This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. HSTECH Index Rebalance: Tongcheng (780 HK) In; GDS (9698 HK) Out; Round Trip Trade US$1bn
- As expected, Tongcheng Travel Holdings (780 HK) will replace GDS Holdings (9698 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 March.
- Estimated one-way turnover is 3.9% leading to a round-trip trade of HK$7.74bn (US$988m). There is nearly 14x ADV to buy in Tongcheng Travel Holdings (780 HK).
- Positioning in Tongcheng Travel (780 HK) does not appear to be very high, while positioning in GDS Holdings (9698 HK) is very high with a couple of deletions coming up.
2. Hang Seng Internet & IT Index Rebalance: Three Changes & One Big Surprise
- There will be 3 changes for the Hang Seng Internet & Information Technology Index (HSIII) at the March rebalance. There are some surprises.
- Estimated one-way turnover at the rebalance is 5.6% resulting in a round-trip trade of HK$3.26bn (US$416m). 6 stocks will have over 1x ADV to trade.
- There is huge short interest on East Buy Holding (1797 HK) and there could be some short covering ahead of the inclusion of the stock in the index.
3. Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)
- Amazon.com Inc (AMZN US) will replace Walgreens Boots Alliance (WBA US) in the Dow Jones Industrial Average (INDU INDEX) at the close on 23 February.
- Passives will need to sell a lot of Walmart (WMT US) following the 3:1 stock split and buy a lot of Amazon.com Inc (AMZN US).
- Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.
4. TCM (570 HK): Sinopharm’s $4.60/Share Offer
- $4.60/Share. That’s the number – by way of a Scheme – that only matters. Below the recently rumoured $6/share, and $5.10/share a little over three years ago. Terms are final.
- As widely expected, the Offeror is SASAC-managed China National Pharmaceutical Group Corporation (CNPGC), indirectly owning 32.46% in China Traditional Chinese Medicine (570 HK) (TCM) via Sinopharm Group Hongkong,
- Optically, the Offer price appears light. But this should still get up. TCM is trading rich to peers. No other competing bidder will emerge. Expect regulatory pre-cons to be fast-tracked.
5. China Traditional Chinese Medicine (570.HK) – New Information on Privatization
- Since China TCM doesn’t deny the rumors so far after the trading halt, privatization is becoming likely this time.Rumor said formal negotiations may not begin until after the Lantern Festival.
- CNPGC may not want to pay high prices on privatization.Weak sentiment/share price may help with the negotiations.But the key is to obtain the consent of other shareholders, especially Ping An.
- There’s underlying logic for Taiji Group to drive this privatization. A price of higher than HKD5.1 is possible. If the price could reach HKD6 (or higher), it has exceeded expectations.
6. STTF Index Rebalance Preview: One High Probability Change in March
- Emperador (EMI SP) fails the liquidity test and could be sold by the SPDR Straits Times Index ETF (STTF SP) in March.
- Emperador (EMP PM) will also be sold by global index trackers in March and the stock should remain under pressure for the next few weeks.
- Frasers Centrepoint Trust (FCT SP) is ranked ahead of CapitaLand Ascott Trust (CLAS SP) by 9% on full market cap and should be added to the ETF in March.
7. Azure (AZS AU): MinRes’ Discounted Exit
- JPMorgan is placing MinRes (MIN AU)‘s 14.5% stake in Azure Minerals (AZS AU) at A$3.42/share, a 5% discount to last close and a 7.6% discount to the A$3.70/share Scheme price.
- It was reported last month that MinRes, who paid up to ~A$4.00/share for some of its stake, was looking to exit. But cash now vs. ~8% more in two months?
- Given the recent rout in lithium and nickel prices, one wonders if a MAC landmine lurks. Or, quite simply, MinRes just needs the cash. Expect Azure to fall tomorrow.
8. Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run
- The possibility/likelihood of a “¥50bn MBO” for Snow Peak Inc (7816 JP) was leaked in a Nikkei article last Friday. It went limit up two days in a row.
- That TOB price is more than 70% off its three-year high. That will certainly disappoint some. Separately, the price seems a bit low given growth.
- The family and friends own ~42% so if someone gets upset, or uppity, there could be a challenge. Just because an MBO exists doesn’t mean people have to tender in.
9. Korea NPS Abruptly Joins Corporate Value Up Program: According to Document Obtained from NPS
- NPS abruptly joins ‘Corporate Value Up Program’, plans to select three asset managers. Deadline: this month’s 29th; results: March 19th, possibly linked to Korea Premium Index ETF launch in mid-May.
- The document outlines guidelines, allocating 90-100% to value stocks, with KOSDAQ under 20%. While benchmarked to the internally-built index, it will likely focus on Korea Premium Index and KOSDAQ Global.
- The fund size is crucial. NPS will disclose details later. But still, there is considerable room to this year’s ceiling for local equity; a significant amount could flow into this.
10. China Traditional Chinese Medicine (570 HK): Sinopharm-Led Pre-Conditional Offer at HK$4.60
- China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
- The pre-condition relates to various Chinese regulatory approvals. As SOE entities own the offeror, regulatory approvals will be a formality. The offer price is final.
- Ping An Insurance (H) (2318 HK), which holds a blocking stake, will be supportive. The offer is fair when the previously (higher) rumoured offers are adjusted for the market downturn.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Easy Money to Low PBR Stocks in KOSPI 200 Is Now Over – What’s Next?
- There are 92 stocks in KOSPI 200 that are trading at less than 1x PBR. These 92 stocks are up on average 6% YTD.
- Among these 92 stocks, 40 of them are trading at below 0.5x PBR. These 40 stocks are up on average 8.2%.
