Weekly Top Ten Event-Driven and Index Rebalance – Jan 7, 2024

1. HSCI Index Rebalance Preview and Stock Connect: Potential Changes in March

By Brian Freitas, Periscope Analytics

• We see 30 potential adds (including plenty of new listings) and 28 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in March.
• We expect 26 stocks to be added to Southbound Stock Connect following the rebalance while 25 stocks could be deleted from the trading link and become Sell-only.
• There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.

2. Allkem + Livent = Arcadium : Updated Expected Index Flows

By Travis Lundy, Quiddity Advisors

• Allkem Ltd (AKE AU) saw its last day of trading on 21 December. There was large volume at the close as one major index provider gave it the boot. 
• Another delayed their treatment at the last minute, and eliminated a cross-flow.
• But there is still a lot of net buy flow tomorrow (3 Jan) and the next day in the US. Perhaps more than I expected. 

3. Korea’s Short Selling Ban to Stay, Likely Until EquiLend-Korean Version Launch

By Sanghyun Park, Clepsydra Capital

• Local market information indicates potential collaboration between KRX, FSS, and KSD to create a Korean EquiLend, aiming to centralize the stock lending channel.
• Unprecedented globally, President Yoon aims to centralize short selling. The challenge lies in mandating foreign investors to use Korea’s platform, necessitating a complex legal framework.
• Despite the difficulty, local authorities are compelled to pursue this initiative, raising the likelihood of a Korean EquiLend. Developing strategic plans in response is imperative.

4. KRX New Deal Index Rebalance Preview: Changes with Flow & Impact

By Brian Freitas, Periscope Analytics

• The review period for the March rebalance ends on 31 January, the changes will be announced early March and implemented at the close of trading on 14 March.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. There are two changes for the BBIG Index.
• There will be big flow on Ecopro BM (247540 KS) and Posco Future M (003670 KS) and big impact on Douzone Bizon (012510 KS) and DearU (376300 KS). 

5. HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time

By Brian Freitas, Periscope Analytics

• Zhongsheng Group (881 HK) pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.
• With BeiGene (6160 HK) failing the Velocity Test for Tradeable Indexes, Zhongsheng Group (881 HK)‘s deletion from the index should result in China Unicom Hong Kong (762 HK)‘s inclusion. 
• Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.

6. New Year New NISA Accounts – It’s BIG, But Not so Big

By Travis Lundy, Quiddity Advisors

• The Kishida administration put out a Doubling Asset-Based Income Plan in 2022. The goal? To get cash savings (corporate/individual) into growth assets and increase asset-based return contribution to income.
• The goal included doubling the number of NISA accounts, and the amount invested in the next five years. On 1 January 2024, NEW NISA account contribution totals were trebled.
• If accounts double, and contribution totals treble, and exemptions are now permanent, investment doubling is a quasi-certainty. The question is how it turns into income-producing assets. That’s MUCH tougher.

7. NIFTY NEXT50 Index Rebalance Preview: Potential Adds Skyrocketing

By Brian Freitas, Periscope Analytics

• Nearing the end of the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
• Estimated one-way turnover is 13.9% resulting in a one-way trade of INR 26.9bn. There will be more than 1.5x ADV to sell on nearly all deletes.
• The potential adds have outperformed the potential deletes by 35% over the last two months and some stocks are looking extremely frothy.

8. Merger Arb Mondays (01 Jan) – Weiqiao Textile, IRC, IJTT, JSR, Shinko Electric, Hollysys, OreCorp

By Arun George, Global Equity Research Ltd

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU). 
• Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group Holdings (PGH AU). 

9. NIFTY50 Index Rebalance Preview: One Change, Maybe Two, Low Probability of Three

By Brian Freitas, Periscope Analytics

• Shriram Finance (SHFL IN) is a high probability add and UPL Ltd (UPLL IN) is a high probability delete at the NIFTY Index (NIFTY INDEX) rebalance in March.
• There is a lower probability of Bharat Electronics (BHE IN) or Trent Ltd (TRENT IN) replacing Bharat Petroleum Corp (BPCL IN) at the rebalance.
• Jio Financial Services (JIOFIN IN), Avenue Supermarts Ltd (DMART IN) and Zomato (ZOMATO IN) will enter the running once added to the F&O segment of the market.

10. NIFTY Bank Index Rebalance Preview: Canara Bank Could Replace Bandhan Bank

By Brian Freitas, Periscope Analytics

• Canara Bank (CBK IN) could replace Bandhan Bank Ltd (BANDHAN IN) in the NSE Nifty Bank Index (NSEBANK INDEX) at the March rebalance.
• Passive trackers will need to buy 2 days of ADV on Canara Bank (CBK IN) while selling over 1 day of ADV on Bandhan Bank Ltd (BANDHAN IN). 
• The impact is even higher where passives will need to buy nearly 6x delivery volumes in Canara Bank and sell 3x delivery volumes in Bandhan Bank Ltd.