In today’s briefing:
- MSCI Australia Nov SAIR: Significant Pre-Positioning on the Potential Deletes
- Toshiba (6502 JP) – Weak Sauce from JIP
- Jardine C&C (JCNC SP): Potential MSCI Inclusion as NAV Discount Shrinks
- TIGER Top 10 Rebalancing: A Big Change Awaits
- KLine (9107) Buyback Redux-Squared – Post-Buyback Could Get Squeezy
- Shorting Setup on Additions to KS200/KQ150 with KODEX Battery ETF Flow
- 2023 High Conviction – China Healthcare: Recognize the Direction and Follow the Trend
- Softbank Group – Accelerated Buyback in October Drove Share Price Surge
- TOPIX Inclusion: Socionext (6526 JP) – Momentum Is Fading, Exit Now.
- Jinke Smart (9666 HK) VGO Unconditional
MSCI Australia Nov SAIR: Significant Pre-Positioning on the Potential Deletes
- We see two inclusions and two exclusions for the MSCI Australia Index at the November SAIR. Passive trackers will need to trade between 5-8x ADV on the stocks.
- Cumulative excess volume on the stocks has been increasing steadily over the last few months, indicating a fair amount of pre-positioning.
- Short interest on the potential deletions has spiked over the last couple of months and pre-positioning could be close to (or larger than) the estimated passive selling.
Toshiba (6502 JP) – Weak Sauce from JIP
- Media reported last night that JIP would bid ¥2.2trln for Toshiba. That’s about ¥5,000-5,100/share.
- This morning, there is a bit more clarification. Funnily, that means there is less info here than people think.
- But it is not a great look for either JIP or Toshiba at this point.
Jardine C&C (JCNC SP): Potential MSCI Inclusion as NAV Discount Shrinks
- Jardine Cycle & Carriage (JCNC SP) was deleted from the SIMSCI Index in November 2020 and could be added back to the index at the upcoming SAIR.
- If added to the index, we estimate passive MSCI trackers will need to buy 7.9m shares (US$176m; 11 days of ADV) at the close on 30 November.
- Jardine Cycle & Carriage (JCNC SP) is trading at a tight discount to its listed holdings and the spread could widen post the MSCI implementation.
TIGER Top 10 Rebalancing: A Big Change Awaits
- The two names in LONG (LG Energy Solution and Celltrion) and the two names in SHORT (Shinhan Financial and KB Financial) are almost a foregone conclusion.
- POSCO Holdings is now ahead of Kakao Corp due to the recent sharp rise in its share price. But the gap between them is still quite tight.
- This rebalancing will likely aggravate LG Energy’s flow crunch as it also awaits an MSCI up-weight (2x ADTV) in end-November and a KOSPI 200 up-weight (2x ADTV) on December 8.
KLine (9107) Buyback Redux-Squared – Post-Buyback Could Get Squeezy
- Kawasaki Kisen Kaisha (9107 JP) had a shareholder return program in place in May. Earnings forecasts on 3 Nov were slightly disappointing so the stock sold off but…
- The large buyback allowed investors to try to game the situation. Some may have, but this morning on the execution, VERY few Real World Float holders sold.
- That leaves the stock squeezy going into a buyback to repurchase 20% of the Max Real World Float (including short-created longs).
Shorting Setup on Additions to KS200/KQ150 with KODEX Battery ETF Flow
- Korea’s partial short-selling system, implemented in May last year, created a new trading pattern, a surge in short selling for new additions, immediately after index rebalancing.
- Canaria Bio, HPSP, and SungEel Hitech are highly likely to be the primary targets for short selling, but there is one more thing we need to consider.
- KODEX will likely begin rebalancing buying on HPSP and SungEel on December 9, the same day the short-selling starts for them. So, we need a more flexible setup.
2023 High Conviction – China Healthcare: Recognize the Direction and Follow the Trend
- The 20th National Congress highlighted the importance of autonomy and controllability of key supply chains. So, the most obvious opportunity in China healthcare is import substitution.
- For the investment logic of import substitution, we’re more inclined to focus on medical devices sector rather than pharmaceutical sector due to more obvious policy catalysts and higher certainty.
- We analyzed our top picks (both medical device sector and others in 2023). After a challenging year, we think that China healthcare in 2023 would be very promising.
Softbank Group – Accelerated Buyback in October Drove Share Price Surge
- Softbank Group (9984 JP) massively ramped up share buybacks in October driving a 31% increase in the share price
- Average Daily Volume (ADV) was 28% higher in October and 46% higher for the last half of the month. October buyback volumes were the second highest for a month ever
- Whether Softbank announces additional buyback plans likely depends on the timing of the ARM IPO and that partly depends on Q2 performance
TOPIX Inclusion: Socionext (6526 JP) – Momentum Is Fading, Exit Now.
- Japan-Based System-On-Chip designer and IP purveyor Socionext (6526 JP) was listed in the “Prime” section of the Tokyo Stock Exchange (TSE) on 12th October 2022.
- When a company gets listed in the Prime section, it subsequently gets included in the TOPIX Index requiring TOPIX-tracking funds to purchase the stock during an Inclusion Event.
- Usually, this presents interesting trading opportunities to generate sharp market-neutral returns in the space of few trading days. Below is a look at the details for Socionext’s TOPIX Inclusion Event.
Jinke Smart (9666 HK) VGO Unconditional
- Jinke Smart Services (9666 HK)’s VGO from Boyu Capital at HK$12.00 per share has been declared unconditional. Boyu has waived the 7.71% valid acceptances condition.
- Boyu has likely two aims for the unusual VGO – secure anti-trust approval and a re-rating by becoming the largest shareholder. Anti-trust approval was received on 8 November.
- Acceptances of 0.0081% of outstanding shares reflect the unattractive offer. The final closing date is 22 November. At the last close price, the spread to the offer is 2.7%.
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