Most Read

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

Nikkei 225 Vs TOPIX Dynamics

This past week saw dramatic moves in Japanese stock markets. TOPIX +3.1% N225 +4.8% – up the 6th week in a row – closing at their highest in 33 years.
Flows were positive the week before, and I expect we’ll see next week they were positive this past week. But most striking was the interplay between Nikkei 225 and TOPIX.
If foreign inflows increase, Nikkei is likely to outperform TOPIX both because of its existence and previous use, and its construction. And that means watching one’s trades, shorts, and executions.

Korea: What Are Foreign Investors Buying & Selling?

Foreign investors have been buying stock in Korea. They now hold 32% of the KOSPI market cap and 18.5% of the KOSDAQ market cap.
As a percentage of market cap, foreigners have been big buyers of Yg Entertainment, Hyundai Rotem and Meritz Financial Group. Selling has been on Ecopro Co and Posco Future M.
Shorts have increased on Ecopro Co Ltd (086520 KS) and Posco Future M (003670 KS) while there has been covering on Kakao Pay (377300 KS) and POSCO Holdings (005490 KS).

Meritz Financial: Main Target for Flow Trading in KS200 June Rebalancing

Meritz Financial confirmed the total number of treasury shares resulting from the mergers, amounting to 5.04% of SO. When combined with the largest shareholder’s stake, the float rate becomes 47.75%.
We should focus on direct rebalancing flow through KS200 ETFs on T-1 effective rather than setting it up preemptively. The estimated total AUM of ETFs directly mirroring KS200 is ₩17T.
Meritz Financial is expected to receive an inflow of around ₩43B, equivalent to 1.35x ADTV. This is a significant flow impact size as a single-day event.

Merger Arb Mondays (22 May) – HKBN, Newcrest, InvoCare, United Malt, Golden Energy, Penguin, Shinsei

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – 111 Inc (YI US), Estia Health (EHE AU), HKBN Ltd (1310 HK), United Malt Group Ltd (UMG AU), Hailan Holdings (2278 HK), Aag Energy Holdings (2686 HK).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Allkem Ltd (AKE AU), Penguin International (PBS SP).

Taiwan Top 50 ETF Rebalance: One Change Expected in June

Today was the review cutoff for the June rebalance of the Yuanta/P-Shares Taiwan Top 50 ETF. We see one potential change at the review.
Passive trackers are estimated to buy nearly 6 days of ADV on Pegatron Corp (4938 TT) while selling around 1.7 days of ADV on Silergy Corp (6415 TT).
Short interest on Pegatron Corp (4938 TT) has continued to drop as the stock has moved higher; Silergy Corp (6415 TT)‘s short interest has risen as the stock has dropped.

Rakuten US$2.4bn Placement – Recent Updates and Comparison to past Deals

Rakuten (4755 JP) aims to raise up to US$2.4bn (JPY323bn) via a global offering.
We have covered various aspects of the deal in our earlier notes, see here and here.
In this note, we will talk about the updates since our last note, as well as the performance of some of the past large primary raises in Japan.

ECM Asia Takeaways from Hong Kong Investor Meetings – Rakuten, Growatt, JD Industrial and Others

We spent the second half of last week meeting ECM focused clients in Hong Kong.
Overall, the mood remains somewhat grim for Hong Kong/China and it will be up to a few upcoming deals to open up the market again.
In this note, we talk about some of the feedback for the upcoming IPOs and placements.

Quiddity Leaderboard TDIV Jun 23: Five Changes and US$922mn One-Way Flows

By Janaghan Jeyakumar, CFA

In this insight, we take a look at Quiddity’s flow expectations for the June 2023 index rebalance.
I currently see 5 ADDs/DELs. Some of these names are different from the ones I specified in my previous insight.
I have also discussed some long-short trading ideas involving names with significant flow implications.

SFC’s Consultation Paper On Proposed Amendments To The Takeovers Code

On the 19 May, Hong Kong’s Securities and Futures Commission (SFC) released a 145-page consultation paper on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs.
The paper proposes amendments to various provisions of the Codes together with the reasons for such changes.
The consultation will last for five weeks until 23 June 2023.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 22

Most Read: Tokyo Electron, Sony Corp, EURO/US DOLLAR, HKBN Ltd, Rakuten, Posco Future M, Meritz Financial Group, Kakao Pay and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Nikkei 225 Vs TOPIX Dynamics
Last Week in Event SPACE: Shinsei Bank, China Everbright, Rakuten, Sony Corp
USD Breakout
Merger Arb Mondays (22 May) – HKBN, Newcrest, InvoCare, United Malt, Golden Energy, Penguin, Shinsei
ECM Weekly (21st May 2023) – Alibaba, Cainiao, Baba Cloud, Nexus, DXN, Growatt, Rakuten, JD Ind
Korea: What Are Foreign Investors Buying & Selling?
Meritz Financial: Main Target for Flow Trading in KS200 June Rebalancing
Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed
How the G7 Meeting Exposes the Risks for 2024
Ohayo Japan |Stall in Debt Talks = Stall in SPX; NUGGET: Panasonic – Found Religion (Finally !)

