging Mar (IEMG US), Vanguard Emerging Markets (VWO US) and iShares Emerging Markets (EMXC US). 

• Earlier this month, Dai Ichi Life (8750 JP) countered M3 with an unsolicited ¥1,800/share Offer of Equity Value TOB; followed by a Benefit One buyback to mop up Pasona‘s stake.
• Dai-Ichi has now amended the TOB Price for minorities in Benefit One to ¥2,123/share, and the tax-equivalent price of ¥1,800/share for Pasona would be ¥1,491 on the Buyback Tender, post-squeezeout.
• That price appears a bit higher for Pasona than expected, and therefore a bit lower for Benefit One minorities. Terms can still be bumped.

• The spot prices of the newly listed SSFs generally exhibited a notable upward trend. This trend was consistently more pronounced in KOSDAQ-listed stocks compared to KOSPI-listed ones.
• Various factors, including actions by ETF operators, may contribute. Their SSF purchases could deepen contango, leading to temporary spot price increases through arb spread seekers anticipating this development.
• We should focus on a potentially consistent price pattern persisting before a sufficient learning effect accumulates. The tight schedule after July increases the likelihood of similar opportunities next March.

• On the 13 December, Bloomberg reported that the Recco-led group consortium was weighing a revised Offer to be “significantly higher than the $26.50-a-share cash offer from Ascendent Capital”
• On the 24 December, a buyer consortium led by Dazheng Group announced an all-cash proposal of US$29.00/share, a 9.4% premium to Ascendent’s Offer. “Credible” financing is in place.
• “The Consortium stands ready to engage with the Board“.  The Board should engage. The one curious aspect of this latest Offer is the apparent absence of Recco’s involvement. 

• SOUTHBOUND flows showing momentum tendencies this past week on a single-stock basis. Hs up vs As quite strongly. Liquid Hs even better.
• SOUTHBOUND saw HK$1.2bn of net IN-flows in the 3-day week to 29 Dec. Total flows were HK$88bn.
• Bullish end to year for SOUTHBOUND owners but they did not mark the close. They were, however, big buyers of high-div SOEs.

• I tally 50 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed this week: Seedheiwa (1739 JP)‘s (now Meldia DC) Tender Offer; and Boart Longyear (BLY AU)‘s ignominious exit. 
• Key updates took place on: Orecorp (ORR AU), Symbio Holdings (SYM AU), IJTT (7315 JP), Shidax Corp (4837 JP), Ohizumi Mfg (6618 JP), and Hollysys Automation Technologies (HOLI US).

• The review period for the March rebalance ends 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
• We expect the index committee to continue using a 6-month minimum listing history resulting in four changes to the index.
• One way turnover is estimated at 3.3% resulting in a one-way trade of CNY 4,717m. The impact on the deletions will be much larger than that on the inclusions.

• The adhoc KOSDAQ 150 Index rebalance and the regular Nifty200 Momentum30 Index rebalance will be implemented on Thursday and the SET 50 Index rebalance will be implemented on Friday.
• The review cutoff period for a whole bunch of indices ends on 29 December and the announcement of the results and implementation will take place early next year.
• There were big inflows to China ETFs and to Emerging Market ETFs including iShares Core Emerging Mar (IEMG US), Vanguard Emerging Markets (VWO US) and iShares Emerging Markets (EMXC US). 

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
• Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued. 

• Nike’s Q2 results lead to a 12% drop in its shares, affecting sector peers Onon, Skechers, and Asics with significant declines.
• Challenging trading conditions in China and Europe, coupled with a subdued digital traffic outlook from Nike, raise broader concerns for the sector.
• Asics stock declines 20% post-Nike’s fall, presenting an attractive buying opportunity with an estimated 20% upside, positioning Asics as a cost-effective play in the global performance running market.

• The Nikkei 225 (NKY INDEX) is about to close up for the 3rd consecutive week (CC=+3), it’s towards the Q3 resistance level at 33984: it’s short-term overbought.
• There is a good chance that the index will pull back in the next 1-3 weeks, at the moment it looks like the rally has “stalled”.
• The pullback may be an opportunity to buy again, and ride a rebound to previous highs, we will discuss LONG levels in a separated insight.

• 2023 is the worst year for our “Buy the Worst” strategy as it returned -34.5% YTD, underperforming the HSI by 20.7pp. The two property names are the key drags.
• Despite a poor 2023, the strategy has still outperformed the HSI by 17.9pp for 2018-2023. It remains significantly better than buying the winners in the current year.
• For 2024, our strategy is to switch to Li Ning (2331 HK), Country Garden Services (6098 HK), Meituan (3690 HK), Wuxi Biologics (2269 HK), and Zhongsheng Group (881 HK). 