- In this insight, we argue that the “easy money” of making money by increasing capital allocation to low PBR stocks in Korea is nearly over in the near term.
2. Portfolio Watch – Have markets traded the cyclical rebound in advance?
- Welcome to our weekly portfolio watch, which today will be all about the (potential) upcoming rebound in the cyclical momentum.
- As always we share our trade thoughts and ideas and provide you with our current allocation.
- Yesterday’s PPI came in hot as we expected (0.6% MoM in core PPI vs 0.1% expected), which serves as an early sign of a reacceleration in inflationary pressures, which have been our base case since the continuation of the tensions in the Red Sea: It looks like the increase in US freight rates has started to impact producer prices.
3. The Week That Was in ASEAN@Smartkarma – BBNI’s Aspirations, Oceanagold IPO, and Thailand’s Recovery
- The past week saw insights on Bank Negara Indonesia (BBNI IJ), Bank Mandiri (BMRI IJ), OceanaGold Philippines, Sam Holdings IPO, and the most SET50 Index rebalance.
- There were also macro insights on Thailand with some optimism, Vietnam as it starts to recover, Malaysia with lingering concerns, and the Philippines, as the BSP keeps rates on hold.
- The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.
4. Positioning Watch – Low FX volatility provides cheap leverage for a rebound in manufacturing
- Hello everyone, and welcome back to our weekly Positioning Watch.
- Markets were caught on the wrong side of expectations last week with PPI coming in substantially hotter than expected, but equity sentiment has remained decent outside of some profit taking in Tech, as the cocktail of better liquidity conditions and a brightening economic outlook is likely to prevail – and positioning provides very decent opportunities to trade the potential comeback for cyclical assets.
- As this week’s chart of the week we present to you what looks to be the theme of Q1 2024, and the reason why right now is not a good time to be contrarian: momentum is king, and “go with the flow” currently performs WAY better than cherry-picking the good old value stocks.
5. Indonesia Politics: Prabowo Wins, But Does Indonesia?
- Ex-General Prabowo Subianto got third-time lucky in his bid for the presidency. We caution, however, that things will not be “business as usual” under the erratic strongman.
- Contrary to his campaign rhetoric of providing “continuity Jokowi”, we argue that Prabowo will not pursue several positive aspects of the Widodo agenda with the same vigour.
- Short-Term political intrigue and long-run degradation in governance are material risks given the election results and preceding developments, These are due cause for worry.
6. Energy Cable: All the upside left in Henry Hub
- Greetings from a rainy and cold Copenhagen.
- Since we haven’t talked about natural gas for a while we will start out here before turning to crude.
- Last week saw Henry Hub making lows last seen during the first wave of Covid in the spring of 2020.
7. Great Game – Asian elections and Ukraine outlook
- Welcome to this week’s rundown of international events and the impact on your portfolio.
- There is still some time to go on my cease-fire prediction from last week, so let’s focus on some other topics that we’re talking about right now.
- As a new addition to our offering, we’re experimenting with video editions of certain articles as many of you have requested.
8. US CPI Inflation 3.09% y-o-y (consensus 2.9%) in Jan-24
- The US CPI inflation rate for January 2024 exceeded expectations, slowing down to 3.09% y-o-y, marking the lowest growth since June 2023.
- The US Core CPI inflation rate stayed at 3.9% y-o-y.
- This rate was 0.2pp above consensus expectations, further supporting the hawkish surprise.
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9. India Politics: Opposition Coalition Fractures, Boosting Modi’s Chances
- The opposition INDIA coalition is facing severe setbacks in their efforts to form a united front against prime minister Modi and the ruling BJP.
- While the BJP was always the favourite to win the next elections, the fragmentation of opposition forces opened a wider path for a landslide majority win.
- How Modi uses his political capital in such an event will be pivotal to whether India can take advantage of its current position in the world.
10. The Weekly Market Monitor – The 34-Year Wait Is Over!
- First, Japan entered a recession, and a week later, the Nikkei hit an all-time high after 34 years. Any idea why this is?
- The Institute of International Finance (IIF) has updated its global debt chart. Be aware that it does NOT show the true underlying trend.
- You are only allowed to trade Chinese equities if you are going to buy them. China will have a serious long-term issue in attracting fresh capital.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Taiwan Dual-Listings Monitor: High Spreads Persist After CNY Break
- TSMC: +16.6% ADR Premium, Still High After CNY Multi-Day Taiwan Market Close
- UMC: 1.3% ADR Premium, Still Historically High After CNY Break
- ChipMOS: +4.2% Premium, Very Rare & High Level, Not Sustainable
2. Taiwan Tech Weekly: TSMC Playing Post-CNY Catch-Up; All Eyes on Upcoming Nvidia Results
- Taiwan Market Surges in Post-CNY Catch-Up, TSMC a Top Gainer Locally
- Key Events Ahead: Nvidia Results Next Week, Key Taiwan Names Reporting
- Taiwan Dual-Listings Monitor: High Spreads to Persist After CNY Break
3. Silicon Motion Memory Readthrough: NAND Flash to Remain In Shortage; Up-Cycle to Persist
- Silicon Motion reported results last week that beat consensus; Moreover, the company expects strong growth not just in 2024E, but also in 2025E.
- The company’s growth will significantly exceed PC and mobile phone market growth thanks to strong memory demand trends within these segments.
- The company sees NAND Flash in shortage into 2025E based on visibility into its client ecosystem. We continue to view SIMO as a next-wave play on the Memory recovery.
4. Globalfoundries. Pressure Grows As Customer Penalties Soar
- Globalfoundries (GFS) reported Q423 revenues of $1.854 billion, marginally above the midpoint of the guidance range, down 12% YoY and essentially flat sequentially.