Nikkei 225 Vs TOPIX Dynamics

This past week saw dramatic moves in Japanese stock markets. TOPIX +3.1% N225 +4.8% – up the 6th week in a row – closing at their highest in 33 years.
Flows were positive the week before, and I expect we’ll see next week they were positive this past week. But most striking was the interplay between Nikkei 225 and TOPIX.
If foreign inflows increase, Nikkei is likely to outperform TOPIX both because of its existence and previous use, and its construction. And that means watching one’s trades, shorts, and executions.

Last Week in Event SPACE: Shinsei Bank, China Everbright, Rakuten, Sony Corp

Expect some upset on SBI Shinsei Bank (8303 JP)‘s Offer, the possibility of some activism, but it all plays out in the back end. Not the front end.
Rakuten (4755 JP) is doing a large equity offering to get the monkey off its back with regard to over-leverage, near-term debt refinancing, and WC for Rakuten Mobile.
Fund manager China Everbright (165 HK)‘s implied stub and simple ratio (CEL / Everbright Securities Co (A) (601788 CH)) are at multi-year lows.

USD Breakout

By Thomas Schroeder

USD breakout of the DXY bull wedge (Euro bear wedge) is gaining traction and will find additional fuel in June when the SPX faces a weaker cycle.
Euro turn at macro resistance has legs. USD/JPY bull call from 130 has macro implications on follow through strength and will bleed into Asia FX.
USD vs SGD and IDR saw key macro turns. KRW and commodity currencies have led. USD/ZAR was out top pick in EM and is on fire.

Merger Arb Mondays (22 May) – HKBN, Newcrest, InvoCare, United Malt, Golden Energy, Penguin, Shinsei

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – 111 Inc (YI US), Estia Health (EHE AU), HKBN Ltd (1310 HK), United Malt Group Ltd (UMG AU), Hailan Holdings (2278 HK), Aag Energy Holdings (2686 HK).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Allkem Ltd (AKE AU), Penguin International (PBS SP).

ECM Weekly (21st May 2023) – Alibaba, Cainiao, Baba Cloud, Nexus, DXN, Growatt, Rakuten, JD Ind

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
On the IPO front, JD.com Inc (ADR) (JD US) and Alibaba (ADR) (BABA US)‘s spin-off’s continue to draw interest.
The REIT were out in full force this week for placements as interest rates globally appear to be approaching their peak.

Korea: What Are Foreign Investors Buying & Selling?

Foreign investors have been buying stock in Korea. They now hold 32% of the KOSPI market cap and 18.5% of the KOSDAQ market cap.
As a percentage of market cap, foreigners have been big buyers of Yg Entertainment, Hyundai Rotem and Meritz Financial Group. Selling has been on Ecopro Co and Posco Future M.
Shorts have increased on Ecopro Co Ltd (086520 KS) and Posco Future M (003670 KS) while there has been covering on Kakao Pay (377300 KS) and POSCO Holdings (005490 KS).

Meritz Financial: Main Target for Flow Trading in KS200 June Rebalancing

Meritz Financial confirmed the total number of treasury shares resulting from the mergers, amounting to 5.04% of SO. When combined with the largest shareholder’s stake, the float rate becomes 47.75%.
We should focus on direct rebalancing flow through KS200 ETFs on T-1 effective rather than setting it up preemptively. The estimated total AUM of ETFs directly mirroring KS200 is ₩17T.
Meritz Financial is expected to receive an inflow of around ₩43B, equivalent to 1.35x ADTV. This is a significant flow impact size as a single-day event.

Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed

The fact that KS200 IT has a significantly higher AUM provides a flow trading opportunity. This is due to the change in GICS for Kakao Pay from IT to Financials.
It has been observed that Kakao Pay’s DTV has recently decreased significantly. This may result in the flow size reaching up to 1.4 times DTV.
It is advisable to design an outright short position for day trading purposes. Additionally, a more aggressive approach can be considered by combining a long position on Samsung SDS.

How the G7 Meeting Exposes the Risks for 2024

By Cam Hui

The agenda of the G7 highlights the rising risk of a new Cold War 2.0 that decouples China from the West.
Tensions are likely to rise in 2024 as U.S. electoral politics will encourage both sides to show how tough they are on China.
Under such a scenario, the global economy would be split into a China bloc and a U.S. bloc that resolves in global stagflation

Ohayo Japan |Stall in Debt Talks = Stall in SPX; NUGGET: Panasonic – Found Religion (Finally !)

