Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<ul>
<li>The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" securities listed in Hong Kong.</li>
<li>The index changes for HSCEI index for the March 2024 index rebal event will be announced on 16th February 2024. </li>
<li>In this insight, I have shown how my flow expectations have changed since I published my last HSCEI insight on 6th December 2023.</li>
</ul>


The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" securities listed in Hong Kong.
The index changes for HSCEI index for the March 2024 index rebal event will be announced on 16th February 2024. 
In this insight, I have shown how my flow expectations have changed since I published my last HSCEI insight on 6th December 2023.


Quiddity HSCEI Mar 24 Flow Expectations: Zhongsheng (881 HK) Downtrend Could Continue

<ul>
<li>The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" securities listed in Hong Kong.</li>
<li>In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in March 2024.</li>
<li>Based on the current data, I see only one low-conviction ADD and one low-conviction DEL.</li>
</ul>


The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" securities listed in Hong Kong.
In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in March 2024.
Based on the current data, I see only one low-conviction ADD and one low-conviction DEL.


Quiddity HSCEI Mar 24 Rebalance: Same Rankings; Same Questions

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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/posco-dx-co-ltd" target="_blank" data-smartkarma-citation="entities:5198:1" rel="noopener">Posco DX (022100 KS)</a> continues to drop following its section transfer from the KOSDAQ market to the KOSPI market. Short interest in the stock nearly halved in December.</li>
<li>There were big net inflows to China ETFs with creations in <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-inde" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">CSI 300 Index</a> ETFs and redemptions in ETFs tracking the CSI 500 Index and CSI 1000 Index.</li>
<li>Creations continued in the <a href="https://www.smartkarma.com/entities/ishares-msci-emerging-markets-223f5da3-7054-4e4f-bc55-b7f0852c2581" target="_blank" data-smartkarma-citation="entities:31998:1" rel="noopener">iShares Emerging Markets ex China (EMXC US)</a> ETF with units outstanding reaching a new high.</li>
</ul>



Posco DX (022100 KS) continues to drop following its section transfer from the KOSDAQ market to the KOSPI market. Short interest in the stock nearly halved in December.
There were big net inflows to China ETFs with creations in CSI 300 Index ETFs and redemptions in ETFs tracking the CSI 500 Index and CSI 1000 Index.
Creations continued in the iShares Emerging Markets ex China (EMXC US) ETF with units outstanding reaching a new high.


Index Rebalance & ETF Flow Recap: HSCEI, HSCI, KRX New Deal, NIFTY50, NEXT50, CNXBANK

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.</li>
<li>With <a href="https://www.smartkarma.com/entities/beigene-ltd" target="_blank" data-smartkarma-citation="entities:27352:1" rel="noopener">BeiGene (6160 HK)</a> failing the Velocity Test for Tradeable Indexes, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a>'s deletion from the index should result in <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a>'s inclusion. </li>
<li>Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.</li>
</ul>



Zhongsheng Group (881 HK) pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.
With BeiGene (6160 HK) failing the Velocity Test for Tradeable Indexes, Zhongsheng Group (881 HK)'s deletion from the index should result in China Unicom Hong Kong (762 HK)'s inclusion. 
Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.


HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time

HK/China Equity Long-Short

Osbert Tang, CFA

Quantitative Analysis

<ul>
<li>2023 is the worst year for our "Buy the Worst" strategy as it returned -34.5% YTD, underperforming the HSI by 20.7pp. The two property names are the key drags.</li>
<li>Despite a poor 2023, the strategy has still outperformed the HSI by 17.9pp for 2018-2023. It remains significantly better than buying the winners in the current year.</li>
<li>For 2024, our strategy is to switch to <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning (2331 HK)</a>, <a href="https://www.smartkarma.com/entities/country-garden-services-holdin" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services (6098 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a>, and <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a>. </li>
</ul>


2023 is the worst year for our "Buy the Worst" strategy as it returned -34.5% YTD, underperforming the HSI by 20.7pp. The two property names are the key drags.
Despite a poor 2023, the strategy has still outperformed the HSI by 17.9pp for 2018-2023. It remains significantly better than buying the winners in the current year.
For 2024, our strategy is to switch to Li Ning (2331 HK), Country Garden Services (6098 HK), Meituan (3690 HK), Wuxi Biologics (2269 HK), and Zhongsheng Group (881 HK). 


"Buy the Worst" HSI Strategy: A Tragic 2023 and What About 2024?

China

Zhongsheng Group is a leading national automobile dealership group in China, specializing in the sale of new and used luxury and mid-to-high-end automobiles, including brands like Mercedes-Benz, Lexus, and Audi. The company also provides comprehensive after-sales services, such as repair, maintenance, spare parts, accessories, and related auto finance and insurance services. It was founded in 1998 and is headquartered in Dalian, China.

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Zhongsheng (881 HK)

Quiddity HSCEI Mar 24 Flow Expectations: Zhongsheng (881 HK) Downtrend Could Continue

I estimate one-way flow to be US$235mn which translates to a turnover of ~2%. However, these estimates are based on the low-conviction assumption...

Janaghan Jeyakumar, CFA

Quiddity HSCEI Mar 24 Rebalance: Same Rankings; Same Questions

The index changes for HSCEI index for the March 2024 index rebal will be announced on 16th February 2024. In this insight, I have discussed the...

Janaghan Jeyakumar, CFA

Index Rebalance & ETF Flow Recap: HSCEI, HSCI, KRX New Deal, NIFTY50, NEXT50, CNXBANK

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time

Zhongsheng's rank has dropped a lot and index deletion appears to be a certainty. China Unicom is a potential add. There is over 2.5x ADV to trade...

Brian Freitas

"Buy the Worst" HSI Strategy: A Tragic 2023 and What About 2024?

2023 was bad for the "Buy the Worst" strategy, but it still outperformed the HSI for 2018-2023. In 2024, we will switch to Li Ning, Country Garden...

Osbert Tang, CFA

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Quiddity HSCEI Mar 24 Flow Expectations: Zhongsheng (881 HK) Downtrend Could Continue

I estimate one-way flow to be US$235mn which translates to a turnover of ~2%. However, these estimates are based on the low-conviction assumption...

Janaghan Jeyakumar, CFA

Quiddity HSCEI Mar 24 Rebalance: Same Rankings; Same Questions

The index changes for HSCEI index for the March 2024 index rebal will be announced on 16th February 2024. In this insight, I have discussed the...

Janaghan Jeyakumar, CFA

Index Rebalance & ETF Flow Recap: HSCEI, HSCI, KRX New Deal, NIFTY50, NEXT50, CNXBANK

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time

Zhongsheng's rank has dropped a lot and index deletion appears to be a certainty. China Unicom is a potential add. There is over 2.5x ADV to trade...

Brian Freitas

"Buy the Worst" HSI Strategy: A Tragic 2023 and What About 2024?

​2023 was bad for the "Buy the Worst" strategy, but it still outperformed the HSI for 2018-2023. In 2024, we will switch to Li Ning, Country Garden...

Osbert Tang, CFA

2023 was bad for the "Buy the Worst" strategy, but it still outperformed the HSI for 2018-2023. In 2024, we will switch to Li Ning, Country Garden...