In today’s briefing:
- BYD (1211 HK): Is Buffett Bailing?
- NIFTY100 & CPSE Index Rebalance: Some Big Changes in 3 Weeks
- Reversion Trading on a Massive Price Diversion of LG Chem & LG Energy Solution
- Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- JAPAN PASSIVE: Who Owns What 2022?
- Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- MFE/Mediaset España: Offer Results and Trade Ideas
BYD (1211 HK): Is Buffett Bailing?
- Just days after BYD (1211 HK) surpassed Tesla Motors (TSLA US) as the world’s largest electric vehicle producer by sales, is Warren Buffet cashing in his chips?
- 225mn shares of BYD – 7.73% of the H shares – moved into CCASS yesterday. These are Berkshire Hathaway’s shares.
- For a shareholder who has kept his holding in share certificates for 13 years, this development suggests the possibility of a partial or full exit.
NIFTY100 & CPSE Index Rebalance: Some Big Changes in 3 Weeks
- Life Insurance Corp of India (LIC) (LICI IN) and Tata Power (TPWR IN) will be added to the Nifty 100 Index (NSE100 INDEX) and Nifty Next 50 Index (NIFTYJR INDEX).
- Nmdc Ltd (NMDC IN) will be deleted from the CPSE ETF (CPSEBE IN) and there will be no replacement in the index.
- The NMDC deletion along with capping changes means that there is decent volume (and ADV) to buy on quite a few names in the CPSE ETF (CPSEBE IN).
Reversion Trading on a Massive Price Diversion of LG Chem & LG Energy Solution
- The price diversion between LG Chem and LG Energy has deepened considerably over the past two days. The sigma is currently -2.35. It is virtually the most extreme level year-to-date.
- LG Energy’s immediate-term overhang risk will likely offset the upcoming passive inflow event. In addition, the intensity of their price cointegration has not been weakened in recent months.
- Therefore, we should consider setting up reversion trading from this point on, aimed at the lockup release on July 27.
Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- Topsports International (6110 HK) is trading cheap to peers Anta Sports Products (2020 HK) and Li Ning (2331 HK), and to partners Nike (NKE US) and Adidas AG (ADS GR).
- Like for so many companies in China, the combination of severe lockdown restrictions and global supply chain disruptions has impacted Topsports operations.
- Yet forward operational updates may surprise to the upside. Management appears confident of their “immersive shopping experience” strategy, and recently declared a special dividend for FY22 (Feb Y/E).
BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- The increase of 225.2 million CCASS shares deposited with Citibank matches Berkshire Hathaway Inc Cl B (BRK/B US)’s stake. BYD (1211 HK) closed -12% down on speculation of a selldown.
- The H Share recently touched all-time highs and trades at a significant premium to historical multiples. BYD has a recent history of a selldown by a substantial shareholder (Himalaya Capital).
- Berkshire has made a 33x gain on its BYD investment, excluding dividends. Taking money off the table would align with Berkshire’s value investing mandate.
JAPAN PASSIVE: Who Owns What 2022?
- 2022 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each.
- Even if you do not “play” index changes, understanding impact is important. Japan Exchange Group (8697 JP) entered Nikkei 225 in July 2020 after rising 30%. That was the top.
- Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks.
Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- Topsports International Holdings (TIH) is now trading close to its all time lows, after the shares corrected by 50% over the past year.
- The company is one of the largest retailers for Nike (NKE US) and Adidas AG (ADS GR) in China.
- Given then on/off lockdowns the near term outlook isn’t great, but the stock appears cheap for those willing to take a longer view.
MFE/Mediaset España: Offer Results and Trade Ideas
- MFE waived the minimum acceptance condition of the takeover bid for Mediaset España and acquired all of the shares that accepted the offer (27.23% of the share capital).
- MFE will own 82.92% (thus not reaching squeeze-out threshold), the stock is much less liquid now. TV advertising looks increasingly grim in Spain. I would be short up to €2.8/share.
- MFE A shares are trading at a 30% discount, which seems excessive. With more A shares coming in the market (and higher liquidity), I would be long MFEA/short MFEB.
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