This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. JSR (4185) – Very Juicy Arb Return At Expected Timeline
- Five weeks ago, JIC announced a delay in the commencement of the Tender Offer to buy JSR Corp (4185 JP), originally scheduled to start by end-December 2023.
- In the announcement, they said they expected the deal to start by end-February. In the press conference afterwards, JIC CEO Yokoo said “no particular issues with the Chinese regulator.”
- He then added he expected the deal to be done by March-end. Language is vague. I expect that means to start by then, but even then, annualised is now 30%.
2. Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
- The JIC Deal for Shinko Electric Industries (6967 JP) started trading wide when announced five weeks ago. It is still at 9% for perhaps 9 months.
- There is FUD. There are Flows. Just like JSR (4185). Some of that FUD can be explained by “gap risk” on deal break…. or can it? We look at risks.
- 5 weeks ago, there was more positioning risk than fundamental risk. But now main comp Ibiden has outperformed Shinko by 17%. Gap risk is fundamentally lower now. Bump risk exists.
3. Renesas Electronics (6723 JP): Passives Will Need to Buy a LOT This Year
- Hitachi Ltd (6501 JP) and NEC Corp (6701 JP) are looking to sell their entire stake in Renesas Electronics (6723 JP) in a deal that will raise around US$2.2bn.
- Renesas Electronics (6723 JP) dropped a bit in November following INCJ’s stake sale but momentum has picked up again as the stock reaches for new highs.
- The float increase in global indices will coincide with the offering. There will be BIG buying by TSE Tokyo Price Index TOPIX (TPX INDEX) trackers in October.
4. Hong Kong: Where Could Shorts Be Covered?
- Short notional in Hong Kong is HK$335bn and has been falling over the last 12 months due to a drop in the market.
- In terms of short notional to marketcap, the Materials, Consumer Staples, Health Care, Utilities, Real Estate sectors are most shorted while the least shorted are Information Technology, Communication Services, Energy.
- The largest shorts have been built on BYD (1211), XPeng (9868), ICBC (1398), Xiaomi (1810), Link REIT (823), JD.com (9618), Wharf Holdings (4) and New World Development (17).
5. Ping An A/H Premium: Blow Out Could Lead to Sharp Reversal
- Ping An Insurance (601318 CH) trades at a 40% premium to Ping An Insurance (2318 HK). The premium has blown out the last week and there could be a reversal.
- The difference in Ping An’s AH premium versus the HSAHP Index has shrunk to its narrowest level in the last 10 years.
- Shareholding in Ping An Insurance Group of (601318 CH) via Northbound Connect has dropped and shareholding in Ping An Insurance (H) (2318 HK) via Southbound Connect has increased steadily.
6. TSE Action to Implement Management Conscious of Capital Cost and Stock Price – The Data Tool
- A few days ago, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】
- That translates to “Action to Implement Management That is Conscious of Cost of Capital and Stock Price”. The TSE asked companies in Mar-2023 to formulate and disclose a policy.
- Some have. Some have not. The TSE made a list. They will update the list every month. However, their list is wholly inadequate, so we made it better.
7. CSI500 Index Rebalance Preview: High Turnover & Big Flow
- With three-quarters of the review period nearly complete, we forecast 50 changes (the maximum permitted) for the CSI 500 Index at the close on 14 June.
- There is a big sector skew in the potential changes. We estimate a one-way turnover of 9.1% at the June rebalance resulting in a one-way trade of CNY 5.34bn.
- The potential adds and deletes and the CSI 500 Index have performed in line since August and the current setup appears attractive.
8. CSI300 Index Rebalance Preview: A Dozen Changes for June
- With three-quarters of the review period nearly complete, there could be 12 changes for the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) in June.
- We estimate one-way turnover of 1.3% at the June rebalance leading to a one-way trade of CNY 5.06bn. There are a lot of stocks with over 1x ADV to trade.
- There have been big ETF inflows to the CSI 300 Index trackers, but the potential adds have still outperformed the index and the potential deletes.
9. China: Sliding Market Leads to Passive Selling
- The China equity markets have continued to slide and the lower market caps and free float market caps will see a lot of stocks deleted from passive portfolios in February.
- We currently estimate selling of around US$1.66bn across 74 stocks listed on the mainland, in HK and the U.S., and that number could increase as markets continue to underperform.
- The potential deletes have dropped a lot over the last 4 months and there has been a marked underperformance versus the headline indices over the last month.
10. KOSDAQ150 Adhoc Index Rebalance: Seronics to Replace L&F
- L&F Co Ltd (066970 KS) will move from the KOSDAQ Market to the KOSPI Market on 29 January. That means KOSDAQ 150 Index deletion at the close on 26 January.
- As the highest ranked non-constituent from the Information Technology sector at the December rebalance, Seronics Co Ltd (042600 KS) will be added to the index.
- Short interest on L&F Co (066970 KS) is 1.8m shares (KRW 364bn; 4.98% of shares outstanding; 7.24% of float; 2.4x ADV). There could be recalls from passives and forced covering.
