In today’s briefing:
- Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted
- HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
- HSCI Index Rebalance: 22 Adds, 27 Deletes & Changes to Southbound Stock Connect
- HSCEI Index Rebalance: Trip.com (9961 HK) Replaces CG Services (6098 HK)
- Sime Darby/UMW: It’s All About Scale
- Overlooked by the Market: A Compelling Long Short Opportunity in Newly-Listed ETF Rebal in Korea
- Grab Holdings (GRAB US) – Growth with Scale from a Stable Platform
- Jackson Hole Nugget: Who cares about shelter? Powell does
- Key Supports Holding Strong; 10-Year Treasury Yield Below Key Resistance; Buys in Non-Defensives
- Medical Data Vision (3902) – SBI Upping Their Stake Means Opportunity
Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted
- Sinopharm Group Co Ltd H (1099 HK) will be added to the Hang Seng Index (HSI INDEX) on 1 September while Country Garden Holdings Co (2007 HK) will be deleted.
- Both changes are a surprise, but the impact on Sinopharm Group Co Ltd H (1099 HK) will be much larger. Given the recent increase in shorts, there could be covering.
- Estimated one-way turnover is 1.9% leading to a one-way trade of HK$3.65bn. Capping will result in selling on Alibaba Group Holding (9988 HK), Tencent (700 HK) and HSBC (5 HK).
HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
- As expected, East Buy Holding (1797 HK) replaces AAC Technologies Holdings (2018 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 September.
- Estimated one-way turnover is 3.5% leading to a one-way trade of HK$3.4bn (US$435m). There are 4 stocks with over 1 day of ADV to trade.
- Short interest is 15% of float on both stocks. Short covering could take East Buy Holding (1797 HK) higher while providing support for AAC Technologies (2018 HK) closer to deletion.
HSCI Index Rebalance: 22 Adds, 27 Deletes & Changes to Southbound Stock Connect
- There are 22 adds and 27 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents down to 518.
- We expect all 22 inclusions to the HSCI will be added to Stock Connect, while 24 of the 27 HSCI deletions will be removed from Southbound Stock Connect.
- Since the end of June, shares held though Southbound Connect have increased on 20 of the 27 HSCI deletions and there could be some unwinding in the next two weeks.
HSCEI Index Rebalance: Trip.com (9961 HK) Replaces CG Services (6098 HK)
- As expected, Trip.com Group (9961 HK) replaces Country Garden Services (6098 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close on 1 September.
- BeiGene (6160 HK) fails the Velocity Test and misses inclusion, while an increase in Zhongsheng Group (881 HK)‘s float keeps it in the index.
- Using prices from the close on 18 August, estimated one-way turnover is 2.78% leading to a one-way trade of HK$1.73bn (US$221m).
Sime Darby/UMW: It’s All About Scale
- In one of the largest M&A transactions in Malaysia, Sime Darby (SIME MK) intends to acquire a 61.2% stake in UMW Holdings (UMWH MK) from Permodalan Nasional Bhd for RM3.57bn.
- Sime Darby is paying RM5/share, a token 9.9% premium to last close, but more like 25% when factoring in apparent news leakage.
- Once the stake sale is completed, Sime Darby will launch an unconditional MGO for all remaining shares not held. This transaction is expected to be wrapped up in early 2024.
Overlooked by the Market: A Compelling Long Short Opportunity in Newly-Listed ETF Rebal in Korea
- In the inaugural constituent selection, FnGuide revealed a noteworthy pattern. Given the smaller market capitalization of the electrolyte suppliers, FnGuide has included only the largest among them in this ETF.
- SoulBrain, categorized by FnGuide as an electrolyte supplier like Chunbo, has significantly outperformed Chunbo. As a result, there is a considerable likelihood that SoulBrain will replace Chunbo in December.
- The price impact from ETF rebalancing trading has disappeared substantially in Korea. We should focus on the first rebalancing of newly listed ETFs that haven’t yet established a learning effect.
Grab Holdings (GRAB US) – Growth with Scale from a Stable Platform
- Grab Holdings (GRAB US) released another set of positive results but this time the balance between profitability and growth was well-struck, as it reduced incentives yet increased its market share.
- Grab saw GMV growth in both deliveries more notably in mobility, with revenues growing at a faster pace and adjusted EBITDA surprising on the upside, bringing forward breakeven to 3Q2023.
- Prospects for 2H2023 look even better with Grab’s affordability initiatives gaining traction and improving retention and profitability.
Jackson Hole Nugget: Who cares about shelter? Powell does
- Our short and sweet observations from the Jackson Hole opening remarks from Jay Powell.
- To us, hopes of an explicit pause have been postponed further down the road after this speech.
- A few highlights:1) Data dependency is still the name of the game – NO promises for further meetings, meaning that consensus does not exist 2) Shelter costs are highlighted, which to me can be seen as a sign that Powell needs an excuse to hike further 3) The Fed is attentive to the risk of the economy running above trend still and monitors the housing rebound closely 4) The lack of spill-overs from the slide in job openings to the unemployment rate puzzles the Fed and they want more data.
Key Supports Holding Strong; 10-Year Treasury Yield Below Key Resistance; Buys in Non-Defensives
- Last week (Aug. 18) we discussed the 10-year Treasury yield and DXY testing respective resistance (4.3%-4.35% and $103.50-$103.70).
- As long as no decisive breakouts in the 10-year yield or DXY, we were buyers on the pullback to $93 on MSCI ACWI (ACWI-US).
- Outside of our overweight countries (Japan, India, Taiwan, Greece), defensive Sectors continue to lag. We highlight buys in Technology, Services, Consumer Discretionary, Industrials, Materials/Energy, and Financials.
Medical Data Vision (3902) – SBI Upping Their Stake Means Opportunity
- On Friday after the close, SBI Holdings (8473 JP) – which currently owns 24.63% of Medical Data Vision (3902 JP) – announced it would buy another 2,043,200 shares.
- This market purchase would lift them to just under 30% by year-end.
- There have been similar trades done by others in the past and they were worth looking at.
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