- Guided Q124 down 18% QoQ with Gross Margin set to fall from 29% to 23%
- SMIC will outspend GFS 10x in CapEx terms this year
5. Renesas (6723 JP): Two More Strategic Acquisitions
- Renesas has acquired PCB electronic design company Altium and Gallium Nitride power device maker Transphorm. Its tender offer for Sequans Communications has been extended.
- These are positive developments in our view, but sales and profit margins were down in 4Q of FY Dec-23 and are expected to decline this quarter as well.
- On the other hand, inventory adjustment is proceeding and the share price has dropped 12.6% since last Tuesday. Buy on weakness for the longer term.
6. Automotive (NXPI, IFX) Optics (FN, COHR), MKSI, MPWR, ACLS, SLAB, RMBS, ARM
Welcome to this week’s earnings. My spark notes are the NXPI and IFX did better than I feared, but I continue to be unconstructive on automotive.
Fabrinet and Coherent both achieved good results, but Fabrinet disappointed expectations for Nvidia’s pluggable revenue. Is this a weak read-through? Unlikely. Marvell should have an amazing year if Coherent’s TAM is remotely correct.
MKSI put up the exact results I was looking for, and this continues to be my favorite idea. As WFE increases, inventory builds will happen, and then financial and operational leverage will take care of the rest.
7. WTF Is Going on at SuperMicro? (SMCI)
- I want to talk about Supermicro. The stock has gone parabolic; some say it’s emblematic of the coming Semiconductor and AI bubble.
- I think it is to a certain extent, but I want to point out a particular aspect that has been happening.
- Given the high volume of options expiring today, I believe there is an ongoing gamma squeeze. It created huge buying pressure that has led to today. This was the run-up until Thursday.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Equity Capital Markets on Smartkarma.
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1. Toei Animation (4816) – Shareholder Selldown To Meet Listing Hurdles – Bigly, Heavy, More to Come
- In December 2021, when companies were required to file statements with the TSE as to plans to meet continuing listing requirements, Toei Animation (4816 JP) had a Plan.
- That plan? Get from a then-current 15.5% Tradable Shares level to 25.0% by 31 March 2025. That was “OK” though later, the TSE asked companies to speed it up.
- Today, shareholders Sony and Bandai Namco announced an equity offering to sell down up to 4.48mm shares in a domestic+overseas offering. It’s big, heavy, and there is more to come.
2. Toei Animation Placement – Looks Ripe for a Correction
- Bandai Namco (7832 JP) and Sony Pictures are looking to raise up to US$525m via selling around 10.66% of Toei Animation (4816 JP) (TA).
- The purpose of the placement is to unwind some of the cross-shareholding, as well as help TA to maintain its listing in the Standard Segment.
- In this note, we will talk about the placement and run the deal through our ECM framework.
3. Toei Animation (4816 JP): A US$550 Million Secondary Offering
- Toei Animation (4816 JP) has announced a secondary offering of up to 4.5 million shares (including overallotment). Bandai Namco Holdings (7832 JP) and Sony Corp (6758 JP) are the sellers.
- The offering will allow Toei Animation to maintain its listing in the TSE Standard Market and enable Bandai Namco and Sony to reduce and liquidate cross-shareholdings.
- Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 27 February and 4 March (likely 27 February).
4. Initial Thoughts on Hyundai Motor India IPO
- Hyundai Motor India has been taking initial steps for an IPO. We believe this IPO could be completed sometime in 4Q 2024.
- Hyundai Motor India Limited (HMIL) IPO offering size is estimated to be at least US$3 billion, which would be one of the largest in India and the world this year.
- If HMIL is valued at US$25 billion and HMC sells a 15% stake, its remaining 85% stake would be worth US$21 billion, representing 55% of HMC’s market cap.
5. APR IPO Book-Building Results Analysis
- APR reported a very strong IPO book-building results. APR IPO price has been determined at 250,000 won, which is 25% higher than the high end of the IPO price range.
- A total of 1,969 institutional investors participated in this IPO book-building. The demand ratio was 663 to 1. APR IPO will start trading on 26 February.
- Our base case valuation of APR is target price of 370,809 won per share which represents a 48% upside from the IPO price of 250,000 won.
6. KB Financial Placement – Momentum Has Been Strong and the Last Clean-Up Sale Has Done Well
- The Carlyle Group / (CG US) via Kingsman Investment, is looking to raise US$244m from selling its entire stake in KB Financial (105560 KS).
- Carlyle has been invested in the firm since mid-2020, where it then expressed that it would hold on to its stake for at least three and a half years.
- The deal would be a small one to digest at just 3.8 days of KB Financial’s three month ADV, representing 1.2% of its current mcap.
7. ECM Weekly (12th Feb 2024) – Nissan/Renault, Metcash, Digital Core, SBFC, Thai Credit, Park Hotel
- Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
- On the IPO front, Thai Credit Bank finally ended Thailand’s long dry spell, although it wasn’t a happy ending.
- For placements, REITs appear to be coming back to life with rates now having peaked.
8. Industrial & Infrastructure Investment Corp Placement – Back to the Markets for the 12th Time
- Industrial & Infrastructure Fund Investment (3249 JP) is looking to raise around US$341m in its primary follow-on offering to acquire 28 properties and an equity interest in a silent partnership.
- The deal is a somewhat large one to digest, at 83 days of three month ADV and 16.2% dilution.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
9. CICC-Backed Chinese Chip Design Firm Fined Over Fraudulent IPO Application
- A semiconductor company sponsored by China International Capital Corp. Ltd. (CICC), one of the country’s top investment banks, has been fined over IPO application fraud, the China Securities Regulatory Commission (CSRC) said in a statement Friday.