By Mark Chadwick

OVERSEAS. SPX -0.1% fails to make it 3 in a row; Talks paused, now resumed but deal distant; Powell set to pause hikes in June; More worries in US Regionals
JAPAN. NKY Futs flat vs Cash; Kishida hosts a successful G7 summit; April Core Inflation hits 4.1% – Gov Ueda says no early exit; More Japanese are job hopping=>+ve Wages
NUGGET. Panasonic – Found Battery Religion (Finally!) – A more aggressive stance

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 21

Most Read: Neuren Pharmaceuticals, Kum Yang, Stockland, Yunsung F&C, Suruga Bank Ltd, Alibaba Group, Nifty Next 50 Index, Tokyo Electron, Kakao Pay and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning
KOSPI200 Index Rebalance: Two Sets of Changes
MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows
KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Postcard from HK <> SG | “The Frog in the Well”
Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.
Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+
Asia Long/Short Update
Tokyo Electron. Betting Big On MAGIC Despite The Downturn
Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning

The review period for the June rebalance of the S&P/ASX family of indices ends tomorrow and we expect two changes for the S&P/ASX 200 (AS51 INDEX).
Impact of passive trading on the stocks varies between 4.3-11 days of ADV. Short interest on the potential adds is small while there are significant shorts on the potential deletes.
We expect there is pre-positioning on at least three of the four stocks. In some cases that is small, while it could be a lot larger in other stocks.

KOSPI200 Index Rebalance: Two Sets of Changes

There will be 2 additions and 2 deletions for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the June rebalance that will be implemented on 8 June.
Kum Yang (001570 KS) and Cosmochemical (005420 KS), both high probability names, are inclusions while Hwaseung Enterprise (241590 KS) and Dongwon Industries (006040 KS) are deletions.
Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.

MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows

We do not expect any constituent changes in June (that could change though!). The only flows are likely to be from capping the constituents at 10% of the index weight.
Capping changes will lead to a one-way turnover of 2.15% resulting in a one-way trade of A$14m. There are two stocks with over A$5m to trade.
Stockland (SGP AU) will be the most affected stock with passive trackers needing to sell over 1 day of ADV. The stock has run up and shorts are increasing.

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Postcard from HK <> SG | “The Frog in the Well”

By Pranav Bhavsar

Over the last week, we engaged in fruitful interactions with fellow analysts and portfolio managers in Hong Kong and Singapore.
In this insight, we share perspectives we picked up on India as a market, along with regional market dynamics.
The way ahead involves embracing a glass well approach, combining our deep focus on Indian equities with a broader understanding of regional markets and consumer trends.

Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.

Suruga Bank Ltd (8358 JP) today signed an MOU (with board resolution) to form a business and capital alliance with Credit Saison (8253 JP).
Suruga will sell (post-dilution) 15+% of voting rights to Credit Saison, and buy 4.44% of CreditSaison. Then Suruga will try to buy back the shares it sold to Credit Saison.
A look at the history is instructive, as is a look at the shareholder structure and the change in business model post-2019. Not as easy as it looks.

Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+

On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
In our previous note, we highlighted which division could list. In this note, we will look at the Cloud segement.

Asia Long/Short Update

By Thomas Schroeder

Top longs have been India and Australia. Top shorts HSI and Korea. Korea’s bearish wedge is maturing and stands out as macro risk.
Turned neutral the Nikkei above 29,200. 29,500 represents from buy support to threaten 31,000. Near term top at 31k for a pullback try.
USD upside breakout is front running a softer equity bias in Asia for June. SPX 4,200/20 top zone throw over probable.

Tokyo Electron. Betting Big On MAGIC Despite The Downturn

By William Keating

Q1’23 revenues of ¥558.2 billion, up 19% sequentially and up 1% YoY
FY24 outlook down 23% YoY with H2 showing a modest improvement compared to H1
R&D & CapEx investment increasing significantly while YoY revenue set to decline by 23%

Official Results of KOSPI 200 Sector Indices Rebalancing: Kakao Pay’s Sector Change Confirmed

The fact that KS200 IT has a significantly higher AUM provides a flow trading opportunity. This is due to the change in GICS for Kakao Pay from IT to Financials.
It has been observed that Kakao Pay’s DTV has recently decreased significantly. This may result in the flow size reaching up to 1.4 times DTV.
It is advisable to design an outright short position for day trading purposes. Additionally, a more aggressive approach can be considered by combining a long position on Samsung SDS.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 20

Most Read: Rakuten, Yuexiu Property, Dongwon Industries, Neuren Pharmaceuticals, Kum Yang, Five Star Business Finance, Skyworth Group Limited, Yunsung F&C, Sony Corp, Leeno Industrial and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters
Yuexiu Rights – The Trading Pattern Fits
Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan
S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning
KOSPI200 Index Rebalance: Two Sets of Changes
Five Star IPO Lock-Up – Over US$1.3bn Lockup Release with Less than US$1m ADV
Skyworth (751 HK): Thoughts On Proration
KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff
Preemptive Flow Trading Opportunities with the Fastest-Growing Sector ETFs in Korea

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

Yuexiu Rights – The Trading Pattern Fits

The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
There is a pattern to these trades which is worth understanding.
In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan

It is highly likely that Dongwon Industries will be removed from the KOSPI 200 index in this June review.
Additionally, based on the confirmed cancellation timeline, the possibility of reinstatement during the December review seems unlikely.
As a result, it would be wise to maintain shorting position strategies that factor in this information.

