Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>Applying the T+3 relisting date as the effective date will again lead to noteworthy changes to the timeline of rebalancing flow trading.</li>
<li>It seems unnecessary to concentrate shorting on the trading halt day for Dongkuk Steel. We should aim for price corrections driven by passive flows on the T+2 period before effective.</li>
<li>Despite the Dongkuk Steel shareholders' approval on the 12th, Youlchon Chemical's price experienced a significant decline. The ongoing risk of major shareholder stake sales appears to have overshadowed this event.</li>
</ul>


Applying the T+3 relisting date as the effective date will again lead to noteworthy changes to the timeline of rebalancing flow trading.
It seems unnecessary to concentrate shorting on the trading halt day for Dongkuk Steel. We should aim for price corrections driven by passive flows on the T+2 period before effective.
Despite the Dongkuk Steel shareholders' approval on the 12th, Youlchon Chemical's price experienced a significant decline. The ongoing risk of major shareholder stake sales appears to have overshadowed this event.


KOSPI 200 Ad-Hoc Changes for Dongkuk Steel Spinoff: Discussing Flow Trading Timeline

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

Index Rebalance

<ul>
<li>Following the spin-off, <a href="https://www.smartkarma.com/entities/dongkuk-steel-mill-co-ltd" target="_blank" data-smartkarma-citation="entities:7293:1" rel="noopener">Dongkuk Steel Mill (001230 KS)</a> will be deleted from the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> and replaced with <a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a> just missed being added to the index at the June rebalance but will be added a couple of weeks after the regular rebalance.</li>
<li>Shorts on <a href="https://www.smartkarma.com/entities/dongkuk-steel-mill-co-ltd" target="_blank" data-smartkarma-citation="entities:7293:1" rel="noopener">Dongkuk Steel Mill (001230 KS)</a> have increased over the last month but overall short interest is way below historical levels.</li>
</ul>


Following the spin-off, Dongkuk Steel Mill (001230 KS) will be deleted from the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and replaced with Youlchon Chemical (008730 KS). 

Youlchon Chemical (008730 KS) just missed being added to the index at the June rebalance but will be added a couple of weeks after the regular rebalance.
Shorts on Dongkuk Steel Mill (001230 KS) have increased over the last month but overall short interest is way below historical levels.


KOSPI200 Ad Hoc Index Rebalance: Youlchon Chem to Replace Dongkuk Steel Mill

<ul>
<li>There will be 2 additions and 2 deletions for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> at the June rebalance that will be implemented on 8 June.</li>
<li>
<a href="https://www.smartkarma.com/entities/kum-yang-co-ltd" target="_blank" data-smartkarma-citation="entities:10364:1" rel="noopener">Kum Yang (001570 KS)</a> and <a href="https://www.smartkarma.com/entities/cosmochemical-co-ltd" target="_blank" data-smartkarma-citation="entities:3747:1" rel="noopener">Cosmochemical (005420 KS)</a>, both high probability names, are inclusions while <a href="https://www.smartkarma.com/entities/hwaseung-enterprise-co-ltd" target="_blank" data-smartkarma-citation="entities:35611:1" rel="noopener">Hwaseung Enterprise (241590 KS)</a> and <a href="https://www.smartkarma.com/entities/dongwon-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:1783:1" rel="noopener">Dongwon Industries (006040 KS)</a> are deletions.</li>
<li>Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.</li>
</ul>


There will be 2 additions and 2 deletions for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the June rebalance that will be implemented on 8 June.

Kum Yang (001570 KS) and Cosmochemical (005420 KS), both high probability names, are inclusions while Hwaseung Enterprise (241590 KS) and Dongwon Industries (006040 KS) are deletions.
Not surpisingly, there is almost no short interest on the adds. Short interest on the deletes is higher and rising. Expect short covering on the deletes prior to implementation.