- S2C Ltd., which specializes in electronic design automation, has been fined 4 million yuan ($563,095) for fraudulent activities in its attempt to list on Shanghai’s tech-heavy STAR Market.
- The move marks the CSRC’s latest effort to enforce strict information disclosure requirements and tough penalties for market violations under its registration-based IPO mechanism.
10. Bharti Hexacom Pre-IPO – The Negatives – No Clear Rationale for Listing
- Bharti Hexacom is looking to raise up to US$1bn in its upcoming India IPO.
- Bharti Hexacom (BH) is a communications solutions provider offering consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and the North East telecommunication circles in India.
- In this note, we talk about the not-so-positive aspects of the deal.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Outsourcing (2427) – Earnings Delay Causes Consternation
- Originally, the MBO for Outsourcing Inc (2427 JP) was expected to get launched end-January 2024. A late-ish filing with regard to the EU’s Foreign Subsidies Regulation regime prompted a delay.
- Yesterday Outsourcing announced a delay its earnings release by 3 business days, the delay “procedures related to impairment losses are continuing.”
- Outsourcing shares are down hard on this. -1.5% as I write. I examine.
2. Screen Holdings (7735 JP): Positioning & Potential Passive Buying
- SCREEN Holdings (7735 JP) could be added to a global index at the end of the month and there will be a lot of buying in the stock.
- There is a fair bit of positioning for the potential passive buying and there will be supply in the stock.
- However, the stock trades cheaper than its peers and a correction could provide an opportunity for long-term investors to enter the stock.
3. JSR (4185) – Updated Information in SUNY Lawsuit, and Other Developments
- 12 days ago, JSR Corp (4185 JP) announced that former research collaboration partner Research Foundation of the State University of New York had sued in an intellectual property ownership dispute.
- I wrote about it here to the extent I could. Since then, more information has become available, or available to me. Some details on the case. Some on lawyers.
- Since then JSR has reported earnings with unchanged forecast, and major pure play comp Tokyo Ohka Kogyo (4186 JP) today reported earnings; the stock popped 10+% to an all-time high.
4. MVIS Australia Equal Weight Index Rebalance Preview: Should I Stay or Should IGO?
- The review period for the March rebalance of the MVIS Australia Equal Weight Index ends on 29 February with results announced on 8 March and implemented on 15 March.
- Lendlease Group (LLC AU), IDP Education (IEL AU) and IGO Ltd (IGO AU) are very close to deletion zone and price moves over the next couple of weeks are important.
- IGO Ltd (IGO AU) is also a deletion from a global index in February and a lower stock price could lead to deletion from this index too.
5. Renesas (6723 JP) To Acquire Altium (ALU AU) In a A$9.1bn Deal
- Renesas Electronics (6723 JP) has entered a Scheme Implementation Agreement to acquire Altium Ltd (ALU AU) at A$68.5/share implying an equity value of A$9.1bn and an Enterprise Value of A$8.8bn.
- The offer price is a 33.6% premium to the last close and a larger premium to VWAPs ranging from 30 days to 180 days.
- There will be ad hoc inclusions to the S&P/ASX 100 Index and the S&P/ASX 200 (AS51 INDEX) on Altium Ltd (ALU AU)‘s last trading day (expected second half of 2024).
6. Renesas’ Transformative Offer For Altium
- Renesas Electronics (6723 JP), a supplier of advanced semiconductors, is offering Altium Ltd (ALU AU) shareholders A$68.50/share, in cash, a lifetime high, by way of a Scheme.
- Back in June 2021, Altium rejected a A$38.50/share NBIO, then a A$40/share verbal Offer, from US engineering software giant Autodesk. This was discussed in Altium Ltd (ALU) Rebuffs Autodesk Offer
- This is compelling Offer for Altium. For Renesas, this transaction is a paradigm shift away from its core semiconductors manufacturing ops.
7. S&P/ASX Index Rebalance Preview: Newmont Still Has Nearly A$1bn to Sell
- With two days left in the review period, there could be 28 adds/deletes across the S&P/ASX family of indices in March.
- There is nearly A$1bn to sell in Newmont (NEM AU) due to the potential S&P/ASX 20 Index deletion and a large decrease in the number of shares held in Australia.
- There could be 2-41 days of ADV to buy in the index inclusions while the impact on the deletions will range between 0.7-24 days of ADV.
8. Outsourcing (2427) MBO Situation – Checking, and Thinking, and Noodling, and Speculating
- I got a bunch of questions about my Outsourcing comments yesterday in Outsourcing (2427) – Earnings Delay Causes Consternation.
- This piece is intended to clarify what I know (still limited), put parameters around what it might be, and draw lines in the sand which I might later erase.
- This may be nothing. But it may not be. I will try to answer the questions I received in a kind of Q&A format, and I hope that helps.
9. MVIS Australia A-REITs Index Rebalance Preview: ASK Looks Like a Delete
- The review period for the March rebalance ends in a couple of weeks. There could be one deletion from the index and a bunch of capping changes.
- The index changes will lead to a one-way turnover of 2.2% resulting in a one-way trade of A$13m. There are two stocks with over A$3m to trade.
- With market participants expecting lower interest rates, there has been short covering on a lot of the REITs in the last few months.
10. SET50 Index Rebalance Preview: Three Potential Changes in June
- Early days, but there could be three changes for the Stock Exchange of Thailand SET 50 Index at the June rebalance. Two names are reversals of the December changes.
- Passive trackers will need to buy between 1.5-3.6 days of ADV on the inclusions and sell 1.1-1.4 days of ADV on the deletions.
