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>The China equity markets have continued to slide and the lower market caps and free float market caps will see a lot of stocks deleted from passive portfolios in February.</li>
<li>We currently estimate selling of around US$1.66bn across 74 stocks listed on the mainland, in HK and the U.S., and that number could increase as markets continue to underperform.</li>
<li>The potential deletes have dropped a lot over the last 4 months and there has been a marked underperformance versus the headline indices over the last month.</li>
</ul>


The China equity markets have continued to slide and the lower market caps and free float market caps will see a lot of stocks deleted from passive portfolios in February.
We currently estimate selling of around US$1.66bn across 74 stocks listed on the mainland, in HK and the U.S., and that number could increase as markets continue to underperform.
The potential deletes have dropped a lot over the last 4 months and there has been a marked underperformance versus the headline indices over the last month.


China: Sliding Market Leads to Passive Selling

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
Back in May 2016, a buyout group comprising <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>'s founder Lei Jun terminated its US$2.5bn Offer for <a href="https://www.smartkarma.com/entities/joyy-inc" target="_blank" data-smartkarma-citation="entities:285:1" rel="noopener">JOYY (YY US)</a>, on account of heightened regulatory scrutiny. At the time, Lei was JOYY's chairman. The buyout group also comprised CEO David Xueling Li. The non-binding Offer price for ~64% of shares out not held by the buyout group was US$68.50/share.  
Fast forward to 16 November last year, <a href="https://www.smartkarma.com/entities/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a> <a href="https://ir.baidu.com/news-releases/news-release-details/baidu-acquire-joyys-live-streaming-business-china" target="_blank" rel="noopener">announced</a> it had entered into definitive agreements with JOYY to acquire its domestic video-based entertainment live streaming business in China ("YY Live"), for US$3.6bn. 
Two days later, Muddy Water had a <a href="https://www.muddywatersresearch.com/research/yy/1/" target="_blank" rel="noopener">slightly less favourable</a> take on Baidu "buying growth". 
JOYY and certain of its current and former officers and directors were named as defendants in a federal putative securities class action filed on the 20 November 2020, alleging that they made material misstatements and omissions in documents filed with the SEC regarding certain of the allegations contained in the MW report.
On the 8 February, JOYY <a href="https://ir.joyy.sg/static-files/0aeb5b77-b567-4621-bb81-dea6177cdfa6" target="_blank" rel="noopener">disclosed</a> the conclusion of the independent review, which concluded that the allegations raised and conclusions reached in that MW report about JOYY's YY Live business were not substantiated.
The Baidu sale has been substantially completed, with certain customary matters remaining to be completed  - namely SAMR. 
The New News
Reuters is reporting that Chairman David Li and Lei Jun are reloading an Offer for JOYY. Reportedly they are looking to offer US$75-$100/share, or a market cap of US$7.8bn at the top end of that range.
More below the fold.
</div>


Back in May 2016, a buyout group comprising Xiaomi Corp (1810 HK)'s founder Lei Jun terminated its US$2.5bn Offer for JOYY (YY US), on account of heightened regulatory scrutiny. At the time, Lei was JOYY's chairman. The buyout group also comprised CEO David Xueling Li. The non-binding Offer price for ~64% of shares out not held by the buyout group was US$68.50/share.  
Fast forward to 16 November last year, Baidu (9888 HK) announced it had entered into definitive agreements with JOYY to acquire its domestic video-based entertainment live streaming business in China ("YY Live"), for US$3.6bn. 
Two days later, Muddy Water had a slightly less favourable take on Baidu "buying growth". 
JOYY and certain of its current and former officers and directors were named as defendants in a federal putative securities class action filed on the 20 November 2020, alleging that they made material misstatements and omissions in documents filed with the SEC regarding certain of the allegations contained in the MW report.
On the 8 February, JOYY disclosed the conclusion of the independent review, which concluded that the allegations raised and conclusions reached in that MW report about JOYY's YY Live business were not substantiated.
The Baidu sale has been substantially completed, with certain customary matters remaining to be completed  - namely SAMR. 
The New News
Reuters is reporting that Chairman David Li and Lei Jun are reloading an Offer for JOYY. Reportedly they are looking to offer US$75-$100/share, or a market cap of US$7.8bn at the top end of that range.
More below the fold.


