In today’s briefing:
- Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
- CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri
- Addressing Areas of Confusion Surrounding the KOSPI 200 June Rebalancing
- HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold
- HSCEI Dividend Futures: Sell the 2024/25 Steepener
- Hollysys (HOLI US): Further Thoughts on the Widening Spread
- CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
- China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week
Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- 15wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 8wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 3.6% wider than at narrowest, but gap risk has widened as Shinko outperforms, Ibiden.
CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).
- We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
- The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.
Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri
- 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: Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Southern Cross Media (SXL AU), Qantm Intellectual Property (QIP AU), Probiotec Ltd (PBP AU), China TCM.
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Jastec Co Ltd (9717 JP).
Addressing Areas of Confusion Surrounding the KOSPI 200 June Rebalancing
- Ssangyong C&E will be excluded in June pre-delisting due to the float rate rule. Replacement will be chosen from the highest market cap existing constituents excluded in the June review.
- Likely owing to the recent expansion of macro variables in the local market, a clear correlation between results and price impact is not observed even at the screening period’s conclusion.
- There’s a chance of price impact closer to the effective date, suggesting potentially more effective basket trading. However, short instrument absence necessitates using market indices as hedges.
HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold
- A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday.
- Net SOUTHBOUND buying was +HK6.0bn. Net buys every day and now 22 days straight, but buying still appears foreign-led price-taking action.
- The only big news this week in China/HK was probably the Politburo’s new stance of trying to do more for the mainland property market, concentrating on unsold homes.
HSCEI Dividend Futures: Sell the 2024/25 Steepener
- The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
- The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
- Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.
Hollysys (HOLI US): Further Thoughts on the Widening Spread
- I have received several questions from readers on Ascendent’s binding proposal for Hollysys Automation Technologies (HOLI US) in the context of the current gross spread of 12.1%.
- The questions primarily concerned the Capital Forum article, NSR approvals, timelines, auditor resignation and deal break risks.
- Most of the questions concerned regulatory approval risk. The delay in closing is mainly procedural (government red tape) rather than an indication that regulators will block the deal.
CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
- With the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index – Shang (SH000905 INDEX) at the close on 14 June.
- We estimate a one-way turnover of 9.3% at the rebalance resulting in a one-way trade of CNY10.88bn (US$1.5bn). The Industrials and Information Technology sectors gain at the expense of Materials.
- The potential adds have outperformed the potential deletes by 8% over the last 3 months. There could be further outperformance over the next few weeks.
China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
- At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
- According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.
A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week
- 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 consecutive buying streak ended on Monday 25-March, then started again. 20 days straight net buying. NORTHBOUND saw big inflows Friday. A record day I believe.
- HK stocks bounced VERY hard. Seemed like big allocation trade. HSCEI +8.7% vs CSI300 +1.2%. In H/A Pairs, liquid pairs saw Hs outperform their A by 4+% on average.
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