In today’s briefing:
- Understanding Extreme SSF Spreads in Korea & Trading Approaches
- HSI Dec23 Index Review/Flows – Li Auto & Wuxi Apptec IN, No Deletes; 100 Names a Distant Dream
- Origin Energy (ORG AU): State of Play
- Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows
- HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life
- A/H Premium Tracker (To 17 Nov): H up Vs A Despite SOUTHBOUND Net Selling; High Div SOEs Normalising
- HSCEI Dec23 Index Review/Flows – NO ADDs, No DELETEs; ~2.5% One Way
- Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl
- HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added
- HK Connect SOUTHBOUND (To 17 Nov 23); High-Div SOEs Pause, Tech + ETFs Break 16wk Inflow Streak
Understanding Extreme SSF Spreads in Korea & Trading Approaches
- Futures backwardation resulting from the short selling ban will persist. Also, the contraction of market making will lead to more widespread and frequent occurrences of extreme spreads.
- The straightforward sell arbitrage (reverse cash and carry) is no longer viable. We must pay attention to the emergence of new price and trading patterns driven by these market conditions.
- One potential pattern is the possibility of spot buying centered around those that exhibited extreme spreads at expiration. This has already been observed to some extent in this month’s expiration.
HSI Dec23 Index Review/Flows – Li Auto & Wuxi Apptec IN, No Deletes; 100 Names a Distant Dream
- On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
- Li Auto (2015 HK) and WuXi AppTec (2359 HK) are added. There are no deletions.
- I see 3.4% a side to trade and across the three major indices there are larger net flows, but few compelling ones given possible pre-positioning.
Origin Energy (ORG AU): State of Play
- The Origin Energy (ORG AU) scheme vote is on 23 November. Brookfield/EIG’s best and final offer is A$6.59 and US$1.86 per share, currently worth A$9.45.
- With AusSuper reportedly increasing its stake past 17% on Friday, the scheme vote remains too close to call. Brookfield/EIG will need a large YES vote turnout for a successful vote.
- If the scheme is voted down, there are mainly three Plan Bs – Brookfield/EIG’s alternate transaction structure, Board-initiated strategic review or maintaining the status quo.
Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows
- The Dec 23 review results for the Hang Seng Tech Index were announced on Friday 17 November after the close.
- There were no ADDs to or DELETEs from the index, in something of a surprise.
- The “big flow” on HS TECH is the downweight on Xiaomi Corp (1810 HK) due to sharp capping after significant outperformance since the August review.
HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life
- For a second review running, Zhongsheng Group (881 HK) has avoided being deleted from the Hang Seng China Enterprises Index (HSCEI INDEX).
- That means China Unicom Hong Kong (762 HK) misses out on index inclusion, but there is still hope for the next one.
- There does not appear to be any significant positioning on either stock and any large moves early in the coming week could be short lived.
A/H Premium Tracker (To 17 Nov): H up Vs A Despite SOUTHBOUND Net Selling; High Div SOEs Normalising
- The New and Better (16 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- Hs with H/A pairs outperform their As on average with higher-liquidity Hs outperforming more. High Premium As not seeing shrinking premia on average.
- SOUTHBOUND and NORTHBOUND were net sells overall. It looked like the combination of NORTHBOUND and SOUTHBOUND put on a long H short A in the non-bank financial sector.
HSCEI Dec23 Index Review/Flows – NO ADDs, No DELETEs; ~2.5% One Way
- The HSCEI Review for December 2023 was announced on Friday 17 November.
- There were no ADDs and no DELETEs, which was a bit of a surprise.
- There is about 2.8% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.
Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl
- 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), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Healius (HLS AU).
- Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), IJTT Co., Ltd. (7315 JP).
HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added
- Keep Inc (3650 HK) and Tuhu Car (9690 HK) will be added to the Hang Seng Composite Index (HSCI) after the close of trading on 1 December.
- Keep (3650 HK) will be added to Southbound Stock Connect from the open on 4 December while Tuhu Car (9690 HK) will only be added to Stock Connect in April.
- There are lock-up expiries on both stocks, prior to or after inclusion in Stock Connect, and trading strategies will need to take that into account.
HK Connect SOUTHBOUND (To 17 Nov 23); High-Div SOEs Pause, Tech + ETFs Break 16wk Inflow Streak
- This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
- SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week that trend moderated significantly.
- SOUTHBOUND breaks a 17-week inflow streak with HK$2.1bn of net outflows entirely driven, it appears, by relatively few accounts punting large size in local (HK-listed) ETFs
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