Smartkarma Content

Happy Sunday and welcome to our weekly flagship editorial.
The soft landing narrative has seen material tailwinds over the past 6-8 weeks, while the recession narrative is fading fast.
This is the first prerequisite for an actual recession as a recession never arrives when everyone plans for one.

3. Investment Opportunities From A Global Leadership Review

By Cam Hui, Pennock Idea Hub

Global equities are surging, led by growth stocks. Stay with the current leadership until year-end as hedge funds are likely to engage in a beta chase for performance.
U.S. stocks are still the leaders, especially the megacap growth stocks.
Set-Ups for a new leadership are emerging in Europe and EM ex-China. Wait until early 2024 to re-evaluate the evolution of leadership before making any decisions on rotation.

4. End of Mandatory Lock-Up Periods for 53 Companies in Korea in December 2023

By Douglas Kim

We discuss the end of the mandatory lock-up periods for 53 stocks in Korea in December 2023, among which 6 are in KOSPI and 47 are in KOSDAQ.
These 53 stocks on average could be subject to further selling pressures in December and could underperform relative to the market.
Among these 53 stocks, top five market cap stocks include Doosan Robotics, Studio Dragon, Asicland, Manyo Factory, and Curocell.

5. Positioning Watch – All About the Soft Landing Narrative

By Srinidhi Raghavendra, Mint Finance

Hello everyone, and welcome back to our weekly positioning watch, where we as always try to dig down into the latest positioning data and give you an overview of what’s moving narrative currently.
Sentiment and positioning are still skewed towards hopes of a soft landing, with bets being placed on lower yields, a weaker dollar, booming equities and almost non-existent credit spreads – ironically a prime condition for an upcoming recession (which is still our base case for H1 2024).
General media and story counts are also all about the soft landing vs recession, with the mentionings of “recession” back at pre-COVID levels, while soft landing counts are on the rise, although pulling a bit back from recent highs.

6. VIX Isn’t Broken. It Is Diluted by 0DTE Options That Have Shifted Target Risk Windows.

Geo-Politics are tense. Monetary policies are in contraction. Rates are on hawkish pause. Inflation is far from tamed. Financial conditions remain tight. VIX should be anything but sanguine.
Any misjudgment across politicians, central bankers or businesses could send equities tanking or soaring. Yet the VIX is sending a calming signal.
VIX isn’t broken. It has been diluted by rise of Zero DTE (0DTE) options which have shifted risk pricing windows away from VIX target expiry range.

7. 5 Things We Watch: CBs, Eurflation, OPEC, Ifo, Dutch Politics

By Ulrik Simmelholt, Steno Research

We start off this week’s 5 Things We Watch by having a look at the reactions of CBs.
This is followed by talking about EURflation and the upcoming OPEC meeting and we then move on to talking about the Ifo numbers released last week while lastly finishing off with Dutch politics.
The Fed is the most plausible “pauser”.

8. 7 Reasons to Embrace the Melt-Up Into Year-End

By Cam Hui, Pennock Idea Hub

We wouldn’t go as far as to call the current circumstance a generational buying opportunity, but a rare “fat pitch” that comes along only once or twice per decade.
The current episode of strong breadth thrust off the market bottom in late October is a rare and clear, and extraordinary, trading signal of a major market bottom.
We believe investors should, at a minimum, embrace the likely melt-up into year-end and re-evaluate market conditions in January.

9. Vietnam Poised to Be Winner in Global Competition for Investments

By Manu Bhaskaran, Centennial Asia Advisors

Vietnam’s economy is regaining its footing after a difficult first half in 2023. Industrial activity and trade picking up, complementing still-healthy growth in the services sector. y.
Despite the cyclical difficulties, foreign investments into Vietnam are on the up. Advantageous economic geography and diplomacy are powerful pull factors.
However, defective infrastructure, including in transport and utilities, limits the scope of Hanoi’s economic ambitions. These must be fixed if investments are to remain in Vietnam.

10. G3 Central Bank Watch: More Fuel to the 2007 = 2023 Analogy

We have used the 2007 = 2023 analogy a few times already this year and we continue to find coincidental evidence that looks a lot like the emerging pressures built up in the quarters preceding the financial crisis.
The outcome of 2024 is still up in the air, but credit indicators do not look pretty ahead of next year when we combine the impulse in China, the US and the Euro area in an aggregate model and judging from the central bank behavior, we see a lot of similarities to 2007 across the BoJ, the Fed and the ECB.
Let’s briefly explain why in this central bank watch piece!

