Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Event-Driven

<ul>
<li>TIGER ETF (305540) rebalanced on January 11th, with Ecopro Materials correcting by 4%, contrasting a 20% surge from Jan 8-10. TIGER recorded net purchases aligning with a 2% inclusion weight.</li>
<li>Preemptive positions by local hedge funds were observed from Jan 8-10, closing on the 11th. Despite a KOSPI decline and minimal sector movement, Ecopro Materials exhibited this unusual price pattern.</li>
<li>Observing this pattern implies a potential recurrence during the March rebalancing of KODEX ETF. Notably, local hedge funds may initiate similar preemptive positions. We should consider this in position setup.</li>
</ul>


TIGER ETF (305540) rebalanced on January 11th, with Ecopro Materials correcting by 4%, contrasting a 20% surge from Jan 8-10. TIGER recorded net purchases aligning with a 2% inclusion weight.
Preemptive positions by local hedge funds were observed from Jan 8-10, closing on the 11th. Despite a KOSPI decline and minimal sector movement, Ecopro Materials exhibited this unusual price pattern.
Observing this pattern implies a potential recurrence during the March rebalancing of KODEX ETF. Notably, local hedge funds may initiate similar preemptive positions. We should consider this in position setup.


Spotting Position Patterns: TIGER Battery ETF January Review & KODEX ETF's March Rebalancing

<ul>
<li>We now have an environment that allows Korea's battery ETFs to include LG Chem in upcoming reviews. KODEX is in June, and TIGER is in July.</li>
<li>If LG Chem is included in each review, the expected one-day inflow is at 0.7-0.8x DTV, which can lead to a price impact similar to that of SKIET in 2021.</li>
<li>We should consider setups targeting this, including Long Short, which utilizes LG Energy Solution or LG Corp as a hedge.</li>
</ul>


We now have an environment that allows Korea's battery ETFs to include LG Chem in upcoming reviews. KODEX is in June, and TIGER is in July.
If LG Chem is included in each review, the expected one-day inflow is at 0.7-0.8x DTV, which can lead to a price impact similar to that of SKIET in 2021.
We should consider setups targeting this, including Long Short, which utilizes LG Energy Solution or LG Corp as a hedge.


Flow Trading Opportunities on LG Chem with Potential Inclusion in Battery ETFs

<ul>
<li>WCP will likely be included in the rebalancing of Samsung KODEX Secondary Battery Industry ETF in June. And we should consider the possibility of this happening to be quite high.</li>
<li>We can expect a daily passive inflow of around 0.3x compared to WCP's typical DTV. The practical correlation with the price should be higher than the theoretical level.</li>
<li>We should consider using SKIET, which engages in the same business in the same sector, as a hedge. WCP/SKIET Long Short achieved considerable performance within the past week's window.</li>
</ul>


WCP will likely be included in the rebalancing of Samsung KODEX Secondary Battery Industry ETF in June. And we should consider the possibility of this happening to be quite high.
We can expect a daily passive inflow of around 0.3x compared to WCP's typical DTV. The practical correlation with the price should be higher than the theoretical level.
We should consider using SKIET, which engages in the same business in the same sector, as a hedge. WCP/SKIET Long Short achieved considerable performance within the past week's window.


A High Conviction Long Short Trade in KODEX Battery ETF Rebalancing in June

Mirae Asset TIGER Secondary Cell ETF / Event-Driven

<ul>
<li>There seems to be no constituent change this time. However, opportunities from cap reversion are likely to lead to noteworthy passive flows.</li>
<li>Ecopro BM and Ecopro Co will experience a weight movement of -4.35% and -3.68%p. On the other hand, SK Innovation will enjoy the most pleasant passive impact.</li>
<li>At KODEX Battery's March rebalancing, the Long SK Innovation Short Ecopro BM position setup provided a return of more than 10% with a similar level of impact x ADTV.</li>
</ul>


There seems to be no constituent change this time. However, opportunities from cap reversion are likely to lead to noteworthy passive flows.
Ecopro BM and Ecopro Co will experience a weight movement of -4.35% and -3.68%p. On the other hand, SK Innovation will enjoy the most pleasant passive impact.
At KODEX Battery's March rebalancing, the Long SK Innovation Short Ecopro BM position setup provided a return of more than 10% with a similar level of impact x ADTV.


Flow Trading Targeting Cap Reversion in TIGER Battery ETF Rebalancing on April 13

<ul>
<li>Ecopro BM's weight has expanded to 22%. Since the probability of receiving a 15% cap is virtually 100%, it will inevitably undergo a weight change of up to nearly 7%p.</li>
<li>If the ongoing rally subsides before March 10th and returns to the January DTV level, the price impact could surge up to 0.3-0.4x daily for three trading days.</li>
<li>This seems to be a sufficient level for a shorting entry point. It may be worth considering an outright short position on Ecopro BM or Long Short with SK Innovation.</li>
</ul>


Ecopro BM's weight has expanded to 22%. Since the probability of receiving a 15% cap is virtually 100%, it will inevitably undergo a weight change of up to nearly 7%p.
If the ongoing rally subsides before March 10th and returns to the January DTV level, the price impact could surge up to 0.3-0.4x daily for three trading days.
This seems to be a sufficient level for a shorting entry point. It may be worth considering an outright short position on Ecopro BM or Long Short with SK Innovation.


Shorting Entry Point on Ecopro BM with KODEX Battery ETF Rebalancing on March 10

South Korea

Samsung KODEX Secondary Battery Industry ETF is an exchange-traded fund issued in South Korea. The objective of the ETF is to seek the returns corresponding to the returns of the FnGuide Secondary Battery Industry Index.

Samsung KODEX Secondary Battery Industry ETF (305720 KS)

Samsung KODEX Secondary Battery Industry ETF

Samsung KODEX Secondary Battery Industry ETF (305720 KS)

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