Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>After narrowly avoiding deletion at the last two index reviews, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group</a> will be deleted from the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">HSCEI INDEX</a> in March and replaced with <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom (762 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> is down 25% for the year while <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> is up 10%.</li>
<li>There appears to be positioning on both stocks though the increase in shorts and jump in cumulative excess volume on <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> point to higher positioning.</li>
</ul>


After narrowly avoiding deletion at the last two index reviews, Zhongsheng Group will be deleted from the HSCEI INDEX in March and replaced with China Unicom (762 HK). 

Zhongsheng Group (881 HK) is down 25% for the year while China Unicom Hong Kong (762 HK) is up 10%.
There appears to be positioning on both stocks though the increase in shorts and jump in cumulative excess volume on Zhongsheng Group (881 HK) point to higher positioning.


HSCEI Index Rebalance: Third Time Unlucky for Zhongsheng (881 HK) As China Unicom (762 HK) In

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> remains inexpensive with respect to parent <a href="https://www.smartkarma.com/entities/china-united-network-a" target="_blank" data-smartkarma-citation="entities:12620:1" rel="noopener">China United Network A (600050 CH)</a> - its hybrid domestic A-share twin - and to peers.</li>
<li>Preceding my comments on Unicom, are the current setup/unwind tables for Asia-Pacific Holdcos.</li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>



China Unicom Hong Kong (762 HK) remains inexpensive with respect to parent China United Network A (600050 CH) - its hybrid domestic A-share twin - and to peers.
Preceding my comments on Unicom, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


Equity Bottom-Up

China Unicom Hong Kong / Equity Bottom-Up

<ul>
<li>The rapid adoption of cloud computing has led to China boasting the world’s second-largest cloud computing market.</li>
<li>This migration to the cloud is in lock-step with global customer needs: scale, greater efficiency, and availability; together with a reduction in capex and infrastructure complexity.</li>
<li>The big three PRC telcos are firmly in the mix, with each announcing 100%+ growth in revenue for their cloud businesses in 1H22. Expect that trend to continue.</li>
</ul>


The rapid adoption of cloud computing has led to China boasting the world’s second-largest cloud computing market.
This migration to the cloud is in lock-step with global customer needs: scale, greater efficiency, and availability; together with a reduction in capex and infrastructure complexity.
The big three PRC telcos are firmly in the mix, with each announcing 100%+ growth in revenue for their cloud businesses in 1H22. Expect that trend to continue.


Travis Lundy

In very early January, the NYSE decided that <a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> ADRs needed to be delisted. Then they didn't need to be delisted. Then they again needed to be delisted and we are on a path to seeing that complete shortly.The stock was subject to Trump's Executive Order 13959 regarding Communist Chinese Military Companies as were the shares of other Chinese telcos and China Mobile shares were deleted from global indices. That event marked a local low in the first week of January and shares promptly rallied 30%, later settling at an easy 15-20% above the index deletion point. This, and the fact that China a couple of years ago created a method for overseas-jurisdiction Chinese companies to list in China - particularly for very high market cap "tech" companies aiming to take market share from the US for its high-trading value "exported tickers" meant that at some point, the Chinese telcos creating a secondary listing in China was not going to be a surprise. Taking the example of <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a> which received permission in April to list its shares in mainland markets, on 17 May China Mobile announced its board had decided to pursue a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0517/2021051701190.pdf" target="_blank" rel="noopener">Proposed RMB Share Issue</a>.A week later, and we have a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0524/2021052400195.pdf" target="_blank" rel="noopener">Circular</a>.China Mobile shareholders are being asked to accept that management issue some RMB 50+bn of shares for the stated purpose of investing in "the development of premium 5G networks, the development of new infrastructure for cloud resources, the development of gigabit broadband and smart home, the development of smart mid-end platform, the research and development of the next-generation information technology and digitalized and intelligent ecosystem."That sounds reasonable enough as a concept, but it ignores the fact that China Mobile has nine times that much money in available cash. and eight times that amount in net cash + securities holdings.If China Mobile shares were trading at a high multiple, this might be forgivable, but the shares are trading at a forward adjusted EV/EBITDA multiple of 1.6x and an ex-net cash &amp; securities PER of less than 4x. There are mitigants here. There is possible pricing at a premium to the Hs. There are "price stabilization measures". There are "shareholder return" measures. Some of these might be really worthwhile. The governance issues involved in this Circular and project remain problematic. But there are little stars here, twinkling in the darkness. More below the fold.

