In today’s briefing:
- Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Nikkei 225 Mar25 Rebal – A Big Buy With Buying Shadow, A Bigger Sell, And $2bn of Funding Flows
- Korea Short Selling: Off to the Races
- BYD (1211 HK): God’s Eye & Potential HSTECH Index Inclusion
- ETF Flows in Q1: Inflows for Taiwan, Outflows for China
- Hanwha’s Surprise Gift Disclosure: Three Major Takeaways
- Skyworth (751 HK): Another Buyback
- Fat Inheritance Taxes for Hanwha Group Chairman Kim’s Three Sons Post Receiving Hanwha Corp Shares
- Fast Retailing (9983) | Buying Opportunity Ahead of Q2 Results
- A/H Premium Tracker (To 28 Mar 2025): AH Premia Still Falling; Expect Curve Torsion or AH Widening
Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Hang Seng Indexes has announced a change in the FreeFloat-Adjusted Factor (FAF) methodology for Secondary Listings that will be implemented from the next rebalance in June.
- NetEase (9999 HK), Baidu (9888 HK), Trip.com (9961 HK), NIO (9866 HK), New Oriental Education & Techn (9901 HK) and Weibo (9898 HK) benefit; GDS Holdings (9698 HK) loses out.
- The FAF changes along with capping changes will result in a round-trip trade of HK$34.2bn (US$4.4bn) at the June rebalance with the largest turnover for the Hang Seng TECH Index.
Nikkei 225 Mar25 Rebal – A Big Buy With Buying Shadow, A Bigger Sell, And $2bn of Funding Flows
- The Nikkei 225 March 2025 rebalance is today. The ADD is big, with more to buy later. The SELL is a really big sell in terms of float.
- The Sell, Mitsubishi Logistics (9301 JP), means Max Real World Float doubles. It’s like a huge offering, with warning.
- There’s a big cap trade on Fast Retailing (9983 JP) where timing is not on its side, leaving US$2bn to buy in funding. 25 names at 0.4x ADV to buy.
Korea Short Selling: Off to the Races
- Short selling in Korea resumes in a couple of hours. Expect heightened volatility for a few days before things settle down.
- Foreign investors have increased their holdings over the last five weeks and there could be further buying in select stocks on stock price drops.
- The KOSPI 200 INDEX has outperformed the KOSDAQ 150 Index, and the forecast index deletes have underperformed the indices indicating that there will be positioning for the short-sell resumption.
BYD (1211 HK): God’s Eye & Potential HSTECH Index Inclusion
- BYD (1211 HK) raised US$5.6bn in a secondary offering a few weeks ago and the stock is trading a lot higher than the placement price.
- Buying from global index trackers is done, but there will be more passive buying from Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI) trackers later this month.
- With the release of the God’s Eye advanced driver-assistance system (ADAS), the stock could be added to the Hang Seng TECH Index (HSTECH INDEX) in June, bringing more passive inflows.
ETF Flows in Q1: Inflows for Taiwan, Outflows for China
- The largest ETF inflows in the region have been in Taiwan as investors rush into indices that have higher dividend yields.
- China had large inflows last year as markets floundered. With markets trading in a range over the last 6 months, those flows have reversed in Q1 this year.
- Australia has seen net inflows this year, while there have been net outflows from Hong Kong, India and Japan focused ETFs.
Hanwha’s Surprise Gift Disclosure: Three Major Takeaways
- The chances of a Hanwha Corp-Hanwha Energy merger just dropped significantly. With the brothers now owning 43%, the merger’s effectively off.
- The three brothers face a KRW 200B gift tax bill and need liquidity. They’ll raise cash via Hanwha Energy’s IPO, with the youngest brother set to sell a 10% stake.
- Hanwha Corp will likely fund its Hanwha Aerospace rights issue through a rights offering, using KRW 1.3 trillion from Hanwha Energy, after shutting down merger rumors.
Skyworth (751 HK): Another Buyback
- On 27 March, Skyworth Group Limited (751 HK) launched a conditional buyback to acquire a maximum of 350.0m shares (15.67% of outstanding) at HK$3.11, a 15.2% premium to undisturbed price.
- Unlike the previous buybacks, the controlling shareholder can vote. Therefore, while the buyback offer is unattractive, the shareholder vote will pass.
- Based on the irrevocables, a 100% share minority participation rate implies a minimum proration of 37.84%. The actual proration was around twice the minimum proration for the previous two.
Fat Inheritance Taxes for Hanwha Group Chairman Kim’s Three Sons Post Receiving Hanwha Corp Shares
- Hanwha Group Chairman Kim Seung-youn (born in 1952) made a major move to give 11.32% of his shares in Hanwha Corporation (000880 KS) to his three sons.
- It is estimated that the three sons will need to pay nearly 222 billion won in inheritance taxes associated with receiving additional stakes in Hanwha Corp.
- Because the three sons need to pay for the high amounts of inheritance taxes, Hanwha Corp is likely to raise the dividend payout in the next several years.
Fast Retailing (9983) | Buying Opportunity Ahead of Q2 Results
- Fast Retailing (9983 JP) is set to report its second-quarter results on April 10, and we see an opportunity to buy ahead of a strong earnings release
- We expect Fast Retailing to post Q2 sales of ¥905bn (+15% YoY), above consensus estimates of ¥881bn. EBIT projected at ¥133bn (+21% YoY), ahead of street expectations of ¥125bn.
- Domestic Uniqlo monthly sales and quarterly results from global peers suggest strong sales momentum.
A/H Premium Tracker (To 28 Mar 2025): AH Premia Still Falling; Expect Curve Torsion or AH Widening
- AH Premia bounce higher. Spread curve torsion was as expected. Narrow spreads saw Hs suffer more. Wide spreads saw H outperformance.
- The last few weeks I said warning signs were flashing and spreads could widen. This week they widened despite big SOUTHBOUND buying.
- I expect the right thing to do is hunker down and be flat H/A risk.
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