In today’s briefing:
- TIP Customized Taiwan Select High Dividend Index Rebalance: US$3.2bn Trade with BIG Impact
- HSCI Index Rebalance Preview and Stock Connect: Potential Changes in March 2025
- A Passive Flow Trading Event that Sparked Wild Price Action in Korea Is Happening Again
- Kioxia IPO Trading – Decent Demand for Decent Upside
- Shin-Etsu Chemical (4063) – Small/Large Below-Market Tender Offer Buyback, Followed by Overhang
- Heiwa (6412) Announces Game-Changing Acquisition, Gets Very Heavily Levered (Termed Debt)
- China & HK Strategy: Names to Watch for Market Value Management
- Ohayo Japan | Nissan and Honda in Merger Talks
- How Has the Index Rebalance Strategy Performed in 2024?
- Lotte Shopping and Potentially Others Are Shaping up as Fresh Picks for Dividend Arbitrage Plays
TIP Customized Taiwan Select High Dividend Index Rebalance: US$3.2bn Trade with BIG Impact
- There are 8 changes a side for the TIP Customized Taiwan Select High Dividend Index in December. The TIP Taiwan Select High Dividend ETF (00919TW) has an AUM of US$9.3bn.
- Estimated one-way turnover is 17.2% and that will result in a round-trip trade of US$3.2bn. All adds and deletes have over 5x ADV to trade from passive trackers.
- The rebalance will be implemented over 8 trading days and the ETF started trading some stocks late last week and the rest from 17 December.
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in March 2025
- We see 32 potential and close adds and 44 potential and close deletes for the Hang Seng Composite Index in March. Some of the stocks are close on market cap/liquidity.
- We expect 29 stocks to be added to Southbound Stock Connect following the rebalance while 31 stocks could be deleted from the trading link and become Sell-only.
- There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.
A Passive Flow Trading Event that Sparked Wild Price Action in Korea Is Happening Again
- This event drew significant attention, causing unusual price action. From Sept 20 to Nov 29, corrections in the deletions far outpaced the KOSPI, with the trend holding across key checkpoints.
- We’re watching 4 stocks: Kumho Petro, Lotte Chemical, Posco DX, and EcoPro Materials. SK Bioscience and Enchem are close, with small price moves likely pushing them out.
- Based on past rebalancing patterns, proactive positions on these names could trigger strong price action. All except Enchem have listed futures and solid volume, making trading conditions favorable.
Kioxia IPO Trading – Decent Demand for Decent Upside
- Kioxia Holdings (285A JP) raised around US$800m (including over-allocation) in its Japan IPO, after pricing its IPO in the middle of its range.
- It was the world’s largest pure-play NAND flash memory supplier, in terms of both revenue and unit shipments in 2023, according to TechInsights.
- We have looked at the company’s past performance and valuations in our previous notes. In this note, we will talk about the trading dynamics.
Shin-Etsu Chemical (4063) – Small/Large Below-Market Tender Offer Buyback, Followed by Overhang
- Today, Shin Etsu Chemical (4063 JP) announced a second buyback this year (first ¥100bn was announced in May, buying back 16.695mm shs (0.83%). This time, ~¥94bn via Own-Share Tender Offer.
- Three non-life insurers and two banks who together hold 6+% will sell a total of ~1.01% at ~10% below last. They will then sell the rest of their shares later.
- Cute, but not enough. Shin-Etsu is cash-rich, securities-rich, receivables and inventory-rich. And nearly ¥1trln of EBITDA. They are a key part of the tech infrastructure. They can borrow.
Heiwa (6412) Announces Game-Changing Acquisition, Gets Very Heavily Levered (Termed Debt)
- Heiwa Corp (6412 JP) got 99% of its revenue as a pachinko/pachislot machinery maker. In 2011, it bought one of Japan’s largest golf course operators, PGM Holdings, from Lone Star.
- Golf course revenue is up 30% in 10yrs. Pachinko/Pachislot revenue is down by 60+% in the same period. Golf is the bulk of revenue and OP now.
- Today, the company announced a stunning, even monumental acquisition to become the largest golf course operator in the world.
China & HK Strategy: Names to Watch for Market Value Management
- CSRC’s Market Value Management Guidelines will indirectly benefit the H-share stocks with their A-share counterparts with a P/B of below 1x.
- Chinese banks dominated the list with below-book A-shares. China Everbright Bank (6818 HK), China Citic Bank H (998 HK), and ICBC (H) (1398 HK) are the prime beneficiaries.
- Infrastructure construction companies China Railway Cons Corp (1186 HK), China Railway Group H (390 HK), and China Comm Cons (1800 HK) are also well-positioned to gain.
Ohayo Japan | Nissan and Honda in Merger Talks
- The Dow Jones Industrial Average extended its historic losing streak to nine sessions on Tuesday, falling 267 points (-0.61%) to 43,449, marking its longest skid since 1978
- Nissan Motor (7201 JP) and Honda Motor (7267 JP) are reportedly in talks for a merger. NIssan ADR up 11% overnight.
- Oasis has emerged as a significant shareholder of Macromill, Inc (3978 JP) . The company is currently subject to a TOB from CVC Capital Partners.
How Has the Index Rebalance Strategy Performed in 2024?
- It has been a decent year for the index rebalance strategy, though there have been some big hiccups along the way.
- Forecasting the index changes and impacts has been important, but timing (especially momentum/value regime changes) and hedge selection have also been major factors affecting the returns of the strategy.
- As passive AUM continues to increase, we expect focus on the strategy to continue in 2025 with market players taking different approaches to trading the potential and announced index changes.
Lotte Shopping and Potentially Others Are Shaping up as Fresh Picks for Dividend Arbitrage Plays
- At today’s close, Lotte Shopping (023530 KS) shows solid contango for a basis trade, with LS Corp (006260 KS) next; the rest are too tight or dry.
- Lotte Shopping surprised the market today, changing its dividend record date to a board-set day, wiping out the backwardation that matched its dividend yield until yesterday.
- Lotte Shopping’s move could signal other stocks changing dividend dates, causing similar dislocations. With a 7% yield and solid SSF volume, it’s prime for aggressive dividend arbitrage.
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