In today’s briefing:
- Korea Zinc Saga Turning into a Comedy Show: MBK’s Speculative Move & How It’s Shaping Our Trades
- CSI300/CSI500/CSI1000 Index Rebalance: US$9bn Round-Trip Trade
- STAR50/STAR100 Index Rebalance: No Changes for STAR50; 4 Changes for STAR100
- KWEB Index Rebalance: 1 Add & 4 Deletes in December
- SSE50/SSE180 Index Rebalance: Couple of Surprises; Seres Group’s Multiple Inclusions; US$3.2bn Trade
- CSI Liquor/ Alcoholic Drink Index Rebalance: Capping to Drive Larger Flows
- 7 & I (3382) – York Holdings Sale Process, Timeline, Nuances
- CSI Medical Service Index Rebalance: Three Changes; Brutal Underperformance Could Reverse
- Kioxia (285A JP) IPO: The Bear Case
- STAR Chip Index Rebalance: 3 Changes; US$413m Round-Trip Trade
Korea Zinc Saga Turning into a Comedy Show: MBK’s Speculative Move & How It’s Shaping Our Trades
- Lee Bok-hyun, head of the Financial Supervisory Service, unexpectedly voiced concerns about MBK winning Korea Zinc’s management battle, catching everyone off guard.
- The key question is how Michael ByungJu Kim will handle government pressure, with MBK possibly aligning with the opposition if the Democratic Party pushes for commercial law reform.
- Korea Zinc now becomes a proxy war over governance reform. Watch MBK’s political stance, as it could drive the stock higher, especially if Michael teams up with the opposition.
CSI300/CSI500/CSI1000 Index Rebalance: US$9bn Round-Trip Trade
- There are 16 changes for the CSI 300 Index, 50 changes for the CSI 500 Index and 100 changes for the CSI1000 Index that will be implemented on 13 December.
- There are 257 unique names that are adds or deletes and the round-trip trade across all 3 indices is close to US$9bn.
- Stocks with the largest inflows and impact have outperformed stocks with the largest outflows and impact over the last few weeks. That could continue for the next couple of weeks.
STAR50/STAR100 Index Rebalance: No Changes for STAR50; 4 Changes for STAR100
- As forecast, there are no changes for the SSE STAR50 (STAR50 INDEX) in December while there are 4 changes for the STAR100 Index.
- There will be big outflows for Semiconductor Manufacturing International Corporation (SMIC) (688981 CH) due to SSE STAR50 (STAR50 INDEX) capping. There will be selling from other index trackers too.
- Hainan Jinpan Smart Technology (688676 CH) had been ignored by the index committee at the September rebalance, so this inclusion in the STAR100 Index could come as a surprise.
KWEB Index Rebalance: 1 Add & 4 Deletes in December
- The December rebalance of the KraneShares CSI China Internet ETF (KWEB US) will take place at the close of trading on 13 December.
- Cloud Village (9899 HK) is an add while Lufax Holding (LU US), Ping An Healthcare and Technology (1833 HK), ZX (9890 HK) and YSB (9885 HK) are deletes.
- The deletions of Ping An Healthcare (1833 HK), ZX (9890 HK) and YSB (9885 HK) were forecast and there will be positioning in the stocks. Lufax was a close delete.
SSE50/SSE180 Index Rebalance: Couple of Surprises; Seres Group’s Multiple Inclusions; US$3.2bn Trade
- There are 5 changes for the SSE50 Index (SSE50 INDEX) and 18 changes for the SSE180 Index that will be implemented at the close on 13 December.
- Seres Group (601127 CH) is an add to both indices, plus the CSI 300 Index, and passive trackers will need to buy over US$900m of the stock.
- The adds have outperformed the deletes with a lot of the outperformance coming in the last couple of months. Trim positions in the expected adds/deletes and build positions in surprises.
CSI Liquor/ Alcoholic Drink Index Rebalance: Capping to Drive Larger Flows
- There is 1 add/ 2 deletions for the CSI Alcoholic Drink Index and no constituent changes for the CSI Liquor Index.
- The largest flows arise as a result of capping of constituents to 15% of the index weight. Impact on the stocks varies from 0.2-0.6 days of ADV.
- WeiLong Grape Wine outperformed the deletes in early October, but the deletes moved higher and closed the gap. The gap has started to open up again in the last week.
7 & I (3382) – York Holdings Sale Process, Timeline, Nuances
- The sale process of Seven & I Holdings (3382 JP) “unit” York Holdings, with 31 sub-units, has started. 7+ bidders bid in Round 1. Due dili follows then Round 2.
- I expect SST+support ops get sold, and the specialty stores get carved out. I expect the deal to get decided by end-Feb 2025. Noises about real estate enhancement are encouraging.
- This is still all to the good, so I include a Gratuitous Chart Showing 7&i’s Up-And-To-The-Rightness
CSI Medical Service Index Rebalance: Three Changes; Brutal Underperformance Could Reverse
- CSI announced the changes for the December rebalance after market close on 29 November and the changes will be effective after the close of trading on 13 December.
- There are 3 changes for the index and we estimate passive buying of 0.7-1.4x ADV in the adds and selling of between 0.2-1x ADV in the deletes.
- Trade performance has been horrible as the adds have moved sideways over the last two months and the deletes have skyrocketed – that could change in the next two weeks.
Kioxia (285A JP) IPO: The Bear Case
- Kioxia Holdings (285A JP) is a leading player in the NAND flash memory market. It will list on 18 December and seek to raise up to US$740 million.
- In Kioxia (285A JP) IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on unrealistic long-term financial model assumptions, market share losses, high customer concentration risk, volatile gross margin due to JV and weak FCF profile.
STAR Chip Index Rebalance: 3 Changes; US$413m Round-Trip Trade
- CSI announced the changes for the December rebalance after market close on 29 November and the changes will be effective after the close of trading on 13 December.
- There are 3 changes for the index and we estimate passive buying of 0.3-0.65x ADV in the adds and selling of between 0.4-0.6x ADV in the deletes.
- On average, the adds to the index have outperformed the deletes over the last 5 weeks with the adds moving higher and the deletes trending lows.
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