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning

The review period for the June rebalance of the S&P/ASX family of indices ends tomorrow and we expect two changes for the S&P/ASX 200 (AS51 INDEX).
Impact of passive trading on the stocks varies between 4.3-11 days of ADV. Short interest on the potential adds is small while there are significant shorts on the potential deletes.
We expect there is pre-positioning on at least three of the four stocks. In some cases that is small, while it could be a lot larger in other stocks.

KOSPI200 Index Rebalance: Two Sets of Changes

There will be 2 additions and 2 deletions for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the June rebalance that will be implemented on 8 June.
Kum Yang (001570 KS) and Cosmochemical (005420 KS), both high probability names, are inclusions while Hwaseung Enterprise (241590 KS) and Dongwon Industries (006040 KS) are deletions.
Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.

Five Star IPO Lock-Up – Over US$1.3bn Lockup Release with Less than US$1m ADV

Five Star Business Finance (FIVESTAR IN) raised around US$190m in its India IPO in Nov 2022.
Five-Star Business is a non-banking financial company (NBFC-ND-SI) that provides secured business loans to micro-entrepreneurs and self-employed individuals.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Skyworth (751 HK): Thoughts On Proration

Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher.

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff

Sony Corp (6758 JP) reported earnings on 28 April, which saw profit-taking the next day after a brief two-day run-up, as revenues, OP, and NP were guided down.
There previous ¥200bn buyback ended about two weeks later. Yesterday they launched a new ¥200bn buyback, and the stock reacted well this AM. And then BIG new news this morning.
Sony announced an assessment of a partial spin-off of Sony Financial. Assessment this FY, spinoff “within next 2-3yrs” (if possible). This garnered more excitement. Brief analysis of both follows.

Preemptive Flow Trading Opportunities with the Fastest-Growing Sector ETFs in Korea

Two SOL sector ETFs are unique in that they only include companies positioned upstream. This results in a group of smaller-sized constituents, which can have a greater flow impact.
Once the universe is established, constituent selection and weight adjustment are determined exclusively using full/float market capitalization. As a result, flow trading can be highly predictable.
Although they have lower AUM, the five Semiconductor constituents could still face a significant flow impact during this one-day flow event due to their much lower DTV.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 19

Most Read: Rakuten, Neuren Pharmaceuticals, Kum Yang, Sony Corp, Yunsung F&C, Alibaba Group, Suruga Bank Ltd, L&F Co Ltd, Cosmochemical, Sing Tao News Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters
S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning
KOSPI200 Index Rebalance: Two Sets of Changes
Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff
KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+
Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.
How Should We Time the L&F Shorting Event for Another Share Dilution Risk?
Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150
Sing Tao (1105 HK) Makes Its Own News

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning

The review period for the June rebalance of the S&P/ASX family of indices ends tomorrow and we expect two changes for the S&P/ASX 200 (AS51 INDEX).
Impact of passive trading on the stocks varies between 4.3-11 days of ADV. Short interest on the potential adds is small while there are significant shorts on the potential deletes.
We expect there is pre-positioning on at least three of the four stocks. In some cases that is small, while it could be a lot larger in other stocks.

KOSPI200 Index Rebalance: Two Sets of Changes

There will be 2 additions and 2 deletions for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the June rebalance that will be implemented on 8 June.
Kum Yang (001570 KS) and Cosmochemical (005420 KS), both high probability names, are inclusions while Hwaseung Enterprise (241590 KS) and Dongwon Industries (006040 KS) are deletions.
Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.

Sony (6758 JP) – Big-But-Meh Buyback, and Bigger Potential Sony Financial Spinoff

Sony Corp (6758 JP) reported earnings on 28 April, which saw profit-taking the next day after a brief two-day run-up, as revenues, OP, and NP were guided down.
There previous ¥200bn buyback ended about two weeks later. Yesterday they launched a new ¥200bn buyback, and the stock reacted well this AM. And then BIG new news this morning.
Sony announced an assessment of a partial spin-off of Sony Financial. Assessment this FY, spinoff “within next 2-3yrs” (if possible). This garnered more excitement. Brief analysis of both follows.

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+

On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
In our previous note, we highlighted which division could list. In this note, we will look at the Cloud segement.

Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key.

Suruga Bank Ltd (8358 JP) today signed an MOU (with board resolution) to form a business and capital alliance with Credit Saison (8253 JP).
Suruga will sell (post-dilution) 15+% of voting rights to Credit Saison, and buy 4.44% of CreditSaison. Then Suruga will try to buy back the shares it sold to Credit Saison.
A look at the history is instructive, as is a look at the shareholder structure and the change in business model post-2019. Not as easy as it looks.

How Should We Time the L&F Shorting Event for Another Share Dilution Risk?