In very early January, the NYSE decided that China Mobile (941 HK) ADRs needed to be delisted. Then they didn't need to be delisted. Then they again needed to be delisted and we are on a path to seeing that complete shortly.The stock was subject to Trump's Executive Order 13959 regarding Communist Chinese Military Companies as were the shares of other Chinese telcos and China Mobile shares were deleted from global indices. That event marked a local low in the first week of January and shares promptly rallied 30%, later settling at an easy 15-20% above the index deletion point. This, and the fact that China a couple of years ago created a method for overseas-jurisdiction Chinese companies to list in China - particularly for very high market cap "tech" companies aiming to take market share from the US for its high-trading value "exported tickers" meant that at some point, the Chinese telcos creating a secondary listing in China was not going to be a surprise. Taking the example of China Telecom Corp Ltd (H) (728 HK) which received permission in April to list its shares in mainland markets, on 17 May China Mobile announced its board had decided to pursue a Proposed RMB Share Issue.A week later, and we have a Circular.China Mobile shareholders are being asked to accept that management issue some RMB 50+bn of shares for the stated purpose of investing in "the development of premium 5G networks, the development of new infrastructure for cloud resources, the development of gigabit broadband and smart home, the development of smart mid-end platform, the research and development of the next-generation information technology and digitalized and intelligent ecosystem."That sounds reasonable enough as a concept, but it ignores the fact that China Mobile has nine times that much money in available cash. and eight times that amount in net cash + securities holdings.If China Mobile shares were trading at a high multiple, this might be forgivable, but the shares are trading at a forward adjusted EV/EBITDA multiple of 1.6x and an ex-net cash &amp; securities PER of less than 4x. There are mitigants here. There is possible pricing at a premium to the Hs. There are "price stabilization measures". There are "shareholder return" measures. Some of these might be really worthwhile. The governance issues involved in this Circular and project remain problematic. But there are little stars here, twinkling in the darkness. More below the fold.

China Mobile (941 HK) - It Could Have Been Done Better, But It Ain't Bad for Hs

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> is in deletion zone and could be deleted. <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> could be added to the index as the highest ranked non-index constituent.</li>
<li>Estimated one-way turnover at the rebalance is 2.14% resulting in a one-way trade of HK$1.38bn. <a href="https://www.smartkarma.com/entities/meituan" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd-d7b798e2-202d-4e01-9a1e-799e2ae8f0c7" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> will be capped higher.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> is supported on its 50/100 day moving averages and could move higher. <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> has been trading below its moving averages.</li>
</ul>



Zhongsheng Group (881 HK) is in deletion zone and could be deleted. China Unicom Hong Kong (762 HK) could be added to the index as the highest ranked non-index constituent.
Estimated one-way turnover at the rebalance is 2.14% resulting in a one-way trade of HK$1.38bn. Meituan (3690 HK), Alibaba Group (9988 HK) and Tencent (700 HK) will be capped higher.

China Unicom Hong Kong (762 HK) is supported on its 50/100 day moving averages and could move higher. Zhongsheng Group (881 HK) has been trading below its moving averages.


HSCEI Index Rebalance Preview: One Change; Capping Impact Increases

Hong Kong

China Unicom (Hong Kong) Limited, through its subsidiaries, provides telecommunications services in the People's Republic of China.  The Company's services include cellular, paging, long distance, data, and Internet services.

China Unicom Hong Kong (762 HK)

HSCEI Index Rebalance: Third Time Unlucky for Zhongsheng (881 HK) As China Unicom (762 HK) In

China Unicom replaces Zhongsheng in the HSCEI in March. Shorts have started to tick higher and there is positioning in Zhongsheng. Positioning in...

Brian Freitas

StubWorld: Unicom's "Hs" Are Still Cheap

As Unicom and United are essentially one & the same, I recommend going long Unicom, short China United due to Unicom's significantly cheaper...

David Blennerhassett

China Telcos: Send In The Clouds

At 1x forward EV/EBITDA and a 5.6% yield, Unicom is cheap. I don't have a bone to pick with Mobile at 2.1x and a 7.9% yield; or Telecom - but...

David Blennerhassett

China Mobile (941 HK) - It Could Have Been Done Better, But It Ain't Bad for Hs

China Mobile will follow China Telecom in issuing A-shares. The constructs are almost identical. Both suggest upside to the Hs, perhaps more for...

Travis Lundy

HSCEI Index Rebalance Preview: One Change; Capping Impact Increases

China Unicom IN, Zhongsheng Group OUT likely. Passive trackers will need to trade over 2x ADV on both stocks. Meituan, Alibaba, Tencent capped...

Brian Freitas