In today’s briefing:
- CSI300 Index Rebalance Preview: 13 Potential Changes in December
- CSI500 Index Rebalance Preview: Potential Adds Starting to Close the Gap
- Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi
- KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
- KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
- 2024 High Conviction: Orion Corp
- Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620
- CES China Semiconductor Chips Index Rebalance: Another Inclusion for Hygon
- ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion for Major Korean Banks in 2024
- EM Neobanks – Positive on Banco PAN, Cautious on Nubank & KakaoBank Is One to Watch
CSI300 Index Rebalance Preview: 13 Potential Changes in December
- With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
- We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
- Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.
CSI500 Index Rebalance Preview: Potential Adds Starting to Close the Gap
- With the review period for the December rebalance of the CSI500 Index complete, we forecast 50 changes (the maximum permitted) for the index at the close on 8 December.
- Estimated one-way turnover is 9.66% at the December rebalance resulting in a one-way trade of CNY 6.36bn. There are 29 stocks with over 1 day of ADV to trade.
- The potential deletes have outperformed the potential adds over the last 6 months though there has been a narrowing of the gap recently. Position for a further narrowing.
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.
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.
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.
2024 High Conviction: Orion Corp
- We are positive on Orion Corp. Regardless of the overall market movement next year (up or down), we believe Orion Corp could outperform KOSPI in the next 6-12 months.
- The company has millions of loyal customers in major overseas countries including China, Russia, and Vietnam. Despite difficult operating conditions, Orion continues to generate stable growth in sales and profits.
- Orion Corp’s valuations are attractive. Orion Corp is currently trading at 2024E EV/EBITDA of 4.4x (42% lower than average valuation multiple from 2019 to 2023).
Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620
- Taisho Pharmaceutical Holdin (4581 JP) has recommended an MBO tender offer of JPY8,620 per share, a 55.5% premium to the undisturbed (24 November).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
- Irrevocables represent a 40.31% ownership ratio. The minimum acceptance condition requires a 44% minority acceptance rate. The offer is attractive vs. historical and peer multiples.
CES China Semiconductor Chips Index Rebalance: Another Inclusion for Hygon
- There are 3 changes for the CES China Semiconductor Chips Index that will be implemented at the close on 8 December.
- Hygon Information Technology C (688041 CH) will be added to a global index in a week and then there will be multiple index inflows at the close on 8 December.
- After underperforming from May to September, the adds have gained ground on the deletes over the last two months and there could be further outperformance over the next two weeks.
ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion for Major Korean Banks in 2024
- The FSS has launched a formal investigation into KB Kookmin bank due to potentially massive losses related to the HSCEI linked ELS products.
- The three major listed banking groups (KB Financial, Shinhan Financial, and Hana Financial) could be burdened with nearly 86% of the HSCEI linked ELS losses (close to 2.6 trillion won).
- Major Korean banks may need a “Hail Mary” pass to avoid this disaster. Such positive outlook would include sharply rising HSCEI index in 2024, similar to what happened in 2016.
EM Neobanks – Positive on Banco PAN, Cautious on Nubank & KakaoBank Is One to Watch
- We turn positive on Banco PAN, for its consistently improving operational metrics to 3Q23, attractive valuations and sound capital adequacy
- Nubank is operationally strong but we remain cautious on Nubank shares as we see this neobank to be challenged by capital constraints, as well as being on stretched valuations
- Inter has been improving operationally, and is sound on capital but is in the shadow of PAN in terms of valuations; KakaoBank is sound operationally and one to watch
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