The main challenge is the construction of new production facilities in the US. The investment amount is estimated to be around ₩1T, achieving an annual production capacity of 100,000 tons.
The government’s approval is the most significant factor to monitor. It will likely be granted between late June or early July, which is when we should start building positions.
Due to the local market’s expectation of L&F’s upcoming fundraising event, some traders may start building their positions early on. It’s important to consider this possibility and act preemptively.

Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150

By Douglas Kim

Korea Exchange announced the KOSPI 200 and KOSDAQ 150 indices constituents changes today.
Kum Yang (001570 KS) and Cosmochemical (005420 KS) were included in the KOSPI 200. Dongwon Industries (006040 KS) and Hwaseung Enterprise (241590 KS) were excluded in KOSPI 200 index.
We expect continued underperformance of Kumyang and Cosmo Chemical as many investors will now start to sell these stocks based on “buy on rumor, sell on news” strategy.

Sing Tao (1105 HK) Makes Its Own News

Sing Tao News Corp (1105 HK), which owns Hong Kong’s oldest and third-largest Chinese language newspaper, is suspended pursuant to the Hong Kong Code on Takeovers and Mergers.
A takeover of Sing Tao was mooted in 2019-2021 when Charles Ho, the former chairman, sought to exit his 48.98% stake; but that transaction fizzled out.
At a market cap of just US$50mn, this (likely) Offer hardly rates a mention. Yet a takeover of a Hong Kong newspaper is still newsworthy.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 18

Most Read: Rakuten, Yuexiu Property, Dongwon Industries, Five Star Business Finance, Alibaba (ADR), Stockland, Canon Inc, Neuren Pharmaceuticals, China Everbright and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters
Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In
Yuexiu Rights – The Trading Pattern Fits
Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan
Five Star IPO Lock-Up – Over US$1.3bn Lockup Release with Less than US$1m ADV
Alibaba Potential IPOs – Part 2 – An Early Look at Cainiao, US$10bn+
MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows
Canon Buyback – 18th in a Row at the Same Size, But This Time With a Running Head Start
S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning
StubWorld: China Everbright (165 HK) Trading Wide

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In

Rakuten (4755 JP) is looking to raise around US$2.4bn by selling shares via a Japanese Public Offering and an International Offering as well as through a third-party allotment.
The stock has already dropped 13.7% in the last couple of days on large volumes as the rumours of the offering started to swirl.
The offering prices late next week and passive trackers will be buying stock once the stock settles and this will provide support in the near-term.

Yuexiu Rights – The Trading Pattern Fits

The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
There is a pattern to these trades which is worth understanding.
In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan

It is highly likely that Dongwon Industries will be removed from the KOSPI 200 index in this June review.
Additionally, based on the confirmed cancellation timeline, the possibility of reinstatement during the December review seems unlikely.
As a result, it would be wise to maintain shorting position strategies that factor in this information.

Five Star IPO Lock-Up – Over US$1.3bn Lockup Release with Less than US$1m ADV

Five Star Business Finance (FIVESTAR IN) raised around US$190m in its India IPO in Nov 2022.
Five-Star Business is a non-banking financial company (NBFC-ND-SI) that provides secured business loans to micro-entrepreneurs and self-employed individuals.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Alibaba Potential IPOs – Part 2 – An Early Look at Cainiao, US$10bn+

On 28th Mar 2023, Alibaba (ADR) (BABA US) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
In our previous note, we highlighted which division could list. In this note, we will look at Cainiao.

MVIS Australia A-REITs Index Rebalance Preview: Capping Changes & Flows

We do not expect any constituent changes in June (that could change though!). The only flows are likely to be from capping the constituents at 10% of the index weight.
Capping changes will lead to a one-way turnover of 2.15% resulting in a one-way trade of A$14m. There are two stocks with over A$5m to trade.
Stockland (SGP AU) will be the most affected stock with passive trackers needing to sell over 1 day of ADV. The stock has run up and shorts are increasing.

Canon Buyback – 18th in a Row at the Same Size, But This Time With a Running Head Start

Canon has conducted 18 buybacks in the last 15 years. Every single one has been the same size. And the parameter-setting and how they are executed is… particular.
For those with Canon to execute, using the information about patterns may be helpful.
For those interested in a trade, there may be one here.

S&P/ASX Index Rebalance Preview: Potential Changes, Impact, Shorts & Positioning

The review period for the June rebalance of the S&P/ASX family of indices ends tomorrow and we expect two changes for the S&P/ASX 200 (AS51 INDEX).
Impact of passive trading on the stocks varies between 4.3-11 days of ADV. Short interest on the potential adds is small while there are significant shorts on the potential deletes.
We expect there is pre-positioning on at least three of the four stocks. In some cases that is small, while it could be a lot larger in other stocks.

