In today’s briefing:
- CSI300/CSI500 Index Rebalance: Big Flows and US$5bn Round-Trip Trade
- Technology Select Sector Index (XLK US): NVIDIA Could Flip Places with Apple; HUGE Flows
- Specifics of Korea’s Official Short-Selling Regulations, Announced This Morning
- Proposed Merger Between Rebellions and Sapeon – To Challenge Nvidia
- A8 Media (800 HK): A 163% Premium to Undisturbed? Yes Please.
- Ban on Short Selling Stocks in Korea Extended Until March 2025
- NIFTY NEXT50 Index Rebalance Preview: Active Meets Passive
- Sigma/Chemist Warehouse Merger: ACCC Has (Many) Issues
- Taiwan Dual-Listings Monitor: TSMC Historically Extreme Premium Continues; CHT at Short Level Again
- Chow Tai Fook (1929 HK): Disappointed
CSI300/CSI500 Index Rebalance: Big Flows and US$5bn Round-Trip Trade
- There are 12 changes for the CSI 300 Index (SHSZ300 INDEX) and 50 changes for the CSI Smallcap 500 Index (SH000905 INDEX) in June. Most changes were expected.
- There are a lot of stocks with over 1 day of ADV to trade. The round-trip trade in June is estimated to be US$5bn.
- The adds have outperformed the deletes for both indices but the return profile of a long adds/ short deletes trade for the CSI500 Index is a lot smoother.
Technology Select Sector Index (XLK US): NVIDIA Could Flip Places with Apple; HUGE Flows
- The Technology Select Sector SPDR (XLK US) ETF tracks the Technology Select Sector Index and has an AUM of over US$70bn.
- NVIDIA Corp (NVDA US) has broken through the US$3tn market cap barrier and is very close to Apple (AAPL US) in terms of free float market cap.
- If NVIDIA ranks higher than Apple on free float market cap at the close on Friday, there could be huge inflows to NVIDIA and outflows from Apple a week later.
Specifics of Korea’s Official Short-Selling Regulations, Announced This Morning
- Limiting extensions to four times after a 90-day repayment and mandating repayment after 12 months increases short-selling costs. The revision omits limits on position-holding cycles, disappointing retail investors.
- Today’s release did not set a timeline for short-selling resumption. The ruling party has requested it after March 2025, with key officials present suggesting next year March resumption.
- Regarding the electronic system implementation, core content aligns with the draft, but newly revealed institution numbers add a new perspective. Uncertainties remain on integrating overseas stock borrowing into the system.
Proposed Merger Between Rebellions and Sapeon – To Challenge Nvidia
- On 12 June, SK Telecom (017670 KS) confirmed that its affiliate Sapeon plans to merge with its competitor Rebellions by end of this year.
- Sapeon and Rebellions’ largest global competitor is Nvidia. A key aim of the merger is to challenge Nvidia and try to take away its global dominance in AI chips.
- If the combined Sapeon and Rebellion can take away just 1% market share resulting in 1% of Nvidia’s market cap, this would suggest valuation of US$31 billion.
A8 Media (800 HK): A 163% Premium to Undisturbed? Yes Please.
- Following a suspension on the 28th May, property rental play A8 New Media (800 HK) has now announced an Offer by way of a Scheme from chairman/founder/major shareholder Liu Xiaosong.
- The Cancellation price is $0.36, a whopping 162.77% to last close. The price is final.
- This is a done deal. But A8 is an illiquid micro cap.
Ban on Short Selling Stocks in Korea Extended Until March 2025
- On 13 June, the Korean government announced that it will extend a ban on short selling stocks in Korea until end of March 2025.
- For now, the government has not given a 100% go-ahead on the end of the ban on short selling stocks starting 1 April 2025.
- However, in our view, the government is likely to allow short selling stocks in Korea once again, sometime in 2Q 2025.
NIFTY NEXT50 Index Rebalance Preview: Active Meets Passive
- With a substantial part of the review period complete, there could potentially be 7 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September.
- Estimated one-way turnover is 17.7% resulting in a one-way trade of INR 47.2bn (US$566m). 8 stocks will have over 1x ADV to trade from passive trackers.
- There are a bunch of stocks that are potential migrations between Mid Cap and Large Cap segments in the AMFI Classification system and there will be flows from active managers.
Sigma/Chemist Warehouse Merger: ACCC Has (Many) Issues
- Back on the 11th December 2023, pharmacy distributor Sigma Healthcare (SIG AU) announced a “transformational merger” – in effect a reverse takeover – with mega chain Chemist Warehouse (CWG).
- In Sigma Healthcare (SIG AU): Chemist Warehouse’s Reverse Takeover I flagged pushback from ACCC; but on balance thought the merger should still get up.
- Travis Lundy struck a more tentative tone in Sigma Healthcare: ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe… Rightfully so it seems. The ACCC has now raised competition concerns.
Taiwan Dual-Listings Monitor: TSMC Historically Extreme Premium Continues; CHT at Short Level Again
- TSMC: +21.3% Premium; Trading at New +15-25% Range This Year
- ASE: +12.7% Premium; We Continue to View 14%+ as Fresh Short Level
- CHT: +1.2% Premium; Good Level to Short Relative to History
Chow Tai Fook (1929 HK): Disappointed
- Chow Tai Fook Jewellery (1929 HK) reported a weaker-than-expected FY24 net profit. Despite having HK$2.2bn net cash, the lack of a special dividend is even more disappointing.
- Surge in unrealised loss on gold loans and a YoY contraction in margin have contributed to the poor 2H24 result. Apr-May operating figures showed a deteriorated operating environment.
- Lacking a special dividend, CTF no longer looks attractive at the current level. Overoptimistic FY25 and FY26 consensus forecasts mean earnings downgrade pressure.
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