- There are a couple of stocks that are close to passing/failing the liquidity tests and a couple close to cutoff ranks. That could result in further changes to the index.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. USD inflation review: Powell has to invent a new measure..
- This is another heavy-hitting US inflation report and frankly the worst in a while.
- The stickier components of the basket, including rents and transportation services came in smoking hot, and without substantial deflation in various core goods categories such as cars and apparel, this would have been an outright disastrous report for the Federal Reserve.
- While we had the core goods part of the equation right, we had the re-acceleration of core services wrong.
2. Elections Likely to Hand a Decisive Mandate to Strongman Prabowo
- Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto’s era, looks likely to win the presidential election, with Jokowi’s son Gibran as running-mate.
- Gibran’s presence has shifted the parliamentary polls by 10pp in favour of Prabowo’s party, Gerindra, likely making it the largest at the expense of PDI-P– winner of all previous elections.
- Post-Oct’24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution.
3. How Investable Is China (Revisited)
- We reiterate our view that long-term investors in China are likely to face subpar returns coupled with high volatility.
- China hasn’t even tried to reverse the imbalances from long-standing past economic policies.
- Real-Time market signals indicate further weakness in China, which investors should avoid. In the short run, the Chinese stock market looks washed out.
4. Bubbles & AntiBubbles
- Keynes once said that markets can stay irrational longer than you can stay solvent.
- I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.
- This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.
5. Ugly CPI Report Leaves Powell Less Room to Sound Dovish
- Both US headline and core inflation came in higher than expected in January. Core inflation rose by 0.4% month-on-month, the strongest increase since last May.
- The real shocker, however, came from the Core Services excluding Housing CPI. The three-month annualized inflation rate spiked to 6.7%.
- Although we have one more CPI report before the next FOMC meeting, the chance of a (temporary) correction in risky assets has increased.
6. EM Fixed Income: Emerging Markets Outlook & Strategy for February
- The global backdrop for the start of the year is better than anticipated, with a broad-based upturn in PMIs suggesting steady or even growing global and emerging market growth.
- The US is experiencing some slowing in growth, but consumer demand is more solid, supported by strong labor markets and falling inflation.
- China’s GDP growth is expected to remain around 5.5% in the near term, but there are concerns about ongoing deflation, housing market weakness, and its impact on corporate revenues and private sector confidence. Outside of China, emerging markets in Asia and Latin America are seeing growth rebound, driven by improvements in consumer and industrial sectors.
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7. Steno Signals #86 – Trading the Relative Fed and ECB Balance Sheet Development
- I am sitting here on a Saturday evening (by the time of writing) waiting for the opportunity to say hello to the second junior analyst at home as my wife’s due date is approaching fast.
- In between the frightening thoughts on how to deal with not only one but two diaper-wearing boys at home (myself excluded), I keep pondering why I receive so many questions on the timing of the first rate cut.
- Is it really that important?
8. CPI Falls Again in China as Japanification Narrative Does the Rounds
- More deflation reported in China and the implications for markets
- Chinese authorities keep pushing liquidity into the system and focusing on the stock market
- Parts of the Chinese Economy not as bad as the doomsayers would have you believe
9. China Economics: “Japanification” in China and the New Low Growth Equilibrium
- After decades of being described as an “economic miracle”, powerful structural drags are threatening to throw China down a medium-run equilibrium of low growth.
- The economy will have to rely on weaker fundamentals in terms of demography, productivity and economic structure to carry it forward to the next stage of growth.
- Together with a more hostile global environment, China and the world will need to get used to structurally lower growth rates unless deep-seated reforms are completed.
10. The Week Ahead – Fed Meeting Minutes, Central Bank Meetings in Indonesia and Korea
- Global markets experienced a wobble following a stronger than expected US CPI inflation report, causing a spike in bond yields and a dip in equity markets.
- The US CPI report breaks the trend of positive data and has implications for the Fed’s rate cut decisions. While inflation is expected to moderate this year, it will take several data points to confirm this.
- The upcoming minutes from the January FOMC meeting will provide more details on the Fed’s thinking regarding rate cuts and adjustments to the pace of balance sheet rundown.
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This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Taiwan Tech Weekly: TSMC Sales Ahead; Display Driver Growth Reversal; AI Names Keep Flying
- Latest Performance: Taiwan AI Names Keep Flying; ASE & Mediatek Lose Steam After Reporting
- Largest Display Driver Maker in the World’s Guidance Implies Growth Reversal Coming in Feb & March
- TSMC and Samsung Will Keep Their Most Advanced Chipmaking at Home
2. Intel’s UMC Partnership Is A Big Deal. For UMC.
- UMC’s Q423 results in line with expectations. Q124 guidance, down 2-3% QoQ, demonstrates ongoing headwinds for foundry
- Intel, UMC foundry partnership helps the latter overcome their 14nm issues while giving them bargain basement access to US manufacturing capacity
- If Intel could have developed and deployed the proposed 12nm specialty process on their own, they would have….
3. SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.
- The 1Q24F outlook is still showing a decline, with a slightly increase in revenue of 2% QoQ. However, the GM is expected to decrease to 9-11% from 16.4% in 4Q23.
- Management predicts that there will be a double U-shaped recovery in 2024F. Revenue in 2024F is expected to grow annually by mid-single-digit.
- The main areas of growth for SMIC in 2024F will be in mobile phones, smart homes, IoT, and computing.
4. China Semi Foundry: Fierce Competition & Sluggish Rebound In Year Of The Dragon
- Both SMIC & Hua Hong reported Q423 earnings in line with expectations and both guided Q124 flat to slightly down. SMIC expects FY24 mid single digit growth YoY.
