In today’s briefing:
- FSS Head’s Aggressive Remarks for Value-Up at NY Event, Incl. Short Selling Resumption Late June
- HK Connect SOUTHBOUND Flows (To 17 May 2024); Banks, Banks, Banks, Tencent, and Big SOEs
- Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted
- HSCEI Index Rebalance: Zijin Mining In; Xinyi Solar Out; SenseTime Survives (For Now)
- HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
- A/H Premium Tracker (To 17 May 2024): Hs Rally Huge Vs As, Again. Avg A/H Premium Lowest in 4yrs
- Weekly Deals Digest (19 May) – ESR Group, L’Occitane, CPMC, Malaysia Airports, I’Rom, Modec
- EQD / NSE Volatility Update / 13-May-24 to 17-May-24
- Mainland Connect NORTHBOUND Flows (To 17 May 2024):
FSS Head’s Aggressive Remarks for Value-Up at NY Event, Incl. Short Selling Resumption Late June
- Lee Bok-hyun hopes for short selling to resume by late June. Given his influence on the Value-up policy, it’s likely to happen.
- Lee expects key tax incentives for the value-up program to be included in the July tax reform bill, showing a market-friendly stance.
- Yesterday’s New York event had a very positive atmosphere with more attendees than expected, showing genuine investor interest, likely ensuring sustained interest in Korea’s Value-up program.
HK Connect SOUTHBOUND Flows (To 17 May 2024); Banks, Banks, Banks, Tencent, and Big SOEs
- SOUTHBOUND was again a net buyer for HK$18.6bn on strong two-way volumes. The top three net buys of the week were SOE banks. Some may be Central Huijin.
- Some of this may be driven by the dividend w/h tax cancellation on H divs and by significant H-share discounts, but high-div CNOOC was the biggest net sell.
- No end to the inflows, and HK valuations are not at a place where they would hamper continued flows. Alibaba making HK a Primary will spur more inflows over time.
Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- 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: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK).
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Mimasu Semiconductor Industry (8155 JP), Boral Ltd (BLD AU).
Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted
- BYD Electronics (285 HK) will be added to the Hang Seng Index (HSI INDEX) after market close on 7 June while Country Garden Services (6098 HK) will be deleted.
- Estimated one-way turnover is 1.9% and the estimated round-trip trade is HK$8.46bn (US$1.08bn) with over 1x ADV to trade in the add and delete.
- We remain at 82 index constituents and the road to 100 index members looks to be a long and winding one.
HSCEI Index Rebalance: Zijin Mining In; Xinyi Solar Out; SenseTime Survives (For Now)
- Zijin Mining Group Co Ltd H (2899 HK) will replace Xinyi Solar Holdings (968 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close on 7 June.
- An increase in the FAF for SenseTime Group (20 HK) results in the stock avoiding deletion at the June rebalance.
- Estimated one-way turnover at the rebalance is 2.9% resulting in a round-trip trade of HK$3.8bn with over 1x ADV to trade on the add and delete.
HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
- As expected, there are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June. However, there are float and capping changes.
- Estimated one-way turnover is 8% leading to a round-trip trade of HK$19.2bn (US$2.46bn). There is over 3x ADV to buy in Li Auto (2015 HK).
- Short interest is quite elevated on a lot of stocks both in terms of days of ADV and in terms of free float.
A/H Premium Tracker (To 17 May 2024): Hs Rally Huge Vs As, Again. Avg A/H Premium Lowest in 4yrs
- 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 buy streak was interrupted again this past week, but they still net bought, as did NORTHBOUND. HK stocks continued their rise with liquid Hs outperforming their As by 3.8%.
- There were some BIG moves the past two weeks and Average AH Premia are now the lowest in nearly four years vs near 5yr wides less than 12 weeks ago.
Weekly Deals Digest (19 May) – ESR Group, L’Occitane, CPMC, Malaysia Airports, I’Rom, Modec
- A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
- ECM developments: Modec Inc (6269 JP)‘s US$535 million secondary offering.
- Event-Driven developments: ESR Group (1821 HK), L’Occitane (973 HK), CPMC Holdings (906 HK), Malaysia Airports Holdings (MAHB MK), I’Rom Group (2372 JP), Great Eastern Holdings (GE SP).
EQD / NSE Volatility Update / 13-May-24 to 17-May-24
- Curtail Short Gamma & Short Vega exposure as Vol-regime has switched to “High & Up” state.
- Short-Dated IVs traded markedly lower, driven by recovering equities & the 20-May market holiday
- Nifty50 vol curve is exhibiting unusual kinked shape. Monthly IVs are commanding a large vol markup relative to rest of the curve.
Mainland Connect NORTHBOUND Flows (To 17 May 2024):
- 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 8.8bn of A-shares on lower gross volumes. NORTHBOUND bought Luxshare, CMB, and CATL. AH Premia now lowest in 4yrs.
- Foreign attitudes to HK stocks different than to mainland stocks. This may continue.
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