In today’s briefing:
- FTSE GEIS March 2022 SAIR: Share/Float Changes
- FTSE China A50 Index Rebalance Preview (March 2022): Big Impact of FOL Changes
- Tencent: Meta Challenges Ahead
- FTSE China 50 Index Rebalance Preview (March): Nongfu, COLI, XPeng Potential Adds
- NetEase (NTES) Pre-Earnings: Exploring Overseas Market
- HK Tech Index Pressure Bleed into HSI Fresh Sell Zone
- China Shineway Pharmaceutical (2877.HK) – Uncertainties Cloud the Outlook
- Crypto Weekly: NFTs (Bing Dwen Dwen) With Chinese Characteristics
- Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
FTSE GEIS March 2022 SAIR: Share/Float Changes
- FTSE announced the changes to the All-World/All-Cap indices post market close on Friday. There were changes to the number of shares and free floats for quite a few stocks too.
- There are a few stocks where the passive flow and impact is large and quite a few of these stocks have moved today. They could move more till implementation.
- At the close on 4 March, HSI trackers will sell CK Infrastructure Holdings (1038 HK) due to a float reduction. Then the FTSE trackers will sell on 18 March.
FTSE China A50 Index Rebalance Preview (March 2022): Big Impact of FOL Changes
- Todays closing prices will be used to determine the inclusions and exclusions at the March rebalance. We see PSBC and Bank of Ningbo replacing EVE Energy and Aier Eye.
- There will also be changes to the investability weight of the stocks following the Ground Rule change that will cap stocks at their Foreign Ownership Limits.
- Change to the index constituents and FOL changes will result in a one-way turnover estimated at 16.64% and will result in a one-way trade of CNY 9,322m.
Tencent: Meta Challenges Ahead
- China Banking and Insurance Regulatory Commission warned on Friday against fund-raising and investment products related to the metaverse concept given the speculative nature of these investments.
- The Office of the United States Trade Representatives (USTR) announced on Thursday that e-commerce sites operated by Tencent have been placed on US government’s “notorious markets” list of entities.
- Tencent’s shares have dropped 5.2% during today’s trade following speculation that fresh regulatory crackdowns are possible following the warning on metaverse.
FTSE China 50 Index Rebalance Preview (March): Nongfu, COLI, XPeng Potential Adds
- We expect Nongfu Spring (9633), China Overseas Land & Investment (688) and XPeng (9868) to replace Geely Auto (175), China Tower (788) and JD Health (6618) in the index.
- There will also be some big capping changes that will result in one-way turnover estimated at 9.2% and in a one-way trade of HK$4,910m.
- Nongfu Spring (9633 HK) is a triple inclusion – HSI at the close on 4 March, FTSE All-World at the close on 18 March and possibly the FTSE China50 too.
NetEase (NTES) Pre-Earnings: Exploring Overseas Market
- NTES is exploring overseas market by starting studios and selling games.
- We believe NTES has the experience in dealing with the license suspension for new games.
- We believe the stock has an upside of 48% for year end 2022.
HK Tech Index Pressure Bleed into HSI Fresh Sell Zone
- HSI is a top short vehicle and continues to show a heavy bias going into a cycle peak due in March. Short bounce attempts into March.
- Hong Kong tech index is pressuring key support with a fresh down leg expected to the sub 5k level. Bear weight on the HSI. Bearish triangle to break lower.
- HSI re test on 23,100 expected in March with risk to 22,200. 26k is the ideal short barrier.
China Shineway Pharmaceutical (2877.HK) – Uncertainties Cloud the Outlook
- Driven by favorable policies on TCM and COVID-19 under control, the performance recovery would be a good signal, making the FY2021 performance worthy of expectation.
- The expansion scope of VBP on TCM and the concerns on TCM injection products cast doubts on China Shineway Pharmaceutical (2877 HK)’s outlook.
- Due to the uncertainties, we choose to be conservative about the Company’s outlook at the current stage.
Crypto Weekly: NFTs (Bing Dwen Dwen) With Chinese Characteristics
- While crypto is definitely banned in China, the treatment of NFTs is somewhat unclear in China with state-sponsored backers like the Metaverse Industry Committee and the National Team’s Blockchain
- This weekly explores possible creations of NFTs with Chinese characteristics based on China’s own “permissioned” blockchain technology to be launched in March
- Meanwhile, China sponsored NFTs like the popular Olympics mascot Bing Dwen Dwen is now straddling unchartered territories as both an officially endorsed product as well as an official banned product
Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
S&P and Nasdaq were lower again on Friday with the indices down 0.7% and 1.2% respectively. Most sectors were in the red, led by IT and Industrials down 0.9-1%. The US 10Y Treasury yield dropped 6bp to 1.93% as risk-off sentiment around Russia –Ukraine tensions weighted on markets. European markets were also lower with the DAX down 1.5% and the CAC and FTSE down 0.3% each. Brazil’s Bovespa closed 0.6% lower. In the Middle East, UAE’s ADX was down 0.6% and Saudi TASI closed 0.1% lower. Asian markets have opened broadly lower with Shanghai, HSI and Nikkei down 0.4%, 0.7% and 0.8% respectively, while STI was up marginally by 0.1%. US IG CDS spreads were 0.9bp wider and HY CDS spreads were 4bp wider. EU Main CDS spreads were 2.4bp wider and Crossover CDS spreads were 15bp wider. Asia ex-Japan CDS spreads were 0.7bp wider.
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