External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Equity Bottom-Up

<ul><li>Weibo announced 3Q23 results on 9 Nov: total revenue declined by 3% YoY (or grew by 2% YoY on a constant currency basis) to US$442mn, in line with consensus/our estimate.</li><li>Non-GAAP net income was up 15% YoY to US$137mn in 3Q23, which is in line with our estimate but beat consensus by 6%, primarily due to effective execution of expense control.</li><li>Macro uncertainty continues to weigh on advertisers’ sentiment and their ad budget. Weibo’s relatively high exposure to consumption-related verticals further drags its ad revenue recovery pace. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Weibo announced 3Q23 results on 9 Nov: total revenue declined by 3% YoY (or grew by 2% YoY on a constant currency basis) to US$442mn, in line with consensus/our estimate.Non-GAAP net income was up 15% YoY to US$137mn in 3Q23, which is in line with our estimate but beat consensus by 6%, primarily due to effective execution of expense control.Macro uncertainty continues to weigh on advertisers’ sentiment and their ad budget. Weibo’s relatively high exposure to consumption-related verticals further drags its ad revenue recovery pace. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Weibo (WB US) – Soft Consumption Weighs on Ad Recovery

Credit

<ul><li>Credit stories remain sound: Chinese TMT issuers are generally cash-rich with solid liquidity profiles. Most of them are in net cash positions and have strong coverage ratios at their rating levels. See Table 6 on p.7.</li><li>Shorter-dated XIAOMIs remain our top picks: We like Xiaomi for its solid credit story.</li><li>The sizeable net cash position and operating cash inflow offset the impact of higher R&amp;D expenses, especially those on EV. XIAOMI 3 3/8 04/29/30 (Baa2/BBB-/BBB) and XIAOMI 2 7/8 07/14/31 (Baa2/BBB-/BBB) offer 121bps yield pick-up over JD 3 3/8’30 (Baa1/A-/-) and 12bps over MEITUA 3.05’30 (Baa3/BBB-/BBB-).</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Credit stories remain sound: Chinese TMT issuers are generally cash-rich with solid liquidity profiles. Most of them are in net cash positions and have strong coverage ratios at their rating levels. See Table 6 on p.7.Shorter-dated XIAOMIs remain our top picks: We like Xiaomi for its solid credit story.The sizeable net cash position and operating cash inflow offset the impact of higher R&amp;D expenses, especially those on EV. XIAOMI 3 3/8 04/29/30 (Baa2/BBB-/BBB) and XIAOMI 2 7/8 07/14/31 (Baa2/BBB-/BBB) offer 121bps yield pick-up over JD 3 3/8’30 (Baa1/A-/-) and 12bps over MEITUA 3.05’30 (Baa3/BBB-/BBB-).Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China TMT: Maintain Buy XIAOMI’30-31s, XIAOMI 0’27 (CB)

<ul><li>Weibo reported 2Q23 results on 24 Aug: total revenue decreased by 2% YoY (+5% YoY on a constant currency basis) to US$440mn, in line with consensus estimate of US$439mn.</li><li>Non-GAAP net income grew by 15% YoY to US$126mn in 2Q23, ahead of consensus estimate of US$120mn, mainly due to effective expense control.</li><li>Looking ahead in 3Q23E, the recovery pace of ad demand was slower than expected (especially in July), due to the weak consumption sentiment. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Weibo reported 2Q23 results on 24 Aug: total revenue decreased by 2% YoY (+5% YoY on a constant currency basis) to US$440mn, in line with consensus estimate of US$439mn.Non-GAAP net income grew by 15% YoY to US$126mn in 2Q23, ahead of consensus estimate of US$120mn, mainly due to effective expense control.Looking ahead in 3Q23E, the recovery pace of ad demand was slower than expected (especially in July), due to the weak consumption sentiment. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Weibo (WB US) – Expect mild recovery in 3Q23E

China

Weibo Corp is a social media platform for people to create, distribute and discover Chinese-language content.  The Company offers users public self-expression in real time with a powerful platform for social interaction, as well as content aggregation and distribution.

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Weibo Corp (WB US)

China: Sliding Market Leads to Passive Selling

A rapidly falling market could be upwards of 74 China stocks being deleted from passive portfolios. These stocks have underperformed the headline...

Brian Freitas

JOYY (JOYY US): Rumoured Privatisation

A little over three years after entering into an SPA, Baidu (9888 HK) has now terminated discussions with JOYY (YY US) as the closing conditions...

David Blennerhassett

Weibo (WB US) – Soft Consumption Weighs on Ad Recovery

Weibo announced 3Q23 results on 9 Nov: total revenue declined by 3% YoY (or grew by 2% YoY on a constant currency basis) to US$442mn, in line with...

CMB International

China TMT: Maintain Buy XIAOMI’30-31s, XIAOMI 0’27 (CB)

Chinese TMT issuers are generally cash-rich with solid liquidity profiles. Most of them are in net cash positions and have strong coverage ratios...

CMB International

Weibo (WB US) – Expect mild recovery in 3Q23E

Weibo reported 2Q23 results on 24 Aug: total revenue decreased by 2% YoY (+5% YoY on a constant currency basis) to US$440mn, in line with consensus...

CMB International

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