StubWorld: China Everbright (165 HK) Trading Wide

Fund manager China Everbright (165 HK)‘s implied stub and simple ratio (CEL / Everbright Securities Co (A) (601788 CH))) are at multi-year lows.
Preceding my comments on China Everbright are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 17

Most Read: Rakuten, AMP Ltd, Alfresa Holdings, Yuexiu Property, CapitaLand Ascendas REIT, Alibaba Group and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Rakuten Possible US$2.2bn Placement – Will Be a Huge Deal to Digest, but It’s Not All Bad
Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters
MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes
JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big
Yuexiu Rights – The Trading Pattern Fits
Rakuten US$2.4bn Placement – Larger than Rumored, Some Indications of Finality
Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In
Capitaland Ascendas REIT Placement – Good Track Record and Most Deals Have Performed Well
Alibaba Potential IPOs – Part 1 – Six Mini-Alibabas – Some Are More Ready than Others to List
Rakuten: ¥333bn Offering Confirmed, Cheap Valuation and Mobile Turnaround on the Horizon

Rakuten Possible US$2.2bn Placement – Will Be a Huge Deal to Digest, but It’s Not All Bad

Rakuten (4755 JP) is considering raising around US$2.2bn (JPY300bn), as per Reuters reports. The company hasn’t confirmed or denied the same in its press release.
The company has been listing some of its subsidiaries and monetising investments to raise cash and has recently hinted at a possible equity issuance.
While there is no guarantee that the deal will ever materialize, in this note, we take an early look at the possible deal dynamics.

Rakuten (4755 JP) – A Big Deal With Very Interesting Characteristics – Index Matters

Yesterday (15 May 2023) just before EOD, an article ran suggesting a ¥300bn capital raise by Rakuten (4755 JP). The stock fell 10% in 10mins. Rakuten hemmed/hawed but didn’t deny.
One day later, we have a deal. It is up to 546mm shares including greenshoe, which at the close was ¥333bn. 468mm shares to the public, 79mm to 3rd parties.
This increases Real World Float by 95%. In that respect this is vaguely IPO-ish. Investors have to re-underwrite. Then Passive re-shrinks the float. Details matter.

MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

There are unlikely to be any inclusions to the index in June while there are three stocks that are close to the deletion threshold.
Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of over 4% and a one-way trade of A$78m.
Short interest on AMP Ltd (AMP AU) has been increasing as the stock has dropped and a further decline in the stock could lead to deletion.

JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big

Born of a merger between two not-very-well-known businesses 20 years ago, Alfresa Holdings (2784 JP) is still not very well known. It is in a boring, low-margin business.
The highest EBIT margin in the past two decades was…. 1.8%. ROE was in the 8-10% range for 2016-2020 but has since fallen below, as PBR has fallen below 1.0x.
Today, we got an amended Mid-Term Management Plan, a new dividend policy, and buyback of 10% of shares out based on last price. It’s worth looking in the details.

Yuexiu Rights – The Trading Pattern Fits

The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
There is a pattern to these trades which is worth understanding.
In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

Rakuten US$2.4bn Placement – Larger than Rumored, Some Indications of Finality

Rakuten (4755 JP) aims to raise up to US$2.4bn (JPY323bn) via a global offering.
The deal was undoubtedly accelerated by Reuters breaking the news of a possible equity raising on 15th May 2023.
We have covered most aspects of the deal in our previous note, in this note we talk about the deal dynamics and run the deal through our ECM framework.

Rakuten (4755 JP) Offering: Could Drop Some More Before Passive Buying Kicks In

Rakuten (4755 JP) is looking to raise around US$2.4bn by selling shares via a Japanese Public Offering and an International Offering as well as through a third-party allotment.
The stock has already dropped 13.7% in the last couple of days on large volumes as the rumours of the offering started to swirl.
The offering prices late next week and passive trackers will be buying stock once the stock settles and this will provide support in the near-term.

Capitaland Ascendas REIT Placement – Good Track Record and Most Deals Have Performed Well

By Ethan Aw

CapitaLand Ascendas REIT (CLAR SP) is looking to raise up to S$459m (US$344m) in its primary placement. The proceeds will be used for acquisition, redevelopment and debt repayment purposes.
The deal will be a large one to digest at 15.8 days of three month ADV and 3.9% dilution.
In this note, we’ll run the deal through our ECM framework and comment on deal dynamics.

Alibaba Potential IPOs – Part 1 – Six Mini-Alibabas – Some Are More Ready than Others to List

On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
Having looked at the past performance of its division, some appear more worthy than others of undertaking a listing in the next year or two.

Rakuten: ¥333bn Offering Confirmed, Cheap Valuation and Mobile Turnaround on the Horizon

By Oshadhi Kumarasiri

Rakuten (4755 JP) announced a public offering of 468.1m new shares and third-party allotment of 78.8m shares to secure ¥333bn.
Enhanced network coverage via KDDI network sharing to attract new users and overcome previous barriers for Rakuten Mobile.
Mobile breakeven could drive Rakuten’s operating profit to ¥150-200bn, potentially boosting the share price to around ¥2,000.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 16

Most Read: SBI Shinsei Bank, Rakuten, Daejoo Electronic Materials, Yuexiu Property, Alfresa Holdings, Newcrest Mining, Dongwon Industries, AMP Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball
Rakuten Possible US$2.2bn Placement – Will Be a Huge Deal to Digest, but It’s Not All Bad
Yuexiu Property (123 HK): Rights Trade Playbook
The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names
Yuexiu Rights – The Trading Pattern Fits
Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng
JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big
Newcrest Backs Newmont’s US$19bn Offer
Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan
MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball

After the large tender offer in late 2021, SBI was always going to try to take Shinsei Bank private. Now they have launched their deal at ¥2,800/share.
That is below fair according to the Board, Special Committee, and implicitly to SBI. But the Shinsei Board has recommended shareholders tender so The Government will vote to squeeze out.
I expect some upset, the possibility of some activism, but it all plays out in the back end in my opinion. Not the front end.