Weekly Top Ten Macro and Cross Asset Strategy

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Dec 03

Weekly Top Ten Tech Hardware and Semiconductor – Dec 3, 2023

By Smartkarma Content | Tech Hardware and Semiconductor

1. Semiconductors. The Downturn Is Over. Or Is It?

Global semiconductor sales have increased MoM for seven months in a row. PC & Smartphone unit shipments have bottomed and are on the rise. Memory has bottomed.
Silicon wafer inventories are piled high, ASML, TEL facing down zero growth in 2024, foundry utilisations are (mostly) in the doldrums with further ASP cuts looming on the horizon.
Multiple data points suggest we’ll still be talking about this downturn well into 2024

2. TSMC (2330.TT; TSM.US): 2024 High Conviction for Upside >15% YoY

By Patrick Liao

TSMC is expected to experience growth of ~15% YoY in 2024F.
TSMC’s N3 is expected to dominate the market in 2024F, with applications in CPU, GPU, smartphone SoC, and more.
We also estimate that the N2 pilot run will begin in 4Q24.

3. TSMC: Defensive AI Play in Long Upward Re-Rating Trend?

By Douglas O’Laughlin, Fabricated Knowledge

We believe TSMC represents defensive exposure to AI for investors concerned that many other AI-related stocks’ valuations may be too high.
While one may think TSMC seems too obvious as a play, we note that the stock is up only 4.5% over the last six months.
We view TSMC as trading at an inexpensive valuation; even a cheap valuation should our hypothesis that the stock is structurally re-rating upwards turn out to be true.

4. Nvidia’s China Problems, Applied Materials, and Microsoft’s Accelerators

Nvidia’s quarter was surprising to me because it was boring. There were a few incremental pieces, but the big news was everything to do with China.
As you know, there was another round of export restrictions with a myopic focus on AI Accelerators.
This impacted results and the outlook.

5. Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot

Memory names have rallied strongly, with Nanya Tech outperforming since the start of November.
DRAM bottomed and NAND flash prices have jumped. Micron says that 2025E could be a record year for the Memory industry.
High valuations make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK Hynix or Long Micron vs. Short Nanya Tech.

6. Micron. The Rally Is Premature

Improving outlook with Q1F24 revenue forecast slightly above the high end of the guided range
2024 is being positioned as a “recovery year”, helping reset investor expectations about the nature and speed of the recovery
Micron’s share price typically rallies strongest into record revenue years. 2024 will not be a record revenue year. As such, we think the present rally is premature.

7. Taiwan Dual Listings Monitor: Spreads Generally Trading in the Middle of Their Ranges

TSMC: 8.2% Premium — Still Best to Wait for Better Levels
ASE: 6.4% Premium — Wait for 5% as the Level to Go Long the Spread
ChipMOS: -0.5% Discount — Stay Long the Spread if You Started at -2.0%

8. UMC (2303.TT; UMC.US): There Is a Greater Chance for a Rebound in 2Q24F.

By Patrick Liao

Although it is still early to determine the extent of the utilization rate that could be reached in UMC for 2Q24F, there is a greater chance for a rebound.
UMC’s high-end technology, specifically 28nm, has a utilization rate of over 80% in 4Q23F.
MediaTek is UMC’s largest client, dominating in WiFi, TV SoC, Bluetooth, and other areas.

9. Taiwan Tech Post-Earnings Takeaways: Semis Margins Underestimated? Hardware 2024E Forecasts Ramped

Taiwan Tech companies beat analyst expectations by a high rate in the latest quarter
Semiconductors: Consensus could be underestimating a margin rebound for 2024E
Hardware aggregate forecast earnings growth increased significantly for 2024E as compared to just three months ago

10. Taiwan Tech Weekly: Taiwan AI Top Losers; Dell to Provide PC/Server Color; Post-3Q Results Takeaways

Taiwan AI Plays Top Losers Recently, Dell Results Coming Today U.S. Time to Provide Color for PCs and Servers
Taiwan Tech Post-Earnings Takeaways: Semis Margins Underestimated? Hardware 2024E Forecasts Ramped
Nanya, Yageo Top Gainers; We Rate the Stocks Outperform and Structural Long Respectively

Weekly Top Ten Tech Hardware and Semiconductor

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Dec 01

Weekly Top Ten Equity Capital Markets – Nov 26, 2023

By Smartkarma Content | Equity Capital Markets

1. Large GS Yuasa (6674) Placement – 20% Dilution, Needs Lots of Love

Today after the close, noted Japanese battery maker Gs Yuasa Corp (6674 JP) announced a public equity offering accompanied by a 3rd party placement to Honda Motor (7267 JP).
Total $300mm+ raise is nearly 20.0mm shares against ~80mm shares out now. That’s 20% EPS dilution at a still-decent discount to book value.
This creates a weird situation of a low ROE stock becoming lower ROE, at a lower PBR, with “more growth ahead” in a hyper-competitive space.

