In today’s briefing:
- October 2023 TOPIX Free Float Review – $22.6bn to Trade and JPB (7182) The Biggie
- Korea – Positioning in Stocks That Could Have Global Passive Flows
- TOPIX Inclusions: Who Is Ready (Oct 2023)
- Prime Target for Flow Trading Due to Low Pre-Exposure in December KOSPI 200 Rebalancing
- HSCEI Index Rebalance Preview: One Change; Capping Impact Increases
- ChiNext/ChiNext50 Index Rebalance Preview: Sector Rotation Continues
- No Danger in Being Long
- EQD | HSI WEEKLY Resistance Levels UPDATED
October 2023 TOPIX Free Float Review – $22.6bn to Trade and JPB (7182) The Biggie
- The TOPIX October Free Float Weight Review details are out. This is the biggest FFW review of the year. This year, it’s $11.3bn a side.
- As discussed in Japan Post Bank (7182) – The October TOPIX FFW Adjustment, JPB is the big buy. $2bn/23d of ADV. There is $2bn to buy of trading cos too.
- There are lots of large names to trade in both directions. If you have interests to sell the buys and vice versa, it is good to know the flows.
Korea – Positioning in Stocks That Could Have Global Passive Flows
- Posco DX (022100), Kum Yang (001570), SK Telecom (017670), Lotte Energy Materials (020150), Kakao Games (293490), Pan Ocean (028670), BGF retail (282330), Netmarble (251270) have been on investors/traders radars recently.
- There could be liquidity events in some of the stocks next month as passive index trackers look to buy/sell the stocks.
- Foreign investors have sold Lotte Energy Materials (020150 KS), Kakao Games (293490 KS), Pan Ocean (028670 KS) and Netmarble (251270 KS) while buying BGF retail (282330 KS).
TOPIX Inclusions: Who Is Ready (Oct 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- Since my last insight, CellSource (4880 JP) and Kasumigaseki Capital (3498 JP) have confirmed they will move to TSE Prime which means they will be included in TOPIX at end-November.
- FP Partner (7388 JP) and I-NE (4933 JP) will get included in TOPIX at the end of October.
Prime Target for Flow Trading Due to Low Pre-Exposure in December KOSPI 200 Rebalancing
- Posco DX’s KOSPI 200 fast entry effective date will likely coincide with the December regular rebalancing date.
- We should focus on the ad-hoc change deletion as we can expect more pronounced price impact near the effective date due to lower chances of premature exposure than regular reviews.
- The following three candidates are screened: K Car, Daesang Corporation, and Shinsegae International. They are all likely to exhibit a significant passive impact (x ADTV).
HSCEI Index Rebalance Preview: One Change; Capping Impact Increases
- Zhongsheng Group (881 HK) is in deletion zone and could be deleted. China Unicom Hong Kong (762 HK) could be added to the index as the highest ranked non-index constituent.
- Estimated one-way turnover at the rebalance is 2.14% resulting in a one-way trade of HK$1.38bn. Meituan (3690 HK), Alibaba Group (9988 HK) and Tencent (700 HK) will be capped higher.
- China Unicom Hong Kong (762 HK) is supported on its 50/100 day moving averages and could move higher. Zhongsheng Group (881 HK) has been trading below its moving averages.
ChiNext/ChiNext50 Index Rebalance Preview: Sector Rotation Continues
- Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
- Given stock selection uses liquidity as a major input, the impact of passive trading will be much larger on the deletions as compared to the additions.
- The potential adds have outperformed the potential deletes, but relative performance has been drifting lower over the last few months. There are stocks that will have flows from other indices.
No Danger in Being Long
- The 1,350p offer for Ergomed Plc (ERGO LN) (28% premium, 18.9x EV/Fwd NTM EBITDA using IBES estimated) seems optically attractive considering share underperformance, and in line with closest peer Medpace at 19.06x.
- Nevertheless there’d be synergies available to a trade buyer and other than 18% from the Founder, there aren’t any other irrevocables, which indicates the offer price is far from knock-out.
- I set my TP at 1,350p. Spread turned negative last week, now 0.59%/1.71% (gross/annualised, assuming settlement by mid-February). I would be long considering there’s still time for a competing offer.
EQD | HSI WEEKLY Resistance Levels UPDATED
- The HSI INDEX has fallen for 2 more weeks since our last insight – current CC is =-5, and Q3 support was breached last week, the index is clearly OVERSOLD.
- If the HSI bounces this week, it could be an occasion to go SHORT – take note that the index could take 3 weeks to rally before rolling down again.
- The target price area where to enter SHORT trades,to benefit from a continuation of the downtrend is: 17598-18784.
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