In today’s briefing:
- March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade
- Taisho Pharmaceutical (4581 JP): Japan Catalyst Pushes for a Bump
- S&P/ASX 200 Index Rebalance (Dec 2023): There Is Positioning but Probably Not Enough
- Yuanta/P-Shares Taiwan Div+ ETF Rebalance: Changes Lead to Huge Turnover
- FnGuide Top10 Equal Weight Index Rebalance Preview: Kia Corp Could Replace Posco Future M
- Investigating Arbitrage Trading Potential to Exploit ETF Tracking Error Widening in Korea
- Merger Arb Mondays (4 Dec) – Origin, OreCorp, Healius, CIMC Vehicles, T&K Toka, Eoflow, Hollysys
- S&P/NZX 50 Index Rebalance: Two High Impact Changes Coming Up
- Selected European HoldCos and DLC: November’23 Report
March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade
- Minimal changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
- The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
- There is the upweight to Nitori (9843) AND funkiness with Fast Retailing (9983) to consider. We are right on the threshold. The question is whether it gets “help” in January.
Taisho Pharmaceutical (4581 JP): Japan Catalyst Pushes for a Bump
- Japan Catalyst’s press release supports the idea of a Taisho Pharmaceutical Holdin (4581 JP) MBO but not the proposed offer price as it implies a P/B less than 1.0x.
- The press release is a discovery exercise encouraging other like-minded shareholders to show their hand. The shares are trading marginally above the JPY8,620 offer.
- While justifiable, a bump is unlikely due to the lack of a substantial activist shareholder, irrevocables, no competing bid and the offer’s 55.5% premium to the undisturbed price.
S&P/ASX 200 Index Rebalance (Dec 2023): There Is Positioning but Probably Not Enough
- There are 3 changes for the S&P/ASX 200 (AS51 INDEX) that will be implemented at the close on 15 December. One name is a relative surprise.
- There will be 8-15 days of ADV to buy on the inclusions and there will be 12-18 days of ADV to sell on the deletions.
- Cumulative excess volume and changes in short interest indicate there will be positioning in most stocks. But it may not yet be enough to cover the passive trade.
Yuanta/P-Shares Taiwan Div+ ETF Rebalance: Changes Lead to Huge Turnover
- There are 5 adds and 4 deletes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in December with implementation taking place from 15-21 December.
- The constituent changes and capping changes result in an estimated one-way turnover of 16.1% resulting in a one-way trade of US$1.26bn.
- There will be positioning in a lot of the adds/deletes and the real action could be in the other stocks with capping and/or funding flows.
FnGuide Top10 Equal Weight Index Rebalance Preview: Kia Corp Could Replace Posco Future M
- The Samsung KODEX Fn Top10 Equal Weight ETF (395170 KS) tracks the FnGuide Top 10 Index and has an AUM of US$264m.
- We expect Kia Corp (000270 KS) to replace Posco Future M (003670 KS) in the index at the December rebalance.
- There will be 0.4x ADV to buy in Kia Corp (000270 KS) while passives will need to sell 0.1x ADV of Posco Future M (003670 KS).
Investigating Arbitrage Trading Potential to Exploit ETF Tracking Error Widening in Korea
- Korea’s financial authorities prompted LPs to refrain from providing liquidity to ETFs through short-selling. This has resulted in a significant increase in both the frequency and magnitude of tracking errors.
- Therefore, it’s time to actively explore this from an arbitrage trading standpoint. ETF arbitrage involves straightforward steps: purchasing and redeeming ETFs, followed by selling the underlying shares in the market.
- The focus should be particularly directed towards sector ETFs that include a select few large-cap stocks carrying single-stock futures.
Merger Arb Mondays (4 Dec) – Origin, OreCorp, Healius, CIMC Vehicles, T&K Toka, Eoflow, 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 – Eoflow (294090 KS), 111 Inc (YI US), Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Healius (HLS AU), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU).
- Lowest spreads – Azure Minerals (AZS AU), Tietto Minerals Ltd (TIE AU), Toyo Construction (1890 JP), T&K Toka Co Ltd (4636 JP), Pact Group Holdings (PGH AU), Taisho.
S&P/NZX 50 Index Rebalance: Two High Impact Changes Coming Up
- Gentrack (GTK NZ) and Turners Automotive (TRA NZ) will be added to the S&P/NZX 50 Index while Synlait Milk (SML NZ) and Pacific Edge (PEB NZ) will be deleted.
- There is a lot to trade on the stocks. The impact in terms of days of ADV appears high but historically there has been volume on implementation date.
- The adds have jumped recently and there will be pre-positioning on the stocks. Not so much on the deletes.
Selected European HoldCos and DLC: November’23 Report
- The discounts to NAV of covered holdcos have all tightened during November. Discounts to NAV: C.F.Alba, 47.1% (vs. 47.8%); GBL, 34.9% (vs. 35.5%); Heineken Holding, 14.5% (vs. 14.9%);
- Industrivärden C, 4.9% (vs. 6%); Investor B, 14.6% (vs. 16.5%); Porsche Automobile Holding, 39.9% (vs. 40.9%). The spread of Rio DLC tightened to 17.2% (vs. 21%).
- What seems interesting: holding trades, Heineken Holding vs. Heineken, Porsche SE/vs. listed assets and the Rio DLC: long RIO LN/short RIO AU.
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