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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

It seems to be spin-off season in Korea.Three <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 <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituents will be suspended from trading from 29 April - <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> and <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> due to a spin-off of its businesses.<a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will resume trading on 21 May, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will resume trading on 27 May, and <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> will resume trading on 28 May.<a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will remain in 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 its spinoff will be added to the index, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will remain in 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> but the spinoff will not be added to the index, <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> will continue to be a <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance of 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>.

It seems to be spin-off season in Korea.Three Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) constituents will be suspended from trading from 29 April - LG Corp (003550 KS), F&amp;F Co Ltd (007700 KS) and Ecopro Co Ltd (086520 KS) due to a spin-off of its businesses.F&amp;F Co Ltd (007700 KS) will resume trading on 21 May, LG Corp (003550 KS) will resume trading on 27 May, and Ecopro Co Ltd (086520 KS) will resume trading on 28 May.LG Corp (003550 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and its spinoff will be added to the index, F&amp;F Co Ltd (007700 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) but the spinoff will not be added to the index, Ecopro Co Ltd (086520 KS) will continue to be a KOSDAQ 150 Index (KOSDQ150 INDEX) constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX). 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.

EM Remains Global Leadership -- Remain Overweight

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Whilst Q4's list posted strong price performance it was a case that a rising tide floated most boats. As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. In Q1, the Altman Z score is at a market-cap-weighted 1.03 times, a significant decrease on the 1.52 in Q4. This deterioration needs to be monitored since earnings continue to be adjusted by analysts and their limited visibility of any bottoming. 25 stocks appear in our Q1 2021 screen, versus 15 in Q4 2020.

Whilst Q4's list posted strong price performance it was a case that a rising tide floated most boats. As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. In Q1, the Altman Z score is at a market-cap-weighted 1.03 times, a significant decrease on the 1.52 in Q4. This deterioration needs to be monitored since earnings continue to be adjusted by analysts and their limited visibility of any bottoming. 25 stocks appear in our Q1 2021 screen, versus 15 in Q4 2020.

Screening the Silk Road: Q1 2021 High Risk Names to Avoid

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Our base case valuation multiple for E&amp;D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this results in an implied market cap of 263 billion won or 25,309 won per share. This represents a 63% upside from current levels. Given the strong upside, we have a positive view of this stock over a one year view.The 19x P/E valuation multiple represents a 20% discount to the bankers' valuation multiple of 23.8x. A key reason why the company continues to trade at a steep discount to its peers is that the market is still not uncertain as to how long the company will be able to maintain its excellent sales and profit growth. As such, as the company continues to post excellent results, our 20% valuation discount to its peers may actually be too conservative.We forecast the company to generate 96.2 billion won in sales (up 65% YoY) and an operating profit of 21.2 billion won (up 116% YoY) in 2020. We estimate the company's sales growth to decline to 27% YoY in 2021. One of the key catalysts of the company's surging growth in sales and profits has been the fact that the fine dust issue has emerged one of the biggest social problems in Korea and other parts of the world. There have been increased regulations on diesel and obsolete vehicles, increasing the mandatory installation of the emission reduction devices.

Our base case valuation multiple for E&amp;D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this results in an implied market cap of 263 billion won or 25,309 won per share. This represents a 63% upside from current levels. Given the strong upside, we have a positive view of this stock over a one year view.The 19x P/E valuation multiple represents a 20% discount to the bankers' valuation multiple of 23.8x. A key reason why the company continues to trade at a steep discount to its peers is that the market is still not uncertain as to how long the company will be able to maintain its excellent sales and profit growth. As such, as the company continues to post excellent results, our 20% valuation discount to its peers may actually be too conservative.We forecast the company to generate 96.2 billion won in sales (up 65% YoY) and an operating profit of 21.2 billion won (up 116% YoY) in 2020. We estimate the company's sales growth to decline to 27% YoY in 2021. One of the key catalysts of the company's surging growth in sales and profits has been the fact that the fine dust issue has emerged one of the biggest social problems in Korea and other parts of the world. There have been increased regulations on diesel and obsolete vehicles, increasing the mandatory installation of the emission reduction devices. 

South Korea

Ecopro Co., Ltd. specializes in developing chemical absorbent and NDC (Nano Carbon Ball) in the field of environmental materials for the prevention of air pollution.  The Company's products include environment-related chemical filters, second battery materials, and CO catalyst.

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Ecopro Co Ltd (086520 KS)

Korea Spin-Offs: Index Treatment

LG Corp, F&F and Ecopro will be suspended from trading on 29 April due to their spin offs. Passive funds will sell stock at the close on 28 April...

Brian Freitas

EM Remains Global Leadership -- Remain Overweight

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight.

Vermilion Research

Screening the Silk Road: Q1 2021 High Risk Names to Avoid

As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. 25 stocks...

David Lepper

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

Our Q3 screen delivered 600bps of under performance. With volatility is set to increase as we head into H1 2020, which stocks are most at risk in...

David Lepper

E&D Co Valuation Analysis

Our base case valuation multiple for E&D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this...

Douglas Kim

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