In today’s briefing:
- Warren Buffett and the Japanese Trading Houses I
- 7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- HSTECH Index Rebalance: Horizon Robotics, Tencent Music Replace East Buy, ZA Online; US$2.3bn Trade
- HSCEI Index Rebalance: Beigene, ZTO Replace Sino Biopharma, Li Ning; Surprise for Some
- NIFTY50/NEXT50 Index Rebalance: Zomato, JioFin Slide In as BPCL, Britannia Drop Out; US$3.3bn Trade
- A Very Odd Change – Studio Alice (2305) Self-Demotes
- FSC Gives the Green Light for Full-Scale Short Selling Today: What It Means for Trading
- Sandisk Spin-off Overview
- Quiddity NIFTY Mar25 Rebal: Some Surprises; Combined Flows of US$1bn One-Way
Warren Buffett and the Japanese Trading Houses I
- The Berkshire Hathaway Annual Shareholder Letter for 2024 was released this weekend. Much was made in Japanese twitter-space of the comments he made on the Japanese trading houses.
- He said Berkshire Hathaway’s admiration of these companies “has consistently grown” and Berkshire likes their capital deployment, managements, and their attitude in respect to investors. They also pay themselves reasonably.
- He mentioned Berkshire will increase their stakes somewhat in the trading houses “over time.” That comment deserves some exploration, as does the comment about yen funding.
7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- Over the weekend, the Nikkei and Jiji reported the 7&i Board met Saturday and decided Bain would have preferred negotiating rights to buy York Holdings. They bid “over ¥700bn.”
- That’s a trifle lower than the ¥1.2trn Reuters reported (on Christmas Day) Bain bid but details aren’t known. Proper structuring would get the vast majority to 7&i in post-tax cash.
- For 7&i to decide by the AGM (which could be contentious), they need time to debate. Bids are likely needed in 3wks. In the meantime, “Trump Risk” lurks.
Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- York HD is due to take over operation of all group business except Seven Eleven at the end of February and press reports suggest Bain’s bid has been accepted.
- All of which is fine but this leaves Seven Eleven Japan which is struggling against rivals. Even franchise owners are becoming more critical.
- A recent survey by Nikkei also suggested that consumers are increasingly favouring Lawson and Familymart and 30% visited Seven Eleven stores less frequently in 2024. This is a big problem.
HSTECH Index Rebalance: Horizon Robotics, Tencent Music Replace East Buy, ZA Online; US$2.3bn Trade
- As expected, Horizon Robotics (9660 HK) replaces East Buy Holding (1797 HK) in the Hang Seng TECH Index (HSTECH INDEX) in March.
- In a surprise, Tencent Music Entertainment Group (1698 HK) will be added and ZhongAn Online P&C Insurance C (6060 HK) will be deleted.
- Horizon Robotics (9660 HK) is also an inclusion to the HSIII Index and HSCI Index and will be added to Southbound Stock Connect in May.
HSCEI Index Rebalance: Beigene, ZTO Replace Sino Biopharma, Li Ning; Surprise for Some
- BeiGene (6160 HK) and ZTO Express Cayman (2057 HK) will replace Sino Biopharmaceutical (1177 HK) and Li Ning (2331 HK) in the HSCEI INDEX at the close on 7 March.
- Estimated one-way turnover at the rebalance is 5% resulting in a round-trip trade of HK$6.4bn (US$825m). The final capping will use the close of trading on 4 March.
- ZTO Express Cayman (2057 HK) is also an inclusion to a global index with implementation scheduled for the close on 21 March.
NIFTY50/NEXT50 Index Rebalance: Zomato, JioFin Slide In as BPCL, Britannia Drop Out; US$3.3bn Trade
- Zomato (ZOMATO IN) and Jio Financial Services (JIOFIN IN)‘s stock prices have taken a beating this year, but they still make it into the NIFTY Index (NIFTY INDEX) in March.
- Bharat Petroleum (BPCL IN) and Britannia Industries (BRIT IN) will be out of the NIFTY Index (NIFTY INDEX) but will be added to the NSE Nifty Next50 Index (NIFTYJR INDEX).
- Hyundai Motor India (HYUNDAI IN) will be added to a global index on 28 February and will then be added to the NSE Nifty Next50 Index (NIFTYJR INDEX) in March.
A Very Odd Change – Studio Alice (2305) Self-Demotes
- Last Thursday, in an announcement which was very odd, photo studio Studio Alice (2305 JP) announced that it was voluntarily leaving TSE Prime.
- They said they would “demote” themselves to TSE Standard as of 27 February in order to save money by not responding to the requirements of Prime.
- That means a voluntary TOPIX deletion at end-March. The stock has an interesting shareholder structure and this event is 115 days of ADV to sell.
FSC Gives the Green Light for Full-Scale Short Selling Today: What It Means for Trading
- The push for MSCI DM inclusion drove Korea’s full short-selling resumption, clearing the KRX index rights issue, allowing MSCI to roll out derivatives, making full short selling the final step.
- With full short-selling back, traders are watching for large-scale quant funds to return, potentially boosting liquidity across the market alongside the ATS launch, after years of individual large-cap setups.
- The market is watching how full short-selling resumption narrows bid-ask spreads and impacts sector rotation, prompting traders to prepare setups for the broader market shift.
Sandisk Spin-off Overview
- On February 24, 2025, Western Digital (WDC) will spin-off 80.1% of its stake in Sandisk (SNDK).
- Sandisk is trading in the when issued market at $48.26. At that share price, SNDK is trading at an EV/ annualized revenue of 1.0x and a price to annualized earnings of 9.9x.
- This price looks relatively attractive given Sandisk’s NAND flash memory partner, Xioxia, is trading at 1.3x TTM revenue.
Quiddity NIFTY Mar25 Rebal: Some Surprises; Combined Flows of US$1bn One-Way
- The March 2025 Rebalance results for the NIFTY broad market Indices were announced after the close on Friday 21st February 2025.
- There will be two changes for NIFTY 50 and five changes for NIFTY 100 during the March 2025 index rebal event.
- All NIFTY 50 and NIFTY 100 changes will also be reflected in the NIFTY Next 50 index which could see US$366mn one-way capping flows.
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