In today’s briefing:
- CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri
- HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold
- HSCEI Dividend Futures: Sell the 2024/25 Steepener
- CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
- China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week
- Mainland Connect NORTHBOUND Flows (To 30-Apr/3-May 2024): Big Volumes, Low Net; As Will Play Catchup
- China Healthcare Weekly (May.5) – Overvaluation in Primary Market, RDC to Be Hot Spot, Yiling Pharma
CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).
- We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
- The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.
Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri
- 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: Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Southern Cross Media (SXL AU), Qantm Intellectual Property (QIP AU), Probiotec Ltd (PBP AU), China TCM.
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Jastec Co Ltd (9717 JP).
HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold
- A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday.
- Net SOUTHBOUND buying was +HK6.0bn. Net buys every day and now 22 days straight, but buying still appears foreign-led price-taking action.
- The only big news this week in China/HK was probably the Politburo’s new stance of trying to do more for the mainland property market, concentrating on unsold homes.
HSCEI Dividend Futures: Sell the 2024/25 Steepener
- The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
- The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
- Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.
CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
- With the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index – Shang (SH000905 INDEX) at the close on 14 June.
- We estimate a one-way turnover of 9.3% at the rebalance resulting in a one-way trade of CNY10.88bn (US$1.5bn). The Industrials and Information Technology sectors gain at the expense of Materials.
- The potential adds have outperformed the potential deletes by 8% over the last 3 months. There could be further outperformance over the next few weeks.
China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
- At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
- According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.
A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week
- The New/Better 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’s consecutive buying streak ended on Monday 25-March, then started again. 20 days straight net buying. NORTHBOUND saw big inflows Friday. A record day I believe.
- HK stocks bounced VERY hard. Seemed like big allocation trade. HSCEI +8.7% vs CSI300 +1.2%. In H/A Pairs, liquid pairs saw Hs outperform their A by 4+% on average.
Mainland Connect NORTHBOUND Flows (To 30-Apr/3-May 2024): Big Volumes, Low Net; As Will Play Catchup
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net BUY RMB 2.3bn of A-shares on high gross low net volume in the two days. NORTHBOUND bought CATL, Shenzhen Mindray, some financials.
- As outperformed Hs on Monday and Tuesday (when both were open), then Hs rocketed on Thursday and Friday. As will have to catch up early in the week.
China Healthcare Weekly (May.5) – Overvaluation in Primary Market, RDC to Be Hot Spot, Yiling Pharma
- Due to the overvaluation of pharmaceutical companies in the primary market, only foreign markets are able to “digest” such high valuation. So, various promising drugs are acquired by foreign investors.
- The field of RDC/RLT has attracted our attention, which could become the next hot area. Since nuclides are the most important bottleneck, domestic related enterprises will usher in opportunities.
- Shijiazhuang Yiling Pharmaceutical’s performance would continue to be under pressure in 24H1 but would rebound in 24H2 after “destocking”. Valuation/share price have not yet bottomed out. Don’t rush to bottom-fish.
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