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stocks mentioned in this regular insight is Li Ning (2331 HK) and Meitu Inc (1357 HK).

• The spot prices of the newly listed SSFs generally exhibited a notable upward trend. This trend was consistently more pronounced in KOSDAQ-listed stocks compared to KOSPI-listed ones.
• Various factors, including actions by ETF operators, may contribute. Their SSF purchases could deepen contango, leading to temporary spot price increases through arb spread seekers anticipating this development.
• We should focus on a potentially consistent price pattern persisting before a sufficient learning effect accumulates. The tight schedule after July increases the likelihood of similar opportunities next March.

• On December 26, Nihon Kohden (6849 JP) shares jumped ~15% as the company was a beneficiary of the ban on Apple (AAPL US)’s latest smartwatch models.
• Nihon Kohden reported better-than-expected result in H1FY24. The company raised FY24 revenue forecast to ¥221.5B (+7% YoY) from ¥215.0B. The company has also raised FY24 operating and net profit guidance.
• Currently consensus expects 2% YoY revenue growth for the company in FY25. With strong demand for existing products and new launches, the expectation seems to be conservative.  

• Main conclusions up-front:It’s getting harder to disentangle politics from price movements in China, with the government becoming more involved in the equity market.
• In stark contrast to their U.S. counterparts, Chinese banks are grappling with the weight of growing savings from consumers and businesses.
• This surge is impacting their profitability, while the real estate sector’s challenges continue to linger.

For our next Corporate Webinar we are glad to welcome Lendlease Global Commercial REIT’s CEO, Mr Kelvin Chow.

In the upcoming webinar, Kelvin will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. Angus will also be providing an industry overview, featuring landscape commentary and returns analysis. The Corporate Webinar will include a live Q&A session.

In the spirit of the festive season, one of the attendees will also be awarded an Amazon Kindle as part of our lucky draw.

The Corporate Webinar will be hosted on Tuesday, 9 January 2024, 19:00 SGT.

About Lendlease Global Commercial REIT

Lendlease Global Commercial REIT’s portfolio comprises two leasehold properties in Singapore, Jem (office and retail property) and 313@somerset (retail property), and three freehold Grade A office buildings, Sky Complex, in Milan. It has a total net lettable area of approximately 2.1 million square feet, with an appraised value of S$3.65 billion. Other investments include a stake in Parkway Parade and the development of a multifunctional event space on a site adjacent to 313@somerset.

• In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
• In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
• The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.

• IJTT Co., Ltd. (7315 JP) was perhaps one of the lower-priced parent takeovers (Isuzu remains central to the bidder post-buyout) at 0.46x book. Today, the last day, it got bumped.
• The new price is ¥850/share vs ¥812/share. +4.7% and a whopping 0.48x book now. ¥850 is where the stock traded just before the announcement. It immediately jumped to ¥875/share.
• It appears Isuzu is not getting any more money out of this, but they should be OK. They are buying back in at 0.48x book. With leverage. 

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
• Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued. 

• Swire Pacific (19 HK)‘s NAV discount has narrowed, and implied stub widened, after announcing its latest buyback. Separately, Swire Properties (1972 HK) flagged a HK$4.5bn writedown on its investment property.
• Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• The Vietnamese government is in the midst of a campaign to eradicate corruption in its domestic real estate industry, which has seen bribery and embezzlement amounting to close to 3% of the country’s gross domestic product (GDP).
• Despite the high-profile corruption cases that have brought the sector’s financing channels to a standstill, the aggregate credit risk profile of the Vietnamese real estate industry has largely improved in recent months, after deteriorating, on the back of widespread monetary policy support from the Vietnamese government.
• The troubled sector saw a spike in its Criat credit cycle index (CCCI) since the middle of last year when deleveraging efforts for the industry by the Vietnamese government were first announced.

• Drilling services company Boart Longyear (BLY AU) has agreed to a takeover by American Industrial Partners. Boart’s five largest shareholders – collectively holding 98.86% of shares out – are supportive.
• Highly-Leveraged Boart copped the brunt of the GFC, and never fully recovered. American Industrial Partners’ Offer values Boart at A$543mn against its 2007 IPO value of A$2.3bn.
• The takeover is expected to be completed in the first quarter of 2024. This is done.

