In today’s briefing:
- S&P/ASX Index Rebalance (Sep 2022): Adds, Deletes, Surprises & Pre-Positioning
- Nikkei 225 Sep 2022 Review Update
- Index Rebalance & ETF Flow Recap: S&P/ASX, CH50/A50, TW50/Div+, NIFTY50/100, STI, EPRA, Sensex
- SK Discovery Launches Opportunistic Partial Tender on SK Chemicals To Buy SK Bio CHEAP
- SK Chemicals Cash Offer: Complete Details
- Yamada Denki (9831) Buyback Progress Strong But Big Impact To Come
- KOSPI 200 December Rebalancing Safe Play
- Merger Arb Mondays (05 Sep) – Link Admin, Ramsay, Genex, ResApp, Infomedia, DTAC/True, Giordano
- Kyocera (6971 JP): Strong Performance Unlikely to Last
- New Regulations on Split-Off Listing in Korea: Complete Details & Trading Implications
S&P/ASX Index Rebalance (Sep 2022): Adds, Deletes, Surprises & Pre-Positioning
- There is one change for the S&P/ASX 100 Index, eight changes to the S&P/ASX 200 (AS51 INDEX), while there are 16 adds and 12 deletes for the S&P/ASX 300 Index.
- Passive trackers need to buy/sell a lot of stock for the ASX100 and ASX200 names. There appears to be large pre-positioning on the deletes.
- Link Administration (LNK AU)‘s privatisation may require an ad hoc inclusion prior to the implementation of the September rebalance – ACCC approval is key.
Nikkei 225 Sep 2022 Review Update
- The Nikkei 225 rebalance will likely be announced this week. I continue to be slightly off-kilter, expecting Nidec, SMC, and Oriental Land to replace Unitika, Oki Electric, and Toho Zinc.
- Others would expect Hoya to replace Maruha Nichiro instead of Oriental Land replacing Toho Zinc, but I think it Nikkei Sector balance may matter. It could go either way.
- Tactically speaking, cumulative volumes and Real World Float tell you how you might trade this.
Index Rebalance & ETF Flow Recap: S&P/ASX, CH50/A50, TW50/Div+, NIFTY50/100, STI, EPRA, Sensex
- There were a bunch of rebalance announcements last week from FTSE and Nifty, and implementation of changes to the MSCI, JPXNK400 and Hang Seng indexes.
- The changes to the Nikkei 225 (NKY INDEX) should be announced early in the coming week and the changes to the SSE STAR50 (STAR50 INDEX) will be implemented on Friday.
- There were large inflows to China and Hong Kong focused ETFs during the week.
SK Discovery Launches Opportunistic Partial Tender on SK Chemicals To Buy SK Bio CHEAP
- On Friday morning, Sk Discovery (006120 KS), current owner/controller of 36.56% of Sk Chemicals Co Ltd/New (285130 KS) announced an opportunistic Partial Offer to buy 5.22% more at KRW 108,800/share.
- The stated purpose in the Tender Offer Announcement is “Stability of Management Rights.” This will get SK Discovery to 41.77%, permitting consolidation of SK Chemicals.
- The real reason?SK Chemicals shares are trading at less than one-third the value of the SK Bioscience (302440 KS) shares they hold (with net cash and others free).
SK Chemicals Cash Offer: Complete Details
- This is a cash offer. So, there is no stock swap arbitrage here. To participate in this tender, we must buy SK Chemicals shares by the 19th.
- We have proration risk. Discovery will buy on a pro-rata basis if exceeding the target volume. So, we could be at a loss.
- This is an over-the-counter transaction. So both STT and CGT apply. The STT rate is 0.43% of the tendered amount and we have a 22% CGT rate for the profit.
Yamada Denki (9831) Buyback Progress Strong But Big Impact To Come
- In early May 2022, Yamada Denki (9831 JP) launched a GINORMOUS buyback program. I wrote about it suggesting the company meant business. The stock popped outright and vs Peers.
- Then it fell back, and has only recently started moving back up. Surprising given buyback dynamics but it may have been overhang. If so, that overhang should be gone now.
- And the stock is cheap, a chunk of the register is sticky, so this could get squeezier now.
KOSPI 200 December Rebalancing Safe Play
- Although not many, there are strong candidates for a safe play aimed at constituent change. Inclusion: Lotte Confectionery & Exclusion: Samyang Holdings
- Lotte Confectionery’s average daily market cap must fall by more than 30% to be pushed out of the borderline. Samyang Holdings’s market cap gap to the second-lowest one is 17%.
- The trading volume of these two is so small that a significant passive impact (relative to DTV) will likely occur. We should consider a little more aggressive approach, timing-wise.
Merger Arb Mondays (05 Sep) – Link Admin, Ramsay, Genex, ResApp, Infomedia, DTAC/True, Giordano
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
- Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Link Administration (LNK AU), True Corp Pcl (TRUE TB).
- Lowest spreads – MyDeal.com.au Ltd (MYD AU), MACA Ltd (MLD AU), Nearmap Ltd (NEA AU), Dongzheng Automotive Finance (2718 HK), Link Net (LINK IJ), Tassal (TGR AU), Frasers Hospitality Trust.
Kyocera (6971 JP): Strong Performance Unlikely to Last
- It is hard to see how Kyocera can avoid a significant slowdown in sales and earnings growth given the weakness in electronics markets and the overall economy.
- R&D and capital spending continue to rise, putting pressure on margins and offsetting gains from the weak yen.
- Valuations are not compelling. Watch out as the share price drops back from its recent high.
New Regulations on Split-Off Listing in Korea: Complete Details & Trading Implications
- The Korea FSC finalized the additional investor protection measures: 1. stricter disclosure rules, 2. tighter listing requirements, and 3. mandatory appraisal rights.
- The retroactive application period is five years. Companies that have been split off five years ago from the effective date are also subject to these new rules.
- We can play LONG/SHORT aimed at staggered spreads, considering that the pricing period is 2M VWAP and that a downward price revision intensifies towards the announcement with mandatory appraisal rights.
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