In today’s briefing:
- KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- EOFlow (Further) Tests Investor Patience
- KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
- LX International: Positive Impact from Not Participating in Main Bidding for HMM
KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- There are 17 inclusions and 17 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 14 December.
- While most of the inclusions were expected, there are many differences on the deletes. Trading the strategy becomes tougher with the short sell ban in place.
- The adds have started to outperform the deletes over the last month and there could be more movement over the next 3 weeks to implementation.
EOFlow (Further) Tests Investor Patience
- Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
- Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
- Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms.
KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- There will be 7 additions and 7 deletions for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) at the December rebalance that will be implemented on 14 December.
- The rebalance is on expected lines, though the index committee decided not to add Youngpoong Paper (006740 KS) to the index. Not really a big surprise given the price move.
- HDC Hyundai Development Co-Engineering & Construction (294870 KS) is a surprise delete and there is not much short interest that could cover against the passive selling.
Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
- As the ex-dividend date in Korea has been before the dividend is determined, SSFs trade at a discount based on the anticipated dividend rather than adjusting dividend settlement proceeds explicitly.
- The current dividend arbitrage yield for the financial companies can be seen as reflecting the postponement of the ex-dividend date to the next year.
- We should pay attention to those with a significant dividend arbitrage yield but that did not amend their articles of incorporation earlier this year.
LX International: Positive Impact from Not Participating in Main Bidding for HMM
- LX International announced today that it will not participate in the main bidding to acquire HMM Co.
- This is likely to have a positive impact on LX International’s share price as many investors are relieved that company will not raise excessive amounts of capital to acquire HMM.
- In addition, by not acquiring HMM, LX International has enough financial resources to continue to pay high dividends.
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