- The downturn has exposed inherent weakness in China’s Semi Foundry segment relative to peers as exemplified by the significant GM disparity
- China’s two leading semi foundries have ~80% domestic dependence. Right now, that’s a headwind
5. Largest Display Driver Maker in the World’s Guidance Implies Growth Reversal Coming in Feb & March
- Novatek reported over 20% YoY growth for 4Q23 and slightly beat expectations but the latest guidance implies growth to reverse to a sales contraction in the latter part of 1Q24E.
- Gross and operating margins are guided to contract; nevertheless, inventory dropped to one of the lowest levels since COVID and is expected to remain healthy.
- Novatek’s latest results appear to signal that while inventory levels are healthy, the demand growth rebound for display drivers that started in June 2023E could lose steam in 1Q24E.
6. MonotaRO (3064 JP): Slowdown in the Price
- Annual sales growth has dropped from 20% or more in recent years to 12.5% in FY Dec-23. The operating margin ticked up last year, but is basically trending sideways.
- The share price has dropped by 35% since April 2023, bringing the projected P/E ratio down to the bottom of its 10-year range. Buy back in for the long term.
- Guidance, which is usually accurate, is for 12.7% sales growth this year and an operating margin of 12.5%. Growth should continue in future years with flat or better margins.
7. KLA & LaserTec, AMD, Hyperscaler Capex, SK Hynix, SWKS and QRVO, WOLF, MCHP
- KLA had a rare miss. The guidance was a bit light for the inspection execution machine.
- KLA rarely misses and is by far the best financially managed of the large-cap semicap companies.
- KLA reports Q2 EPS $6.16 ex-items vs FactSet $5.91
8. Novatek (3034.TT): It’s the Low Season in 1Q24F; AI Is Gradually Added to Different Applications.
- 4Q23 surpassed the guidance for revenue, GM, and OPM. 4Q23 EPS reached NT$8.76, compared to NT$10.46 in 3Q23 and NT$6.64 in 4Q22.
- 1Q24F is typically the traditional low season for consumer electronics, and there are fewer working days during the Lunar New Year.
- It is expected that the dividend payout ratio this year will be similar to previous years, which has been higher than 80% in the past few years.
9. Himax: Industry Readthrough for Automotives, Notebooks, and Edge AI Applications
- Readthrough: Automotive Applications End-Demand — China Market Soft But Touch and Dimming Technology is Expanding
- Readthrough: Panel Makers Constraining Supply in 1Q24 to Protect Pricing
- Readthrough: Customers Are Restocking Notebooks in 1Q24E, PC Replacement Cycle is Coming
This weekly newsletter pulls together summaries of the top ten most-read Insights across Equity Capital Markets on Smartkarma.
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1. Metcash Placement – Not One, but Three Synergistic Acquisitions at a Go
- Metcash Ltd (MTS AU) is looking to raise up to A$300m (US$195m) in its primary placement. The proceeds will be used to partially fund the acquisition of three businesses.
- The deal would be a large one to digest at 22.5 days of three month ADV and 8.4% dilution.
- In this note, we’ll run the deal through our ECM framework and comment on deal dynamics.
2. Thai Credit Bank IPO Trading – Half the Deal Already Spoken For, the Other Half Should Be Liquid
- Thai Credit Bank PCL (3674238Z TB) raised around US$281m in its Thailand IPO.
- TCB is a commercial bank that focuses on providing business loans to small and medium-size enterprises (SMEs), nano loans and micro credits to merchants, and home loans for individual customers.
- We had looked at the firm’s past performance and shared our thoughts on TCB’s valuation in earlier notes. In this note, we will look at the trading dynamics.
3. Apeejay Surrendra Park Hotels IPO – Has Bounced Back Strongly, at a Decent Discount
- Apeejay Surrendra Park Hotel (PARK IN) (ASPH) plans to raise up to US$111m via selling a mix of primary and secondary shares in its India IPO.
- ASPH ranks as the eighth largest in India in terms of chain affiliated hotel rooms inventory as of Sep 2023, as per Horwath HTL Report.
- In this note, we talk about the past performance and our thoughts on valuations.
4. Digital Core REIT Placement – Taking a Turn for the Better After All the Negative News
- Digital Core REIT (DCREIT SP) is looking to raise at least US$100m in its primary placement. The proceeds will be used to fund potential acquisitions and debt repayment.
- The deal will be a large one to digest at 72.7 days of three month ADV and 12.8% dilution.
- In this note, we’ll run the deal through our ECM framework and comment on deal dynamics.
5. CaiNiao’s FYQ3: Solid Revenue Growth & EBITA Margin Improvement Distinguish It From Express Peers
- CaiNiao’s revenue growth remained strong, up +24% Y/Y in December quarter
- EBITA turned positive from loss in prior year period, but margin < FYQ2
- Overall, an impressive set of results that distinguishes CaiNiao from express peers
6. Kayou Pre-IPO Tearsheet
- Kayou (000KAYOU CH) is looking to raise up to US$500m in its upcoming HK IPO. The deal will be run by CICC, Morgan Stanley and JP Morgan.
- Kayou is a Chinese pan-entertainment product retailer of toys, with trading cards in particular as its core product.
- As of 9M23 (30th Sep 23), it had an IP matrix of 44 IPs through licensing from IP partners and the development of proprietary IPs.
7. Bharti Hexacom Pre-IPO Tearsheet
- Bharti Hexacom (6597372Z IN) is looking to raise up to US$1bn in its upcoming India IPO. The bookrunners are SBI Capital, Axis Capital, BOB Capital, ICICI Securities and IIFL Securities.
- Bharti Hexacom (BH) is a communications solutions provider offering consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and the North East telecommunication circles in India.
