In today’s briefing:
- Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
- Alibaba to Pursue Dual Primary Listing in HK – Impact on Stock Connect, Indices, Etc
- MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
- S&P Global Water Index: Market Consultation Driven Potential Changes
- HFCAA, AHFCAA, China ADRs & FTSE Index Treatment: Speeding Up The Process & Implications
- Posco International Merger: Deal Structure & Arbitrage Dynamics
- U.S. Dollar Topping?; Bullish Reversals Continue; Ideas in Growth/Cyclicals, Financials
- Samsung’s Lee Jae-Yong Receives Pardon & Get Out of Jail Card: A Signal of Major M&As by Samsung?
- Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals
- Mayne Pharma (MYX AU): CDMO Business Sale- A Step Towards Focus Solely on Specialty Pharma
Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
- Softbank today confirmed that the stories circulating about Softbank having hedged a decent portion – 200+mm shares – of its BABA position were true.
- The market expectation had been that these pre-paid forwards would be held for another two years. The announcement today is that they will be physically settled early.
- This means the entire accounting effect – worth ¥4.6trln – will hit the income statement (and balance sheet) in the current quarter. There are investment and index implications
Alibaba to Pursue Dual Primary Listing in HK – Impact on Stock Connect, Indices, Etc
- This morning – 26 July – Alibaba (ADR) (BABA US) / Alibaba Group (9988 HK) issued an announcement it would pursue a primary listing on the HKEX.
- When Alibaba listed in NY, it was on ADRs. When it listed in HK, it was the shares underlying the ADRs but it was a quickie secondary listing.
- It will now seek a dual primary listing as others have. This will make BABA Southbound-eligible and will slightly improve BABA’s HSI funding trade prospects in future.
MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
- As announced, there are 8 adds and 3 deletes for the MSCI Standard indices in Asia Pacific. To trade, there are 8 adds and 2 deletes.
- Most of the changes are inline with what we forecast. The non-inclusion of Gcl Poly Energy Holdings Limited (3800 HK) is the big surprise, though that could change.
- All the adds in China are potential inclusions to the FTSE All-World Index in September and that will add to the passive inflows on the stocks.
S&P Global Water Index: Market Consultation Driven Potential Changes
- S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
- We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
- There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.
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.
Posco International Merger: Deal Structure & Arbitrage Dynamics
- We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
- Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
- We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.
U.S. Dollar Topping?; Bullish Reversals Continue; Ideas in Growth/Cyclicals, Financials
- This is now the third Int’l Compass/third week in a row where we are discussing an increasing number of country indexes experiencing bullish 3.5-9-month downtrend reversals.
- Importantly, all of the previously mentioned indexes are holding above their breakout levels (i.e., there has yet to be any failed breakouts).
- Now, the U.S. dollar (DXY) is starting to show early signs of topping. We continue to believe that global equities are going through a bottoming process.
Samsung’s Lee Jae-Yong Receives Pardon & Get Out of Jail Card: A Signal of Major M&As by Samsung?
- On 12 August, the South Korean government finally gave a presidential pardon to Samsung’s heir Lee Jae-Yong.
- With Lee Jae-Yong given the presidential pardon, there is an increasing likelihood that the Samsung Group could become more aggressive in making major global M&As in the next several years.
- Three major M&As that Samsung could make in the next several years include ARM, Infineon, and NXP Semiconductor.
Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals
- MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
- There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
- Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).
Mayne Pharma (MYX AU): CDMO Business Sale- A Step Towards Focus Solely on Specialty Pharma
- Mayne Pharma (MYX AU) is selling its U.S.-based CDMO business, Metrics Contract Services for $475 million. The transaction is expected to close by the end of 2022.
- Allowing for reinvestment needs, the net proceeds from the sale will be used to repay the syndicated debt facility and return surplus capital to shareholders.
- Combined oral contraceptive Nextstellis remains the company’s most significant commercial opportunity. While Nextstellis was launched in the U.S. in June 2021, Mayne has launched Nextstellis in Australia in July 2022.
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