KOSPI200 Index Rebalance: Two Sets of Changes

<ul>
<li>With 4 trading days left in the review period, we see three potential changes for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in June.</li>
<li>
<a href="https://www.smartkarma.com/entities/kum-yang-co-ltd" target="_blank" data-smartkarma-citation="entities:10364:1" rel="noopener">Kum Yang (001570 KS)</a>, <a href="https://www.smartkarma.com/entities/cosmochemical-co-ltd" target="_blank" data-smartkarma-citation="entities:3747:1" rel="noopener">Cosmochemical (005420 KS)</a> and <a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a> could replace <a href="https://www.smartkarma.com/entities/dongwon-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:1783:1" rel="noopener">Dongwon Industries (006040 KS)</a>, <a href="https://www.smartkarma.com/entities/hwaseung-enterprise-co-ltd" target="_blank" data-smartkarma-citation="entities:35611:1" rel="noopener">Hwaseung Enterprise (241590 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-home-shopping-network-corp" target="_blank" data-smartkarma-citation="entities:2357:1" rel="noopener">Hyundai Home Shopping Network (057050 KS)</a>. </li>
<li>If approved by shareholders, the <a href="https://www.smartkarma.com/entities/dongkuk-steel-mill-co-ltd" target="_blank" data-smartkarma-citation="entities:7293:1" rel="noopener">Dongkuk Steel Mill (001230 KS)</a> split increases the probability of <a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a> inclusion and <a href="https://www.smartkarma.com/entities/hyundai-home-shopping-network-corp" target="_blank" data-smartkarma-citation="entities:2357:1" rel="noopener">Hyundai Home Shopping Network (057050 KS)</a> could avoid deletion.</li>
</ul>


With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.

Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS). 
If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.


KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

<ul>
<li>Dongwon Industries’ float rate is less than 10% (1 - 63.15% - 27.65% = 9.20%), which makes it ineligible for KOSPI 200. KRX will reflect this in the June review.</li>
<li>The passive outflow size due to K200 deletion is expected to be about 50 billion won, which will cause an impact of about 28x ADTV.</li>
<li>Considering this deletion has not been sufficiently exposed in the market, the actual price impact may be even more significant and preemptive.</li>
</ul>


Dongwon Industries’ float rate is less than 10% (1 - 63.15% - 27.65% = 9.20%), which makes it ineligible for KOSPI 200. KRX will reflect this in the June review.
The passive outflow size due to K200 deletion is expected to be about 50 billion won, which will cause an impact of about 28x ADTV.
Considering this deletion has not been sufficiently exposed in the market, the actual price impact may be even more significant and preemptive.


Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion

South Korea

Dongkuk Steel Mill Co., Ltd. manufactures a variety of steel products.  The Company's products include rod steel for reinforced concrete, shape steel, and steel sheet for the construction and shipbuilding industries.

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Dongkuk Steel Mill (001230 KS)

KOSPI 200 Ad-Hoc Changes for Dongkuk Steel Spinoff: Discussing Flow Trading Timeline

This post details the KOSPI 200 corporate actions for Dongkuk Steel spinoff, which involves the addition of Youlchon Chemical, and discusses the...

Sanghyun Park

KOSPI200 Ad Hoc Index Rebalance: Youlchon Chem to Replace Dongkuk Steel Mill

Youlchon Chem will replace Dongkuk Steel Mill in the KOSPI200 on 20 June. There is between 4-6x ADV to trade on the stocks. Short interest has been...

Brian Freitas

KOSPI200 Index Rebalance: Two Sets of Changes

Kumyang & CosmoChem will be added to the KOSPI200 in June. Both stocks ran up a lot and are now correcting - they become short sell eligible from...

Brian Freitas

KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

There could be 3 changes for the KOSPI20 in June with Youlchon Chemical sitting at the cusp. The impact on the deletes will be higher and short...

Brian Freitas

Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion

This post presents the shorting opportunity on Dongwon Industries, which will likely be deleted in the KOSPI 200 June review, as its free-float...

Sanghyun Park

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