In today’s briefing:
- A Taiwan Basket Trade For A Special Index Rebal
- SENSEX Index Rebalance Preview: Adani Green Could Replace Dr. Reddy
- HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping
- SKT ADR Play on the 31st for MSCI Exclusion
- Doosan Enerbility Placement – Selldown by Parent Doesn’t Send the Best Signal
- Hanjin Kal Club Deal: Shorting on Waning Proxy Fight & Flow Trading on MSCI Inclusion
- Nitro’s Opportunistic A$1.58 Offer from Potentia
- CGN Power (1816 HK): No Nuclear Jitters
- Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility
- Leapmotor IPO – Index Inclusion Timeline
A Taiwan Basket Trade For A Special Index Rebal
- The FTSE TWSE Taiwan indices get rebalanced in line with the standard FTSE Global indices – on the third Friday of September.
- The most interesting one is the probably the least famous. It has only one change but it has massive re-weightings because of the way the index is constructed.
- Historical patterns suggest a right-way long-short basket, reversed on the event, is a good trade.
SENSEX Index Rebalance Preview: Adani Green Could Replace Dr. Reddy
- We are two-thirds of the way through the review period for the December review of the S&P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close 16 December.
- We see Adani Green Energy (ADANIGR IN) as the highest ranked non-constituent in inclusion zone, while Dr. Reddy’s Laboratories (DRRD IN) is the lowest ranked constituent in deletion zone.
- Passive trackers will need to trade over 10 days of delivery volume on Adani Green Energy (ADANIGR IN) and Dr. Reddy’s Laboratories (DRRD IN), so the impact will be significant.
HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping
- The September rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
- The largest inflows will be on Baidu (9888 HK), SenseTime Group (20 HK), China Shenhua Energy (1088 HK), Tencent (700 HK), Kuaishou Technology (1024 HK) and Anta Sports (2020 HK).
- The largest outflows will be on Meituan (3690 HK), AIA Group (1299 HK), Sunny Optical (2382 HK), SMIC (981 HK), China Pacific Insurance (2601 HK) and China Construction Bank (939).
SKT ADR Play on the 31st for MSCI Exclusion
- We need a hedge to short SKT on the 31st. For this, we need to consider trading SKT ADR, which is pretty liquid as DTV reaches nearly $8mil.
- The play structure is simple. It exploits the pattern that passive flow is concentrated on underlying shares rather than ADRs. We witnessed this pattern in the last two cases.
- Passive outflow may be aggravated since SKT leaves not only STANDARD but also sub-indices such as ESG. So, the degree of a temporary DR premium can get thicker.
Doosan Enerbility Placement – Selldown by Parent Doesn’t Send the Best Signal
- Doosan Corp (000150 KS) is looking to raise up to US$435m from trimming a portion of its stake in Doosan Enerbility (034020 KS).
- The deal isn’t exactly a large one to process at just 5.2 days of three month ADV. Shares are offered at a discount range between 5.1-7.8%.
- As there wasn’t a specific mention of the former’s intention to sell, we would argue that the deal isn’t particularly well flagged.
Hanjin Kal Club Deal: Shorting on Waning Proxy Fight & Flow Trading on MSCI Inclusion
- Bando sold all of its 17% stakes through a club deal. Of this, about 3.8% went to LX Pantos. The remaining 13% found a new home among several institutional investors.
- Outright shorting for Hanjin Kal seems to require a bit more cautious approach. That’s because there is still no definitive information on the owners of the 13% stake.
- If the price correction does not go as harshly as expected and expectations for a proxy battle resurface, we should consider switching to flow trading aimed at MSCI inclusion.
Nitro’s Opportunistic A$1.58 Offer from Potentia
- Nitro Software Ltd (NTO AU) entered a trading halt in response to an AFR report that Potentia has lobbed an indicative non-binding proposal at A$1.58 per share.
- Potentia’s offer follows its success in securing a 17% stake at A$1.58 per share on Monday night. The stake is large enough to deter rival schemes.
- The offer is opportunistic and unattractive. However, the ability of Potentia to relatively quickly secure a significant stake suggests that the Board will be under pressure to engage.
CGN Power (1816 HK): No Nuclear Jitters
- Nuclear power is a clean energy source that contributes to energy savings and emissions reduction in society.
- SASAC backed CGN Power (1816 HK) is China’s leading nuclear play, accounting for 55% of on-grid nuclear power generation, but just 1.2% of China’s total installed capacity of power generation.
- As one of the few listed nuclear -plays in Asia, CGN trades at undemanding multiples, together with an attractive ROE and yield.
Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility
- After the market close today, Doosan Corp (000150 KS) announced that it plans to sell a 4.5% stake in Doosan Enerbility (034020 KS) in a block deal sale.
- The discount range on the block deal price is 5.1% to 7.8% based on today’s closing price of 21,700 won.
- This block deal sale should have a positive impact on Doosan Corp but a negative impact on Doosan Enerbility.
Leapmotor IPO – Index Inclusion Timeline
- Leapmotor (2007699D HK) is said to be looking to raise between US$1bn-US$1.5bn by selling 290.9m shares in its IPO. At the top end, the company will be valued at HK$53bn.
- The performance of its peers over the last year leaves a lot to be desired and could lead to lower demand in the IPO.
- Leapmotor (2007699D HK) should be added to the HSCI and the Hang Seng Tech Index, though timing depends on when the stock lists on the HKEX (388 HK).
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