Rakuten Possible US$2.2bn Placement – Will Be a Huge Deal to Digest, but It’s Not All Bad

Rakuten (4755 JP) is considering raising around US$2.2bn (JPY300bn), as per Reuters reports. The company hasn’t confirmed or denied the same in its press release.
The company has been listing some of its subsidiaries and monetising investments to raise cash and has recently hinted at a possible equity issuance.
While there is no guarantee that the deal will ever materialize, in this note, we take an early look at the possible deal dynamics.

Yuexiu Property (123 HK): Rights Trade Playbook

On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.

The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names

The possibility of experiencing a CFD margin call is a genuine and persistent concern. Even a small trigger causes selling pressure to intensify and results in a rapid downward trend.
The counter that the local market is closely monitoring is JPM. The selling pressure from the JPM counter since May 8th has exhibited an abnormal pattern.
Eight names are screened. They are KOSPI 200/KOSDAQ 150 constituents with JPM’s net selling volume to SO being 0.2% or higher, and a margin-equity ratio of 3% or higher.

Yuexiu Rights – The Trading Pattern Fits

The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
There is a pattern to these trades which is worth understanding.
In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads 111 Inc (YI US), ARTERIA Networks Corp (4423 JP), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), Hailan Holdings (2278 HK).
Lowest spreads – Healius (HLS AU),Liontown Resources (LTR AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service.

JAPAN BUYBACKS – Alfresa (2784) Cheap Stock, Uncheapening, Goes Big

Born of a merger between two not-very-well-known businesses 20 years ago, Alfresa Holdings (2784 JP) is still not very well known. It is in a boring, low-margin business.
The highest EBIT margin in the past two decades was…. 1.8%. ROE was in the 8-10% range for 2016-2020 but has since fallen below, as PBR has fallen below 1.0x.
Today, we got an amended Mid-Term Management Plan, a new dividend policy, and buyback of 10% of shares out based on last price. It’s worth looking in the details.

Newcrest Backs Newmont’s US$19bn Offer

On the 11 April, Newmont Mining (NEM US) bumped the all-scrip terms for Newcrest Mining (NCM AU) to 0.400 Newmont shares – from 0.380 – for each Newcrest share held.
Exclusive due diligence was granted and now a firm Offer, by way of a Scheme, has been agreed.
The Offer permits Newcrest to pay a special franked dividend of up to $US1.10/share on top of the Offer terms.

Checking on Dongwon Industries’ KS200 Deletion Situation After Last Friday’s Share Cancellation Plan

It is highly likely that Dongwon Industries will be removed from the KOSPI 200 index in this June review.
Additionally, based on the confirmed cancellation timeline, the possibility of reinstatement during the December review seems unlikely.
As a result, it would be wise to maintain shorting position strategies that factor in this information.

MVIS Australia Equal Weight Index Rebalance: Potential Deletes & Capping Changes

There are unlikely to be any inclusions to the index in June while there are three stocks that are close to the deletion threshold.
Even if there are no constituent changes, there will be capping changes that will result in one-way turnover of over 4% and a one-way trade of A$78m.
Short interest on AMP Ltd (AMP AU) has been increasing as the stock has dropped and a further decline in the stock could lead to deletion.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 15

Most Read: SBI Shinsei Bank, JD Health, Mitsubishi Corp, Trip.com, Yuexiu Property, China Shenhua Energy Co H, Nitori Holdings, Daejoo Electronic Materials and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball
HSI Index Rebalance: Yippee! Finally at 80!
JAPAN BUYBACKS: A Very Big Week
HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
Yuexiu Property (123 HK): Rights Trade Playbook
HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact
Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔
The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names
Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng

SBI Launches Opportunistic, Unfair Offer for Shinsei (8303) And Shinsei Board Drops the Ball

After the large tender offer in late 2021, SBI was always going to try to take Shinsei Bank private. Now they have launched their deal at ¥2,800/share.
That is below fair according to the Board, Special Committee, and implicitly to SBI. But the Shinsei Board has recommended shareholders tender so The Government will vote to squeeze out.
I expect some upset, the possibility of some activism, but it all plays out in the back end in my opinion. Not the front end.

HSI Index Rebalance: Yippee! Finally at 80!

The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

JAPAN BUYBACKS: A Very Big Week

This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
My prediction that this will be a record year for stock buybacks still stands.

HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade

There are no constituent changes for the Hang Seng Tech Index (HSTECH INDEX) in June but there are some free float changes and a bunch of capping changes.
Estimated one-way turnover is 3.2% leading to a one-way trade of HK$3bn (US$384m). There are 3 stocks with over 1 day of ADV to trade.
Trip.com (9961 HK) has over 1x ADV to buy from Hang Seng Tech Index (HSTECH) trackers. The stock is also an add to the Hong Kong Hang Seng Index (HSI).

SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer

SBI Shinsei Bank (8303 JP) has recommended SBI Holdings (8473 JP)’s tender offer of JPY2,800 per share, a 12.6% premium to the undisturbed price (11 May).
There is no minimum acceptance condition. SBI and irrevocables from government entities represent 73.02% of voting rights, ensuring the implementation of tender squeeze-out procedures.
The special committee failed to unanimously recommend the offer. Minorities will feel short-changed as the outcome is predetermined and the offer tends to favour the government shareholders.

Yuexiu Property (123 HK): Rights Trade Playbook

On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.

HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact

As expected, China Shenhua Energy Co H (1088 HK) replaces Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close 2 June.
Using prices from the close on 12 May, estimated one-way turnover is 2.1% leading to a one-way trade of HK$1.3bn (US$170m).
The change will lead to an increase in the fair value of the HSCEI 2023 Dividend Futures. We’d be sellers on a move higher towards 240 DIPS.

Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔

The Nikkei Index team has been quite conscious of market impact since the April 2000 debacle. For a few years after, things were quieter. In 2005, Fast Retailing spurred introspection.
Float was low and became lower. Selection behaviour changed. Now there is a new consultation where “technical listings” would stay in, and phased “stepwise” inclusion would reduce inclusion impact.
The proposal increases subjectivity, reduces the attractiveness of bets, but otherwise increases the likelihood they will follow the other selection rules. It STILL does not solve the high weight problem.

The Core of CFD Margin Call Risk May Lie in the JPM Counter, Not SG: Potentially Infected Names

The possibility of experiencing a CFD margin call is a genuine and persistent concern. Even a small trigger causes selling pressure to intensify and results in a rapid downward trend.
The counter that the local market is closely monitoring is JPM. The selling pressure from the JPM counter since May 8th has exhibited an abnormal pattern.
Eight names are screened. They are KOSPI 200/KOSDAQ 150 constituents with JPM’s net selling volume to SO being 0.2% or higher, and a margin-equity ratio of 3% or higher.

Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads 111 Inc (YI US), ARTERIA Networks Corp (4423 JP), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), Hailan Holdings (2278 HK).
Lowest spreads – Healius (HLS AU),Liontown Resources (LTR AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 14

Most Read: Super Hi International Holding, Yunnan Chihong Zinc&Germanium Co, Ltd., ICICI Bank Ltd, JD Health, Trip.com, Ushio Inc, Mitsubishi Corp, SBI Shinsei Bank, Dong Yang P&F, Hong Kong Hang Seng Index and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
HDFC/HDFCB Merger: Impact on Bank Nifty
HSI Index Rebalance: Yippee! Finally at 80!
HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade
HUUUGE Ushio (6925) Buyback
JAPAN BUYBACKS: A Very Big Week
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?

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

There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes

The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.

HDFC/HDFCB Merger: Impact on Bank Nifty

The HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN) merger will result in capping and funding changes on the Nifty Bank Index (NSEBANK INDEX) constituents.
We estimate one-way turnover of around 8.4% resulting in a one-way trade of INR 21,865m (US$266m) at the time of merger implementation.
The impact in terms of ADV is less than 1x on all stocks, but the impact in terms of delivery volume is higher than 1x on a few stocks.

HSI Index Rebalance: Yippee! Finally at 80!

The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade

There are no constituent changes for the Hang Seng Tech Index (HSTECH INDEX) in June but there are some free float changes and a bunch of capping changes.
Estimated one-way turnover is 3.2% leading to a one-way trade of HK$3bn (US$384m). There are 3 stocks with over 1 day of ADV to trade.
Trip.com (9961 HK) has over 1x ADV to buy from Hang Seng Tech Index (HSTECH) trackers. The stock is also an add to the Hong Kong Hang Seng Index (HSI).

HUUUGE Ushio (6925) Buyback

Ushio Inc (6925 JP) reported earnings on 11 May, with revenue +17.6% on the year, OP +21.4%, and NP +8.7% on the year. Div was unchanged at ¥50/share.
Forecasts are for revenue +7.4%, OP -21.2%, and NP -27% (¥90.6/EPS). But importantly, the company also announced a HUUUUUGE Buyback.
Buying ≦20mm shares (17.0%) spending ≦¥30bn from 29May2023 to 10May2024. That’s 13.3% at the 12 May close. How this will work is unknown. There’s less detail than one would want.

JAPAN BUYBACKS: A Very Big Week

This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
My prediction that this will be a record year for stock buybacks still stands.

SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer