In today’s briefing:
- JAPAN PASSIVE: Who Owns What 2022?
- FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Impact Changes
- BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- United Tractors (UNTR IJ) Buyback – Sure to Be Impactful
- Offensively Cheap Homecoming For Glory Star New Media
- A Thorough Guide to KOSPI 200 & KOSDAQ 150 Rebalancing Calculations
- China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy
- HFCAA, AHFCAA, China ADRs & FTSE Index Treatment: Speeding Up The Process & Implications
- WCP IPO: Hooked on Lithium
- WISE Theme Indexes Rebalancing Today: Names in Basket Trade Setup
JAPAN PASSIVE: Who Owns What 2022?
- 2022 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each.
- Even if you do not “play” index changes, understanding impact is important. Japan Exchange Group (8697 JP) entered Nikkei 225 in July 2020 after rising 30%. That was the top.
- Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks.
FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Impact Changes
- The FTSE TWSE Taiwan Dividend+ Index is a funky one that weights stocks by dividend yield. Given dependency on dividends and stock prices, the potential adds/deletes can change often.
- We currently see three changes to the index in December, with another stock very close to deletion zone. Given the difference in market cap and dividend yield, impacts are big.
- There will be large flows on the current index names at the September rebalance due to capping.
BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- The increase of 225.2 million CCASS shares deposited with Citibank matches Berkshire Hathaway Inc Cl B (BRK/B US)’s stake. BYD (1211 HK) closed -12% down on speculation of a selldown.
- The H Share recently touched all-time highs and trades at a significant premium to historical multiples. BYD has a recent history of a selldown by a substantial shareholder (Himalaya Capital).
- Berkshire has made a 33x gain on its BYD investment, excluding dividends. Taking money off the table would align with Berkshire’s value investing mandate.
United Tractors (UNTR IJ) Buyback – Sure to Be Impactful
- Yesterday, United Tractors (UNTR IJ) announced a large share buyback. It’s a big buyback but perhaps not as big as the headlines (which say “up to 20%”).
- The buyback is for 5 trillion rupiah which is about 5% of market cap, and will be conducted on-market over the next three months.
- Looking at the early market reaction, my opinion is that the market does not seem to understand the consequences.
Offensively Cheap Homecoming For Glory Star New Media
- Glory Star New Media Group H (GSMG US) (GSMG), a leading digital media platform and content-driven e-commerce company in China, has entered a definitive privatisation transaction with Cheers Inc.
- Cheers is offering US$1.55/share, in cash, a 76% premium to GSMG’s undisturbed price, and a 22% premium to the US$1.27/share proposal from GSMG’s CEO Bing Zhang.
- The buyer consortium owns ~72.8% of shares out and this Offer requires a two-thirds vote from shareholders. This looks done with expected completion this year. But it’s a low-balled Offer.
A Thorough Guide to KOSPI 200 & KOSDAQ 150 Rebalancing Calculations
- This post explains how the rebalancing of the KOSPI 200 and KOSDAQ 150 is calculated. So, please note that this post does not have any investment recommendations.
- Both indices have the same calculation method. However, the thresholds are different. They screen stocks using the three metrics: Market Cap, ADTV, and Market Cap Ranking (buffer).
- The concept itself of these three metrics is not difficult. However, ranking it cumulatively often confuses us.
China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy
- In this insight, we discuss a pair trade involving going long on Inner Mongolia Yili Industrial Group (A) (600887 CH)(“Yili”) and going short on China Mengniu Dairy Co (2319 HK).
- Yili has more impressive financial metrics than China Mengniu Dairy in terms of ROE, operating margins, and sales growth. However, Yili is trading at lower EV/EBITDA than China Mengniu Dairy.
- Yili should be trading at premium valuation than China Mengniu Dairy. Therefore, we believe Yili is well poised to outperform China Mengniu Dairy’s share price in the next 12 months.
HFCAA, AHFCAA, China ADRs & FTSE Index Treatment: Speeding Up The Process & Implications
- The Holding Foreign Companies Accountable Act (HFCAA) could result in China ADRs being delisted in 2024. The Accelerated HFCAA, if passed, will bring that date ahead to 2023.
- FTSE has announced its implementation plan to migrate the China ADRs in its indices to the local listings using an accelerated schedule.
- Expect a lot more secondary listings/ dual primary listing in Hong Kong over the next few months. The increase free float market cap could keep a lid on prices.
WCP IPO: Hooked on Lithium
- WCP (WCP KS), a lithium-ion batteries separator company, is planning to launch a KRW900 billion (US$692 million) IPO in August.
- The price range of KRW80,000-100,000 implies a market cap of KRW2.7-3.4 trillion (US$2.1-2.6 billion).
- WCP has attractive fundamentals due to the favourable demand/supply balance, technology, strong revenue growth and improving margins.
WISE Theme Indexes Rebalancing Today: Names in Basket Trade Setup
- Today is the rebalancing trading day of WISE’s three major theme indexes. The ETF operator (TIGER) is expected to start rebalancing trading after 2 pm.
- The prediction accuracy of the top market cap stocks is relatively high. So, we should target these big boys with a flow at 0.2x or higher relative to ADTV.
- Names in a basket trade setup: Ecopro BM (247540 KS), SK IE Technology (361610 KS), Solus Advanced Materials (336370 KS), Hana Tour Service (039130 KS), & CJ ENM (035760 KS)
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