In today’s briefing:
- JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
- HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff
- JAPAN FLOW: Foreign Investor Inflows May Increase
- Alibaba (9988 HK): Chinese Authorities Turning Opposite to Encourage Non-State-Owned Companies
- AAG Energy (2686 HK): Curiouser and Curiouser
- MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
- Skyworth (751 HK): Thoughts On Proration
- FXI Rebalance Preview: Three Potential Changes in June
- Hailan Holdings (2278 HK): Voluntary Conditional Offer with a Skinny Premium
JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
- Japanese companies are buying back more stock than ever before, and recent moves by the TSE and METI are effectively pushing for more.
- The new goal is to lift PBR and ROE. The easiest way to lift ROE is reduce E. Low-PBR Cos with excess assets and cross-holdings (outbound and inbound) are targets.
- In this insight I look at several possible rankings for potential large buyback targets.
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
- There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
- A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.
Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff
- With two weeks left to the cutoff, there could be 5 changes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June.
- Apart from the adds/deletes, there will also be capping and funding flows that will lead to an estimated one-way turnover of 13.5% and a one-way trade of US$886m.
- There are 9 stocks with at least 5 days ADV to trade from passive trackers and another 12 stocks that have at least 1 day ADV to trade.
JAPAN FLOW: Foreign Investor Inflows May Increase
- For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
- The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to one relatively simple indicator.
- The policy backdrop points to greater corporate buying, greater foreign flow, greater selling by individuals and trust banks. The current timing probably matches.
Alibaba (9988 HK): Chinese Authorities Turning Opposite to Encourage Non-State-Owned Companies
- Chinese authorities have begun to ban public opinion against non-state-owned companies.
- These actions were the opposite to what the authorities did in past years.
- We believe the authorities need non-state-owned companies to bail the unemployed young people out of the weak job market.
AAG Energy (2686 HK): Curiouser and Curiouser
- AAG Energy Holdings (2686 HK) is one of those periodic (and rare) takeover situations that will likely be remembered for what went wrong rather than what went right.
- A low-balled Offer (proxy advisors agree); perfunctory IFA analysis; a large, and silent, shareholder; and the postponement of the Scheme vote due to voting instructions not being “duly processed”.
- A new Court Meeting has been confirmed for the 2 June. And now we have some odd CCASS movements which raise further questions.
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
- The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
- There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
- If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.
Skyworth (751 HK): Thoughts On Proration
- Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
- On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
- The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher.
FXI Rebalance Preview: Three Potential Changes in June
- As of 8 May, we see three potential changes to the iShares China Large-Cap (FXI) (FXI US) at the June rebalance. This is mainly driven by the inclusions.
- There is over 1 day of ADV to trade on all stocks with the largest impact on BeiGene Ltd (6160 HK) at nearly 4 days of ADV.
- Short interest has been increasing on the potential adds as they have run up a lot in the last few months.
Hailan Holdings (2278 HK): Voluntary Conditional Offer with a Skinny Premium
- Hailan Holdings (2278 HK) disclosed a voluntary conditional offer from its controlling shareholder at HK$3.36 per share, a 5.0% premium to the undisturbed price.
- The offer is conditional on a 90% minimum acceptance condition which requires a minority acceptance rate of 60.0%. The offeror/concert parties own 75.0% of shares.
- The offeror aims to exercise compulsory acquisition rights (requires 90% minority acceptance rate) which suggests a bump is possible. The offer price has not been declared final.
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