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>With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.</li>
<li>We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.</li>
<li>The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.</li>
</ul>


With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.
The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.


SSE50 Index Rebalance Preview: Financials Continue to Outperform

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

Jiangsu Hengrui Medicine / Equity Bottom-Up

<ul>
<li>In the current challenging environment, investors should prioritize pharmaceutical companies with abundant cash flow and Biotech with diversified funding sources, as their safety margin is much higher.</li>
<li>After the “clamor of consumer upgrading” fades away, we will eventually realize that the so-called pricing power has never belonged to anyone or any enterprise, but always to consumers.</li>
<li>Hengrui is overvalued. There’re still around RMB5 billion generic drugs yet to enter VBP scope. So, the assumption that all negative effects of VBP have cleared up is not correct.</li>
</ul>


In the current challenging environment, investors should prioritize pharmaceutical companies with abundant cash flow and Biotech with diversified funding sources, as their safety margin is much higher.
After the “clamor of consumer upgrading” fades away, we will eventually realize that the so-called pricing power has never belonged to anyone or any enterprise, but always to consumers.
Hengrui is overvalued. There’re still around RMB5 billion generic drugs yet to enter VBP scope. So, the assumption that all negative effects of VBP have cleared up is not correct.


China Healthcare Weekly (Mar.1) - Prioritize Big Pharma, Real Ownership of Pricing Power, Hengrui

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. / Equity Bottom-Up

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd.

<ul>
<li>Pientzehuang's 2023 results were well below expectations. The performance in 23Q4 was terrible. 2024 performance would continue to be under pressure, without any reversal signals to be seen.</li>
<li>In the process of China's de-financialization, growth potential of assets with strong financial attributes would weaken.Pientzehuang’s ability to raise prices won’t be as strong as rigid-demands such as telecommunications tariffs.</li>
<li>Pientzehuang’s stock price performance doesn’t follow traditional TCM companies.It’s not surprising if Pientzehuang’s valuation drops to PE of 15x or even lower. We recommend investors not to rush to bottom-fish.</li>
</ul>


Pientzehuang's 2023 results were well below expectations. The performance in 23Q4 was terrible. 2024 performance would continue to be under pressure, without any reversal signals to be seen.
In the process of China's de-financialization, growth potential of assets with strong financial attributes would weaken.Pientzehuang’s ability to raise prices won’t be as strong as rigid-demands such as telecommunications tariffs.
Pientzehuang’s stock price performance doesn’t follow traditional TCM companies.It’s not surprising if Pientzehuang’s valuation drops to PE of 15x or even lower. We recommend investors not to rush to bottom-fish.


Zhangzhou Pientzehuang Pharmaceutical (600436.CH) 2023 Results - Get Ready for More Downside Ahead

<ul>
<li>Some investors are disappointed with 23Q3 performance, but we think Dong-E-E-Jiao is getting back on track. The de-stocking has achieved great results and pressure on distribution channels has been alleviated.</li>
<li>Since Dong-E-E-Jiao’s contract liabilities hit a record high, we are optimistic about the performance in 23Q4 and 24Q1. China Resources could further improve Dong-E-E-Jiao’s dividend rate, making it more attractive.</li>
<li>Since Dong-E-E-Jiao’s performance is continuously improving, valuation still has room to grow. A significant increase in valuation in the short term depends on whether there would be M&amp;A deal emerges.</li>
</ul>


Some investors are disappointed with 23Q3 performance, but we think Dong-E-E-Jiao is getting back on track. The de-stocking has achieved great results and pressure on distribution channels has been alleviated.
Since Dong-E-E-Jiao’s contract liabilities hit a record high, we are optimistic about the performance in 23Q4 and 24Q1. China Resources could further improve Dong-E-E-Jiao’s dividend rate, making it more attractive.
Since Dong-E-E-Jiao’s performance is continuously improving, valuation still has room to grow. A significant increase in valuation in the short term depends on whether there would be M&amp;A deal emerges.


Dong E E Jiao Co Ltd (000423.CH) - The Situation Is Getting Better and Better

China Traditional Chinese Medicine / Equity Bottom-Up

<ul>
<li>The recovery of concentrated TCM granules business makes us optimistic about China TCM's 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.</li>
<li>Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.</li>
<li>The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.</li>
</ul>


The recovery of concentrated TCM granules business makes us optimistic about China TCM's 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.
Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.
The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.


China Healthcare–A Pair Trade Between China TCM (570.HK) And Pientzehuang Pharmaceutical (600436.CH)

China

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. manufactures and markets Chinese traditional medicines, including Pientzehuang, Pientzehuang capsules, Pientzehuang lozenge, cough syrup, and other related products.

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. (600436 CH)

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Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. (600436 CH)

SSE50 Index Rebalance Preview: Financials Continue to Outperform

There could be 5 changes for the SSE50 in June. Estimated one-way turnover is 7.1% leading to a one-way trade of CNY 9.9bn (US$1.37bn). The...

Brian Freitas

China Healthcare Weekly (Mar.1) - Prioritize Big Pharma, Real Ownership of Pricing Power, Hengrui

Investors should prioritize pharmaceutical companies with abundant cashflow/diversified funding sources.Pricing power has never belonged to any...

Xinyao (Criss) Wang

Zhangzhou Pientzehuang Pharmaceutical (600436.CH) 2023 Results - Get Ready for More Downside Ahead

China's de-financialization process would change the investment logic of companies/products with strong financial attributes.Their growth potential...

Xinyao (Criss) Wang

Dong E E Jiao Co Ltd (000423.CH) - The Situation Is Getting Better and Better

Dong-E-E-Jiao’s successful de-stocking helps form a new supply-demand relationship.Strong support provided by China Resources/high dividends would...

Xinyao (Criss) Wang

China Healthcare–A Pair Trade Between China TCM (570.HK) And Pientzehuang Pharmaceutical (600436.CH)

TCM granules business recovery makes us optimistic about China TCM's 2023 results, but Pientzehuang's performance will remain under pressure. So,...

Xinyao (Criss) Wang

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)