• The Nikkei 225 (NKY INDEX) is about to close up for the 3rd consecutive week (CC=+3), it’s towards the Q3 resistance level at 33984: it’s short-term overbought.
• There is a good chance that the index will pull back in the next 1-3 weeks, at the moment it looks like the rally has “stalled”.
• The pullback may be an opportunity to buy again, and ride a rebound to previous highs, we will discuss LONG levels in a separated insight.

• Covestro AG (1COV GR) has been the subject of a potential takeover from ADNOC since Bloomberg reported on 20 June. The last reported potential offer is €60/share (c.€11.3 billion).
• ADNOC could be willing to offer €64.5 (7.1x EV/EBITDA on mid-cycle €2,110 million EBITDA), but Covestro is rumoured to seek €70/share (typical chemicals 6x on €2,675 million EBITDA, likely demanding).
• Considering a takeout price of €60, gross spread is 11.7% and the shares are pricing a 64% probability of deal completion. I’d be long at €53/share, as downside seems limited.

• Overseas: SPX +0.0%, Marginal gains on penultimate trading day. Oil -3%
• Today: NKY Futs -0.3% v cash. JPY141; JGC to study hydrogen production on moon!
• Japan: Japanese firms consider delisting to enhance management amid governance reforms, requiring Tokyo Stock Exchange Prime section companies to appoint external directors for increased board independence.

• It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
• The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
• There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.

• In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
• In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
• The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.

• Nike (NKE US) reported 2QFY24 results last week with a guidance cut, as the company cut FY24 full-year sales guidance to around +1%, compared to +mid-single-digit in the previous guidance. 
• Shenzhou Intl Group Holdings (2313 HK) saw its stock drop by 8% the following day, given that Nike is Shenzhou’s most important customer, making up 30% of Shenzhou’s sales. 
• Nike’s inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24. 

• Air China (H) (753 HK) is proposing a new share placement to raise Rmb6bn and HK$2bn. EPS dilution is manageable at 6% so we view the proposal positively.  
• The new equity will enhance book value by 11.5% and lower its gearing by 103pp to 399.8%. The full subscription by the parent is also a vote of confidence. 
• Recent share price weakness is due to the overall weakness in the Chinese equity market, but both macro and operating environments are improving. Selldown is unjustified.

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
• Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued. 

• On the 24 November, Silvercorp Metals (SVM CN) bumped its Scheme Offer for Orecorp Ltd (ORR AU) to A$0.19 in cash and 0.0967 new Silvercorp shares.
• At a 40.1% premium to undisturbed and key shareholder Tim Goyder (5.14%) supportive, this looked done. Then Perseus (PRU AU) built a 19.9% stake and said it would vote no.
• After postponing the Scheme meeting, Silvercorp and Orecorp have now agreed to an off-market takeover, on the same terms. The tendering threshold is 50.1%. 

• On the 13 December, Bloomberg reported that the Recco-led group consortium was weighing a revised Offer to be “significantly higher than the $26.50-a-share cash offer from Ascendent Capital”
• On the 24 December, a buyer consortium led by Dazheng Group announced an all-cash proposal of US$29.00/share, a 9.4% premium to Ascendent’s Offer. “Credible” financing is in place.
• “The Consortium stands ready to engage with the Board“.  The Board should engage. The one curious aspect of this latest Offer is the apparent absence of Recco’s involvement. 

• Overseas: SPX +0.1%; Stocks drift higher; 10Y Treasury yield at 3.8%; Biotech stocks surge
• Today: NKY Futs -0.5% v cash. JPY141.5; Daihatsu Motor could face over ¥100 billion in losses
• Markets: Japanese business leaders foresee 5% wage hikes in FY24, driving sustained growth.

• It was reported today that SK Pharmteco completed a 660 billion won in pre-IPO funding valuing the company at 4 trillion won.
• Prior to this investment, SK Inc owned a 100% stake in SK Pharmteco. After this investment, it is estimated that SK Inc will own about 83.5% stake in SK Pharmteco. 
• Our base case valuation of SK Inc is NAV of 19.0 trillion won (NAV per share of 258,967 won), representing a 47% upside from current levels.

• Silvercorp Metals (SVM US) has switched to an off-market takeover offer. The Orecorp Ltd (ORR AU) consideration remains unchanged at A$0.19 cash and 0.0967 SVM shares per ORR share.
• The takeover offer is conditional on a 50.1% minimum acceptance condition, achievable in the absence of a superior proposal. 
• The crucial question is whether Perseus Mining (PRU AU) is comfortable with SVM effectively controlling ORR. We think that there is a low probability of Perseus launching a competing proposal.