- It offers its services under the brand ‘Airtel’. BH relies on a robust network infrastructure with a mix of owned and leased assets.
8. Agilus Diagnostics Limited Pre-IPO – Still Recovering from COVID
- Agilus Diagnostics Limited (SRLL IN) is looking to raise around US$200m in its upcoming India IPO.
- Agilus Diagnostics Limited (Agilus) is a diagnostic testing service provider.
- In this note, we look at the company’s past performance.
9. Samhyun IPO Valuation Analysis
- Our base case valuation of Samhyun is target price of 28,106 won, which is 25% higher than the mid-point of the IPO price range (22,500 won).
- Given the moderate upside, we have a Positive view of Samhyun IPO. Our base case valuation is based on P/E of 34.6x net profit of 8.6 billion won in 2023.
- Samhyun developed one of the world’s first CVVD (Continuously Variable Valve Duration) technology for automobile engines, which improves fuel efficiency by controlling the engine’s valve opening time.
10. Pre-IPO Xiaocaiyuan International Holding – A “Dark Horse” In Mass Chinese Cuisine Market
- Based on effective strategic positioning, Xiaocaiyuan is able to seize the market’s demand for cost-effective catering during consumption downgrade and the trend of increasing restaurant chain rate in China.
- The key for Xiaocaiyuan to generate increasing profits at low spending-per-consumer is due to its strong supply chain, which will be favored by capital especially when Xiaocaiyuan enters community catering.
- Xiaocaiyuan International Holding (XCY HK) is better than peers. However, due to poor sentiment in HKEX, it’s not sure if Xiaocaiyuan’s valuation/share price performance could outperform peers as well.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. JSR (4185) – Possible Trouble in Arb Land as SUNY/CNSE Files Suit Against JSR Sub Inpria
- JSR Corp (4185 JP) announced 2 February on its website that the Research Foundation for the State University of New York (“RF SUNY”) filed suit against JSR subsidiary Inpria 25 January.
- JSR claims no wrongdoing. A court order from the US District Court for the Northern District of New York denied RF SUNY’s request for a hearing by 5 February.
- This may put a short-term damper on sentiment in the name, and I expect the JICC people have been working on this for a week.
2. JAPAN ACTIVISM: Activist Elliott Takes on Mitsui Fudosan (8801)
- The FT carries an article this AM saying Elliott Management have built a stake in Mitsui Fudosan (8801 JP) and has asked it to undertake measures to increase ROE.
- Measures requested apparently include a very large buyback and a demand the company sell down its stake in Oriental Land (4661 JP). The article is worth reading.
- Shares are up sharply on this news. The fund was in the news last year about this time regarding Dai Nippon Printing (7912 JP). I’d expect more noise to come.
3. The Next Step in Lawson’s Big Boots Adventure – KDDI and MitCorp to Take It Private
- Today, just before the close, the Nikkei sprung a headline saying KDDI Corp (9433 JP) would take over Lawson Inc (2651 JP). The stock immediately headed to limit up.
- Post-Close, details emerged. KDDI will buy the 50% that MitCorp does not own, this will become a 50/50 JV. TOB launch at ¥10,360 will be in April. Squeezeout in September.
- This appears to be the Next Step in Lawson’s Big Boots Adventure. The premium is too light. The price is too low. And that is not counting the synergies.
4. Japan – Increasing Shorts on Some Interesting** Stocks
- There are some Japanese stocks that have dropped in price even as the broader market has powered higher. That could lead to the stocks being deleted from global portfolios.
- The deletion from passive portfolios will lead to a liquidity event at the end of February where passive trackers will need to sell multiple days of ADV.
- BayCurrent Consulting (6532 JP) is a dark horse for inclusion in the Nikkei 225 (NKY INDEX) in March and this deletion could take the stock lower before the Nikkei 225 announcement.
5. NIFTY NEXT50 Index Rebalance Preview: Potential Adds Continue to Run
- With the review period for the March rebalance complete, there could be 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
- Estimated one-way turnover is 13.9% resulting in a one-way trade of INR 28.6bn. Four inclusions will have over 1x ADV to buy; five deletions will have 2.5x+ ADV to sell.
- The potential adds have outperformed the potential deletes by 28.6% over the last month. With positioning from a rebalance perspective mostly done, gradually unwind over the next few weeks.
6. China ETF Inflows & Impact: Concentrated, Then Diversified; Central Huijin Steps Up
- Nearly US$37bn has flowed into mainland China listed ETFs since 2 January and could be driven by the National Team supporting the market. Central Huijin has announced their ETF buying.
- Most of the inflows have been focused on large cap indices including CSI 300, SSE50, CSI 500, CSI 1000, ChiNext, STAR50 and Chinext50 indices.
- While the inflows were initially focused on the CSI 300, there has been a diversification recently with big inflows to the SSE50, CSI 500, CSI 1000 and ChiNext indices.
7. Lawson (2651 JP): KDDI Corp (9433 JP) Pre-Conditional Tender Offer at JPY10,360
- Lawson Inc (2651 JP) has recommended a pre-conditional tender offer from KDDI Corp (9433 JP) at JPY10,360 per share, an 18.8% premium to the undisturbed (5 February).
- The pre-conditions relate to regulatory approvals in Japan, China, South Korea, and the EU. The offer is expected to start in April, suggesting no significant issues, particularly with SAMR approval.
- Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate, achievable as the offer represents an all-time high.
8. India: Free Float Changes & Passive Flows in February
- Companies in India have disclosed their shareholding pattern as of end-December in January. There are companies with significant float changes from end-September and/or end-December.
- The changes in free float could be reflected in domestic and global indices over the next few weeks and months resulting in action from passive trackers.
