In today’s briefing:
- Japan: Potential Passive Selling in November
- China Traditional Chinese Medicine (570 HK): Theatre of the Absurd
- 7&I Holdings (3382 JP) – Artisan Writes Another Letter – Based on Content, They Should Sell Any Pop
- GJS/Haitong Merger Musings
- Clean Energy & Global Water ETFs: Changes for Asia & Impact
- TCM (570 HK): “Uncertain” To Spook Shares
- Korea: Stocks with Potential Passive Flows in November
- CR Sanjiu (000999.CH) To Acquire Tasly (600535.CH) Update – This Is Already a Done Deal
- Liquid Universe of European Ordinary and Preferred Shares: October‘24 Report
Japan: Potential Passive Selling in November
- Up to 9 stocks could be deleted from global passive portfolios in November. The deletion will lead to liquidity events where trackers will need to sell multiple days of ADV.
- There has been a buildup of shorts on nearly all these stocks though the extent of the pre-positioning varies.
- The increase in shorts is smaller than the estimated passive selling, though there is a fair amount of variability across the names.
China Traditional Chinese Medicine (570 HK): Theatre of the Absurd
- China Traditional Chinese Medicine (570 HK)’s monthly update notes that the consortium has secured SAMR approval and made progress in obtaining the other regulatory approvals.
- As expected, the precondition will not be satisfied before the 18 October long stop date. Unexpectedly, whether the consortium members will consent to the extension remains uncertain.
- The extension will be forthcoming as the delay is procedural, there is a reputational risk from a deal break, the time investment is significant, and the warning was legally required.
7&I Holdings (3382 JP) – Artisan Writes Another Letter – Based on Content, They Should Sell Any Pop
- Some two weeks after it became apparent Alimentation Couche-Tard (ATD CN) had lobbied a bid in for Seven & I Holdings (3382 JP), Artisan Partners wrote a letter.
- It was full of misguided analysis, ungrounded insinuation of a general nature without specifying where they would have a problem. It seemed to be complaint for the sake of complaint.
- Today another public letter. This time there are a couple of worthwhile suggestions, some accusations of fiduciary impropriety based on no evidence, and an implicit admission they should have sold?
GJS/Haitong Merger Musings
- Back in March, the CSRC said it aimed to “form two to three investment banks and institutions with international competitiveness and market leadership by 2035″.
- Last week’s announced merger between China’s leading state-backed brokerages, Guotai Junan Securities (2611 HK) and Haitong (6837 HK), is a move in that direction. Expect more scrip mergers to follow.
- There have also been some media reports that the GJS/Haitong terms disadvantage holders of other Hong Kong broker stocks if potentially acquired in a merger. It’s not quite that simple.
Clean Energy & Global Water ETFs: Changes for Asia & Impact
- There are 3 adds and 2 deletes for the iSharesGlobal Clean Energy ETF while there are 2 adds and 2 deletes for the iShares Global Water UCITS ETF.
- With US$5bn benchmarked to the iSharesGlobal Clean Energy and related ETFs, and US$3.5bn benchmarked to the iShares Global Water and related ETFs, there is multiple days of ADV to trade.
- We see a noticeable rise in cumulative excess volume over the last two trading sessions, so there will be positioning in the stocks.
TCM (570 HK): “Uncertain” To Spook Shares
- China Traditional Chinese Medicine (570 HK) (TCM) will fall today. Perhaps a lot.
- With two days left on the clock to secure the pre-conditions (18th October), the Offeror said “it remains uncertain” whether it can secure an extension from the investor group.
- Such wording could be viewed as boilerplate SFC legalise. I would argue the use of “uncertain” is superfluous, unhelpful, and for investors, downright worrying.
Korea: Stocks with Potential Passive Flows in November
- There are a few stocks in Korea that have outperformed/ underperformed their peers and could be added to or deleted from global passive portfolios next month.
- There could be buying in Hyundai Rotem, while there could be selling in KT Corp, Celltrion Pharm, Kum Yang, Hyundai Engineering & Construction, Hyundai Steel, CosmoAM&T and L&F.
- Based on our estimate of passive assets, trackers will need to trade between US$57m to US$230m of the stocks. Impact will vary between 3x-14.5x of ADV to trade.
CR Sanjiu (000999.CH) To Acquire Tasly (600535.CH) Update – This Is Already a Done Deal
- Since Tasly’s performance growth has long stagnated and Yan Kaijing has no better way to turn the situation around, selling Tasly to SOE and cashing out becomes a good choice.
- Upon completion of all approvals (e.g. the SASAC, SAMR, shareholders’ meeting of CR Sanjiu, etc.), the deal aims to be completed in 25Q1. We think the deal will get up.
- Tasly’s share price should be at least higher than RMB14.85/share based on the cash transfer price. Its P/E would reach 30 in the future after the integration with CR Sanjiu.
Liquid Universe of European Ordinary and Preferred Shares: October‘24 Report
- Since mid-September, share-price spreads have generally widened across our European liquid universe of ordinary and preferred shares (9 have tightened, 10 widened).
- Recommended trades long preferred / short ordinary shares: Atlas Copco, Grifols SA, Media-for-Europe, Volkswagen.
- Recommended trades long ordinary / short preferred shares: Carlsberg, Henkel, SSAB Svenska Stal.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
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
