Daily Brief TMT/Internet: Samsung KODEX Top5Plus Total Return ETF, Gentrack, Elastic NV and more

In today’s briefing:

Investigating Arbitrage Trading Potential to Exploit ETF Tracking Error Widening in Korea
S&P/NZX 50 Index Rebalance: Two High Impact Changes Coming Up
Elastic: 2Q’FY24 Earnings Review – Elastic Cloud Is a Bright Spot, PT Raised To $121

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.

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.

Elastic NV (ESTC US) reported a solid quarter, reflecting strong cloud revenue growth, ~13% non-GAAP operating margin and rapid adoption of ESRE.
Elastic NV (ESTC US) shares rallied 35%+ during regular trading session and closed up ~37% on Friday at $110.20. I raised PT to $121 from $112.
However, I downgrade Elastic NV (ESTC US) to Equal-weight from Overweight on valuation and expect the stock to trade in-line with peers.

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