In today’s briefing:
- China/HK: Passive Activity Expected Later This Month
- Australia: Last Look at Potential Passive Selling in February
- S&P/NZX Index Rebalance Preview: Couple of Changes in March
- Taiwan Top 50 ETF Rebalance Preview: Eva Air (2618 TT) Winging Its Way In
- China A50 ETFs Rebalance Preview: Three Changes in March
- NIFTY MIDCAP150 Index Rebalance Preview: 15 Potential Changes in March
- JX Advanced Metals (5016 JP) IPO: TPX Add in April; Global Idx: One in August; One in March or Sep
- Japan Strategy Weekly | Carlyle’s Kaonavi Deal Signals a Shift in Japanese Valuations
- Japan Eyewear Cancels Offering and TSE Prime Application on Internal Controls Problem – OFF
- Despite DeepSeek’s Innovation, Hyperscalers Doubling Down on Capex
China/HK: Passive Activity Expected Later This Month
- There could be up to 10 adds/ 29 deletes for the China global index in February. The actual number of changes will be smaller depending on the review date chosen.
- The flow on the forecast adds varies from US$17.5m-US$175m (0.05x-15x ADV) while the flow on the forecast deletes varies from US$14.4m-US$100.4m (0.25x-22.75x ADV).
- Bestechnic Shanghai (688608 CH) is a potential inclusion to multiple indices in June and there will be much larger passive flows to the stock then.
Australia: Last Look at Potential Passive Selling in February
- There are 6 stocks in Australia that could be deleted from global passive portfolios later this month, though the probability of deletion varies across the stocks.
- If deleted, passive trackers will need to sell between US$234m-330m in the stocks. Impact is high at between 7-23 days of ADV.
- The potential deletions have underperformed the S&P/ASX 200 (AS51 INDEX) over nearly every time period from 1 week to 3 months. Shorts have increased on all stocks recently.
S&P/NZX Index Rebalance Preview: Couple of Changes in March
- There could be one constituent change each for the NZX10 Index and the NZX50 Index/ NZX50 Portfolio Index in March.
- The flows are limited but the impacts are huge, and the stocks could move ahead of the announcement of the changes.
- A2 Milk Co Ltd (ATM NZ) is a potential inclusion to the NZX10 Index, but the inflows will be completely overshadowed by the potential deletion from a global index.
Taiwan Top 50 ETF Rebalance Preview: Eva Air (2618 TT) Winging Its Way In
- Eva Airways (2618 TT) is forecast to be added to the Yuanta/P-Shares Taiwan Top 50 ETF in March, replacing Formosa Chemicals & Fibre (1326 TT).
- Passive trackers will have 1 day of ADV to buy in Eva Airways (2618 TT) and over 3 days of ADV to sell in Formosa Chemicals & Fibre (1326 TT).
- Positioning on Eva Airways (2618 TT) does not appear excessive while Formosa Chemicals & Fibre (1326 TT) seems to be oversold.
China A50 ETFs Rebalance Preview: Three Changes in March
- With just over a week left to review cutoff, there could be three changes for the iShares A50 China (2823 HK)/ CSOP China A50 (HKD) (2822 HK) ETFs in March.
- Guotai Junan Securities, Cambricon Technologies and SAIC Motor could replace CGN Power, Luzhou Laojiao and Inner Mongolia Yili Industrial Group.
- Guotai Junan Securities (2611 HK) is expected to be added to the iShares China Large-Cap (FXI) (FXI US) in March, so there should be inflows for the A-shares and H-shares.
NIFTY MIDCAP150 Index Rebalance Preview: 15 Potential Changes in March
- With the review period now complete, there could be 15 changes for the NIFTY Midcap 150 Index at the March rebalance.
- Estimated one-way turnover is 8.3% resulting in a one-way trade of INR 7.65bn (US$88m). With over US$40bn tracking the index actively, the impact on the stocks will be much larger.
- The outright adds have outperformed the forecast deletes over the last 6 months, but there has been underperformance this calendar year.
JX Advanced Metals (5016 JP) IPO: TPX Add in April; Global Idx: One in August; One in March or Sep
- JX Advanced Metals (5016 JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 19 March.
- At the indicative IPO price of JPY 862/share, JX Advanced Metals (5016 JP) will be valued at JPY 800bn (US$5.25bn).
- The stock should be added to the TOPIX INDEX at the close on 28 April while timing of inclusion in global indices will depend on domestic/overseas allocations and price moves.
Japan Strategy Weekly | Carlyle’s Kaonavi Deal Signals a Shift in Japanese Valuations
- Japan’s tech market sees major movement with Carlyle’s 120% premium bid for Kaonavi, highlighting the stark valuation gap between Japanese and US SaaS companies.
- Many Japanese software firms trade at significantly lower multiples (4x) versus US peers (8x), attracting private equity attention.
- Japanese stocks ended the week up around 1%. Global macro concerns and inflation lifting bond yields and raising concern over a stronger yen.
Japan Eyewear Cancels Offering and TSE Prime Application on Internal Controls Problem – OFF
- On Friday after the close, Japan Eyewear Holdings (5889 JP) made a short announcement that it would cancel its equity offering and TSE Prime application announced 10 Feb, discussed here.
- I had suggested that the offering price, or a large dip would be a buy. I rescind that recommendation immediately.
- The reason for the cancellation? “Matters that need to be confirmed in relation to our internal control system have been discovered and that will take time.”
Despite DeepSeek’s Innovation, Hyperscalers Doubling Down on Capex
- Despite DeepSeek (DPSK12 CH)’s breakthrough with minimal chips, hyperscalers remain undeterred, planning $315 billion in FY25 capex to expand AI and cloud infrastructure.
- This sustained high capex underlines tech giants’ confidence in long-term AI growth, ensuring a competitive edge and reinforcing their market leadership.
- Investors should see this aggressive capex commitment as a signal of robust future revenue potential, even amid disruptive cost-saving innovations.
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