In today’s briefing:
- [Alibaba (BABA US, SELL, TP US$72) Rating Change]: The Casualty of Era…Downgrade to SELL
- SK Square: Two Remaining Credible Options for 11 Street
- Understanding Extreme SSF Spreads in Korea & Trading Approaches
- Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added
- HSI Dec23 Index Review/Flows – Li Auto & Wuxi Apptec IN, No Deletes; 100 Names a Distant Dream
- Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi
- Origin Energy (ORG AU): State of Play
- HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life
- Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows
- HSTECH Index Rebalance: No Constituent Changes; Round-Trip Trade of US$1.4bn
[Alibaba (BABA US, SELL, TP US$72) Rating Change]: The Casualty of Era…Downgrade to SELL
- BABA reported C3Q23 revenue, non-GAAP operating profit and GAAP net income in-line, 6% and (7%) vs. our est., and in-line, in-line and (14%);
- Instead of appointing capable management to oversee key subsidiaries, BABA backpedalled to call off its spin-off plans;
- We cut TP from US$ 127 to US$ 72, and downgrade to SELL.
SK Square: Two Remaining Credible Options for 11 Street
- We discuss the two remaining options for 11 Street post the cancellation of its sale to Qoo10 Pte.
- As these strategic sale of 11 Street to Qoo10 Pte. has failed, the possibility of a forced sale of 11 Street by the financial investors has increased.
- The higher probability event is for the Nile Holdings consortium to try to sell 11 Street to other financial investors.
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.
Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added
- Li Auto (2015 HK) and WuXi AppTec (2359 HK) will be added to the Hang Seng at the close on 1 December taking the number of index constituents to 82.
- Neither inclusion is a surprise. The non-inclusion of primary listed foreign companies is a bigger surprise – that could take place at the next rebalance.
- Estimated one-way turnover is 3.53%, estimated one-way trade is HK$6.88bn (US$882m). Capping leads to buying in Alibaba (9988 HK) and selling in Tencent (700 HK) and HSBC (5 HK).
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.
Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi
- The FRTIB benchmark switch from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index will result in a round trip trade of around US$56bn.
- The changes for the CSI 300, CSI 500, STAR50, SSE50 and a bunch of other mainland China indices will be announced after market close on Friday.
- Relatively quiet week for ETF flows with no major creations or redemptions during the week.
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.
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.
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.
HSTECH Index Rebalance: No Constituent Changes; Round-Trip Trade of US$1.4bn
- As expected, there are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December. However, there are float and capping changes for a lot of stocks.
- Estimated one-way turnover is 4.8% leading to a one-way trade of HK$5.29bn (US$679m). There are 4 stocks with over 1 day of ADV to trade.
- The largest selling will be on Xiaomi Corp (1810 HK) offset by buying in Meituan (3690 HK), JD.com (9618 HK) and Alibaba Group Holding (9988 HK).
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