In today’s briefing:
- A/H Premium Tracker (To 5 Jan 2024): STAY Long Hs Vs As: A Premia Still Wide, High Div SOEs Moving
- FXI Rebalance Preview: Two Potential Changes in March
- Inabata & Co (8098) – LARGE Equity Secondary Offering by Sumitomo Chemical
- LQ45 Index Rebalance Preview (Jan): Reading the Tea Leaves
- Merger Arb Mondays (08 Jan) – Weiqiao Textile, IRC, Aoki Super, Hollysys, OreCorp, Tietto, Pact
- HK Connect SOUTHBOUND Flows (To 5 Jan 2024); High Div SOEs Still Strongly Bought
- Hollysys (HOLI US): Vote on 8 February as Hopes of a Rival Offer Fade
- EQD | Tears and Despair for the Hang Seng Index May Not Be Over (Yet)
- TDCX (TDCX US): Laurent Junique’s NBIO
- Mainland Connect NORTHBOUND Flows (To 5 Jan 2024): Big Names Sold, Banks Bought
A/H Premium Tracker (To 5 Jan 2024): STAY Long Hs Vs As: A Premia Still Wide, High Div SOEs Moving
- 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.
FXI Rebalance Preview: Two Potential Changes in March
- With a few weeks to go in the review period, CGN Power (1816 HK) and Yankuang Energy Group (1171 HK) could be added to the ETF in March.
- China Resources Beer Holdings (291 HK) and Wuxi Biologics (2269 HK) are potential deletions while there is another stock close to deletion zone.
- There are a lot of shorts on Yankuang Energy in terms of days of ADV and as a percentage of float while short interest on the other stocks is lower.
Inabata & Co (8098) – LARGE Equity Secondary Offering by Sumitomo Chemical
- On Friday after the close, Inabata & Co (8098 JP) announced Sumitomo Chemical (4005 JP) would sell down a large stake in a ~$200mm secondary equity offering.
- Mizuho Bank’s Retirement Benefit Trust account sells down too. Sumitomo Chem will keep 10+% and other crossholders remain.
- This is “big” at 80 days of ADV with limited early index demand, but a 10% fall would make this cheap enough to buy vs Peers.
LQ45 Index Rebalance Preview (Jan): Reading the Tea Leaves
- The review period for the LQ45 Index ended on 29 December. The changes should be announced in the last week of January, becoming effective after the close on 31 January.
- Based on the index methodology, there could be up to 5 changes at the rebalance. Plus there will be capping changes for Bank Rakyat (BBRI) and Bank Central Asia (BBCA).
- The impact of passive trading will be higher on the deletions than the inclusions since lower liquidity stocks are replaced with higher liquidity stocks.
Merger Arb Mondays (08 Jan) – Weiqiao Textile, IRC, Aoki Super, Hollysys, OreCorp, Tietto, Pact
- 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 – Aoki Super (9977 JP), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Adbri (ABC AU).
- Lowest spreads – Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP), A2B Australia (A2B AU), Tietto Minerals Ltd (TIE AU), IJTT Co., Ltd. (7315 JP).
HK Connect SOUTHBOUND Flows (To 5 Jan 2024); High Div SOEs Still Strongly Bought
- SOUTHBOUND flows showing momentum tendencies this past week on a single-stock basis, still. Hs gave up some ground vs As in Week One.
- SOUTHBOUND saw HK$14.4bn of net IN-flows in the 4-day week to 5 Jan 2024. Total flows were HK$96bn.
- SOUTHBOUND start the year by buying ETFs, high-div SOEs like China Mobile and CNOOC, coal names, and sports/consumer names.
Hollysys (HOLI US): Vote on 8 February as Hopes of a Rival Offer Fade
- Hollysys Automation Technologies (HOLI US) shareholders vote on Ascendent’s US$26.50 offer on 8 February. The special meeting will not be held as the 30% shareholding threshold is no longer satisfied.
- The proxy statement shows that despite Dazheng Consoritum’s competing public campaign, it has withdrawn its court injunction and has struggled to provide proof of financing.
- The proxy statement suggests that the special committee ran a fair process. While shareholders should approve Ascendent’s offer, the 0.2% gross spread indicates an unfavourable risk/reward profile.
EQD | Tears and Despair for the Hang Seng Index May Not Be Over (Yet)
- The HSI INDEX index closed December (barely) up, no rally, nullifying completely the MONTHLY time bar count pattern suggesting a LONG MONTHLY trade (the 1-bar reversal has already happened).
- The index is approaching the Q3 support at 16449. A WEEKLY bounce is possible from that level, but we don’t know if the bounce can last more than 1 week.
- If the index keeps going down this week, it could find support between 16500 and 16000. A longer correction could end in the 15800-15600 price area. Use tight stops.
TDCX (TDCX US): Laurent Junique’s NBIO
- TDCX (TDCX US), a Singapore-headquartered digital customer experience (CX) provider, has announced a preliminary non-binding proposal from Laurent Junique, founder/CEO, and largest shareholder (98.3% of the voting power).
- Junique is offering US$6.60/ADS, a 39% premium to the 30-day VWAP, but a 63% discount to its IPO price a little over two years ago.
- One issue dogging TDCX is the key man risk given Junique’s almost absolute control. Now he’s trying to take the company private on the cheap.
Mainland Connect NORTHBOUND Flows (To 5 Jan 2024): Big Names Sold, Banks Bought
- 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 SELL RMB 5.5bn of A-shares on lighter average activity. BIG net selling flows on the first day of the year for HK going north.
- Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start). Still.
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