Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Thematic (Sector/Industry)

The stellar performance of China&rsquo;s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a sharp uptick in going private transactions involving Chinese ADRs. The wide disparities in valuations between these markets (Shanghai average P/E of 25x; Shenzhen average P/E of 75x) and the US (S&amp;P 500 P/E of 19x) along with the successful re-listings of Luye Pharma (formerly in Singapore) and 3SBio (formerly in the US) in Hong Kong have emboldened the Chairmen/CEOs of other US-listed Chinese companies to engage in what some have called &ldquo;exchange arbitrage.&rdquo;We have commented on the pending WuXi PharmaTech and Mindray deals previously. This Insight discusses the hurdles that special committees face in working on behalf of minority shareholders.&nbsp;

The stellar performance of China&rsquo;s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a sharp uptick in going private transactions involving Chinese ADRs. The wide disparities in valuations between these markets (Shanghai average P/E of 25x; Shenzhen average P/E of 75x) and the US (S&amp;P 500 P/E of 19x) along with the successful re-listings of Luye Pharma (formerly in Singapore) and 3SBio (formerly in the US) in Hong Kong have emboldened the Chairmen/CEOs of other US-listed Chinese companies to engage in what some have called &ldquo;exchange arbitrage.&rdquo;We have commented on the pending WuXi PharmaTech and Mindray deals previously. This Insight discusses the hurdles that special committees face in working on behalf of minority shareholders.&nbsp;

China ADR Privatizations: The Challenges of Getting the Best Deal

Numerous press outlets report that China&rsquo;s Food &amp; Drug Administration (CFDA) will release regulations permitting online sales of pharmaceuticals soon. This action should help the Chinese government in its efforts to lower drug costs for its citizens by:<ol><li>Creating a lower-cost channel to undercut the current multi-tier distribution channel that serves state hospitals (70% of the market);</li><li>Addressing the current shortage of pharmacists (China: 1.47/10,000 population; Global average: 6.02) through creation of larger dispensing platforms that increase productivity; and</li><li>Providing a more efficient channel for retail pharmacies to compete with hospital-based pharmacies.</li></ol>The addition of E-commerce should drive much-needed reforms that will benefit leading drug distributors and retail chains. &nbsp;The road will be long and bumpy.

Numerous press outlets report that China&rsquo;s Food &amp; Drug Administration (CFDA) will release regulations permitting online sales of pharmaceuticals soon. This action should help the Chinese government in its efforts to lower drug costs for its citizens by:Creating a lower-cost channel to undercut the current multi-tier distribution channel that serves state hospitals (70% of the market);Addressing the current shortage of pharmacists (China: 1.47/10,000 population; Global average: 6.02) through creation of larger dispensing platforms that increase productivity; andProviding a more efficient channel for retail pharmacies to compete with hospital-based pharmacies.The addition of E-commerce should drive much-needed reforms that will benefit leading drug distributors and retail chains. &nbsp;The road will be long and bumpy.

Opening of E-commerce Channel to Change China's Drug Market

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>CSI announced the changes for the June rebalance after market close on 30 May and the changes will be effective after the close of trading on 13 June.</li>
<li>There are 6 changes for the index and we estimate passive buying of 0.7-2.4x ADV in the adds and passive selling of between 1-4.7x ADV in the deletes.</li>
<li>There will be capping inflows for <a href="https://www.smartkarma.com/entities/shenzhen-mindray-bio-medic-a" target="_blank" data-smartkarma-citation="entities:28017:1" rel="noopener">Shenzhen Mindray Bio-Medical Electronics (300760 CH)</a> and capping outflows for <a href="https://www.smartkarma.com/entities/wuxi-apptec-co-ltd" target="_blank" data-smartkarma-citation="entities:27092:1" rel="noopener">WuXi AppTec (603259 CH)</a>. </li>
</ul>


CSI announced the changes for the June rebalance after market close on 30 May and the changes will be effective after the close of trading on 13 June.
There are 6 changes for the index and we estimate passive buying of 0.7-2.4x ADV in the adds and passive selling of between 1-4.7x ADV in the deletes.
There will be capping inflows for Shenzhen Mindray Bio-Medical Electronics (300760 CH) and capping outflows for WuXi AppTec (603259 CH). 


