1. Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications
- Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
- News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
- There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.
2. Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights
- There seems to be no immediate requirement to close existing contracts. However, even the chairman of the Financial Services Commission was unable to offer a definitive answer.
- The comprehensive investigation and prohibition of the customary naked short selling could lead to a rapid decline in overall market liquidity.
- The first is the short-term view, focusing on futures backwardation, and the second is the medium to long-term perspective, examining how the overall market liquidity decline will affect market flows.
3. Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates
- Tencent (700 HK) announced in-specie dividends of JD.com (9618 HK) (US$15bn+) in 2021 and Meituan (3690 HK) (US$20bn) in 2022.
- With the Tencent (700 HK) Board meeting on 15 November to approve Q3 results and considering the payment of a dividend, the pattern could repeat this year.
- Tencent (700 HK) owns stakes of US$1bn+ in 10 listed companies. We take a look at the stocks that could be next in line to be paid as in-specie dividends.
4. Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation
- We should consider the complete prohibition of short selling for the next six months as practically finalized.
- Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
- We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.
5. Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
- Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
- ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
- Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.
6. Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban
- Given Korea’s blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
- It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
- Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.
7. Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
- Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
- A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
- Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.
8. Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes
- Lee family plans to sell additional 2.6 trillion won worth of Samsung Group companies as part of their fourth installment of inheritance taxes.
- This inheritance tax share sale is likely to have a negative impact on Samsung Electronics, Samsung C&T, Samsung SDS, and Samsung Life Insurance.
- This may be just a coincidence but the regulators announced today a temporary ban on stock short selling which should help the Lee family to unload their shares.
9. Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
- INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
- Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
- The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-
10. SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
- With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
- Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.
Weekly Top Ten Event-Driven and Index Rebalance
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