- There are 15 stocks that could have passive inflows from global trackers while 9 could see passive outflows in February.
9. STAR100 Index Rebalance Preview: High Risk/Return Trade Setup
- The review period for the March rebalance ended 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
- There are 10 stocks in inclusion zone and 11 in deletion zone. There should be 10 changes since that is the cap for the maximum changes at a single rebalance.
- The potential adds and deletes are down between 37-47% over the last 6 months and a long/short trade could provide superior risk-adjusted returns.
10. L’Occitane (973 HK): Blackstone Pondering an Offer
- Bloomberg reports that L’Occitane (973 HK) draws takeover interest from Blackstone (BX US), which is considering partnering with Chairman and largest shareholder Reinold Geiger.
- Blackstone needs an attractive takeover premium due to the presence of significant disinterested shareholders (Mr. Geiger and Acatis KVG).
- Shareholders will be wary of the latest rumour due to Mr Geiger’s aborted offer on 4 September 2023. Nevertheless, the valuation is undemanding compared to peer multiples.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Korea M&A Reforms: Considering on Adopting Poison Pill in 2024
- On 4 February, numerous local media mentioned that there is an increasing probability of the Korean financial authorities introducing poison pill in order to improve corporate governance and M&A reforms.
- The main purpose of the poison pill would be to increase shareholder value, encourage the management to focus on investment and employment, and effectively defend itself against M&A attempts.
- Poison pill could have positive impact on companies with high levels of treasury shares and preferred shares. The uncertain outcome of National Assembly election in April remains a key risk.
2. Further Cracks Appearing in the US Economy
- Commercial Real Estate issues, the dog that didn’t bark in 2023, is back.
- Unlike March 2023, this cannot be fixed by liquidity injections alone.
- US employment data surprises on the upside. Further Government manipulation?
3. Where Are We In the Global Liquidity Cycle?
- January 2024 another strong month for Global Liquidity which hits US$171.7 trillion
- US Fed and China’s PBoC are in the forefront of adding liquidity
- Global Liquidity Cycle trough in October 2022. Next peak late-2025
4. Macro Regime Indicator: Time to Embrace a New Economic Dawn?
- The recent performance of the US economy prompts a reassessment of long-held market sentiments.
- As we witness an intersection of sturdy growth, moderating inflation, and evolving liquidity dynamics, investors and policymakers alike stand at a crossroads.
- This month’s ‘Macro Regime Indicator’ questions the endurance of the current (US) economic strength and its implications for inflation and asset allocation.
5. SLOOS Survey: The US Economy Is Re-Accelerating and Money Growth Is Back!
- The demand- and supply for money has bottomed out! That is the overwhelming conclusion from the quarterly survey on banking standards released by the Fed.
- The SLOOS improves further from Q4 to Q1, and especially the supply side has eased quite a bit and is almost back in neutral territory.
- The rebound in demand is underwhelming, but it also typically lags supply/financial conditions by another quarter, meaning that Q2 is the likely big rebound in loan demand.
6. Get Ready to Buy in May…
- The U.S. equity market is setting up for a price surge that begins in May, supported by positive election year seasonality and the rising likelihood of a May rate cut.
- We reiterate our belief that stock prices are likely to be choppy and trade sideways until May.
- The historical record shows that breadth thrusts, such as the one experienced off the October bottom, are long-term bullish, but need a period of consolidation and correction.
7. Positioning Watch – Spread-trades are the way to play the current environment
- Very interesting dynamics in markets lately, with the NFP report Friday shocking markets at first glance before sending them back into rally-mode, likely a signal that asset pricing will be more about underlying fundamentals and economic data rather than interest rates alone.
- Despite rate cuts being pushed back a bit by both data and central bankers, the US economy is going strong, and the “interest rates work with a lag” arguments have been swept away for now, which leaves us with good news actually being good news.
- This week’s positioning watch is chart-packed with short and concise text – Enjoy!EquitiesRetail Investors’ allocation towards stocks has remained fairly stable since 2022 and has retracted after the boom in late 2023, but despite having a high correlation with the performance in small vs big equities (Russell 2000 vs S&P 500), Large Cap has outperformed Russell 2000 and other small cap indices by MILES since 2022.
8. The Weekly Market Monitor – How China Is Pushing Stocks Higher Except at Home
- China is injecting liquidity into the markets, but ironically, with investors sick and tired of negative returns, much of this liquidity is finding its way everywhere except China.
- The downturn in commercial real estate is becoming a global phenomenon. A growing number of companies is grappling with bad real estate loans, leading to a sharp increase in provisions.
- The most recent Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reveals yet another trend that the recession is already behind us.
9. Portfolio Watch: NVDA or Bust?
- Hello everyone and welcome back to yet another assessment of our macro book- and as per usual accompanied by our current macro outlook!We knock on the door to a week with yet another US CPI release- this time revised:The revision we received today proved not to be the unpleasant surprise everyone feared given the 2023 revision and Waller & Powell both having flagged it and as a result, our expectations of a soft print remain unchanged- for elaboration see here.
- While it might feel like we’re repeating ourselves, our belief in the USD and US risk assets being the best options out there hasn’t budged.
- That said, we’ve been tossing around a few ideas and topics internally over the last week: Markets haven’t continued the dramatic price movements since last Friday’s (some might label it as “fake”, see here) NFP blowout, but it’s noteworthy that short-term expectations are significantly outstripping those further along the curve.
10. Steno Signals #85 – NFP Report Full of FAKE News?
- A week of bizarre front-end volatility has come to an end.
- From “higher for longer” to banking crisis 2.0 to inflation crisis 2.0 in a matter of five trading days.
What’s up and down? It’s time to cut through the BS.