CSI Medical Service Index Rebalance: Six Changes with Decent Impact

Shanghai Runda Medical Tec-A / Index Rebalance

<ul>
<li>The review period ended on 30 April, the changes should be announced on 30 May and will be effective after the close of trading on 13 June.</li>
<li>There could be 5 changes in June where passive trackers will need to trade between 0.7-2x ADV in the forecast adds and sell between 1-4x ADV in the forecast deletes.</li>
<li>A long adds/ short deletes trade has gone nowhere in the last 6-7 months, and the volatility of the trade has reduced even further in the last couple of months.</li>
</ul>


The review period ended on 30 April, the changes should be announced on 30 May and will be effective after the close of trading on 13 June.
There could be 5 changes in June where passive trackers will need to trade between 0.7-2x ADV in the forecast adds and sell between 1-4x ADV in the forecast deletes.
A long adds/ short deletes trade has gone nowhere in the last 6-7 months, and the volatility of the trade has reduced even further in the last couple of months.


CSI Medical Service Index Rebalance Preview: Five Changes as Trade Flatlines

Vcanbio Cell & Gene Engineering / Index Rebalance

Vcanbio Cell & Gene Engineering (600645 CH)

<ul>
<li>The review period ends on 30 April, the changes should be announced on 30 May and will be effective after the close of trading on 13 June.</li>
<li>We forecast 5 potential changes for the index in June where there could be buying of 0.5-2x ADV in the adds and selling of between 0.7-3.8x ADV in the deletes.</li>
<li>The forecast adds and deletes have performed in line over the last few months and there could be outperformance as we near the end of the review period and announcement.</li>
</ul>


The review period ends on 30 April, the changes should be announced on 30 May and will be effective after the close of trading on 13 June.
We forecast 5 potential changes for the index in June where there could be buying of 0.5-2x ADV in the adds and selling of between 0.7-3.8x ADV in the deletes.
The forecast adds and deletes have performed in line over the last few months and there could be outperformance as we near the end of the review period and announcement.


CSI Medical Service Index Rebalance Preview: Five Potential Changes in June

China

Vcanbio Cell & Gene Engineering Corp., Ltd provides health care testing services. The Company offers stem cell inspection, detection reagent, gene inspection, and other other services. Vcanbio Cell & Gene Engineering also provides pharmaceutical intermediates research, experimental comprehensive agents development, and other services.

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Vcanbio Cell & Gene Engineering (600645 CH)

China ADR Privatizations: The Challenges of Getting the Best Deal

The stellar performance of China’s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a...

Kemp Dolliver, CFA

Opening of E-commerce Channel to Change China's Drug Market

Numerous press outlets report that China’s Food & Drug Administration (CFDA) will release regulations permitting online sales of...

Kemp Dolliver, CFA

CSI Medical Service Index Rebalance: Six Changes with Decent Impact

There are 6 changes for the index with estimated passive buying of 0.7-2.4x ADV in the adds and passive selling of between 1-4.7x ADV in the...

Brian Freitas

CSI Medical Service Index Rebalance Preview: Five Changes as Trade Flatlines

There could be 5 changes in June with passives trading between 0.7-4x ADV in the stocks. A long adds/ short deletes trade has gone nowhere in the...

Brian Freitas

CSI Medical Service Index Rebalance Preview: Five Potential Changes in June

There could be 5 changes for the index in June. Passives need to buy 0.5-2x ADV in the forecast adds and sell between 0.7-3.8x ADV in the forecast...

Brian Freitas

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)