2. Tata Technologies IPO: Valuation Insights

Tata Technologies (TATATECH IN), the largest India-based ER&D service provider, seeks to raise gross proceeds up to US$366 million in a pure secondary offering.
We previously discussed the IPO in Tata Technologies IPO: The Investment Case, Tata Technologies IPO: The Bull Case and Tata Technologies IPO: The Bear Case.
Our valuation analysis suggests that the IPO price range of Rs475-500 per share is attractive. Therefore, we would participate in the IPO.

3. Zeekr Pre-IPO – Thoughts on Valuation

ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note, we will talk about valuations.

4. GS Yuasa Placement – Well Flagged but Relatively Large Deal, Liquidity Might Be an Issue

By Nitin Mangal, India Independent Insight

Gs Yuasa Corp (6674 JP) (GSY) is looking to raise around US$240m via a public offering, along with placing shares via third-party allotment with Honda Motor (7267 JP) .
The company formed a JV with Honda Motors earlier this year and will use the bulk of the proceeds for investments in the JV.
In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

5. DS Dansuk IPO Preview

By Douglas Kim

DS Dansuk is getting ready to complete its IPO in Korea in the next several weeks. The IPO price range is from 79,000 won to 89,000 won.
The book building for the institutional investors will be from 5-11 December. The IPO offering amount is from 96.4 billion won to 108.6 billion won.
According to the bankers’ valuation, DS Dansuk’s valuation would range from 462 billion won to 522 billion won.

6. Flair Writing Industries IPO- Forensic Analysis

Flair Writing Industries (1656496D IN) ‘s INR 5.9 bn upcoming IPO consists of fresh issue worth INR 2.9 bn and OFS worth INR 3 bn (at the upper end).
The company is the largest pen manufacturer in India and one of the top three players in the Indian Writing Instruments Industry.
While the company has shown a handsome growth since the pandemic, some operating metrics pertaining to employees don’t seem to add up.

7. WuXi XDC (2268.HK) – How Long Will the Rally Last?

By Xinyao (Criss) Wang

WuXi XDC’s shares surged since IPO. Obviously, ADC industry is in a “honeymoon period”. The market is optimistic about ADC due to high certainty and growth visibility in short term.
Pharmaceutical companies believe this platform would produce blockbuster products continuously. However, if there’s any “persuasive event” to change optimistic expectations on ADC, it’s time for investors to reconsider WuXi XDC.
“Positive sentiment + non-falsifiable short-term logic” would indeed push WuXi XDC’s shares to a new high. As long as sales of major ADCs are in line with expectations, party continues.

8. Tata Technologies IPO- Forensic Analysis

By Nitin Mangal, India Independent Insight

Tata Technologies (TATATECH IN) awaited IPO is set to launch for subscription this week.
The company is one of the largest ER&D player that is based in India with revenues crossing INR 44 bn in F23.
Balance sheet remains strong and cash rich. There are however, doubts on revenue recognition policy, forex risk and reliance on Tata Group.

9. Zensho Holdings (7550) – ¥50bn Offering Is Not Meant For You

Zensho Holdings (7550 JP) has had a great couple of years in share price movement. And this year is seeing earnings explode to new highs. M&A and FX.
Now they want to build a “war chest” equivalent to 4% of market cap to go do more M&A.
This seems opportunistic. And the shareholder register is extraordinarily lopsided. There is really only one buyer for this deal.

10. Zeekr Pre-IPO – Peer Comparison – Catching up with Little Spending

ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
We have looked at the company’s past performance in our earlier notes . In this note, we will undertake a peer comparison.

Weekly Top Ten Equity Capital Markets

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Nov 26

Weekly Top Ten Event-Driven and Index Rebalance – Nov 26, 2023

By Smartkarma Content | Event-Driven and Index Rebalance

1. JSR (4185) – Time To Fight The FUD

Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come.
FUD and Flows would widen the spread. And they did.
Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.

2. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: 18% One-Way Turnover & US$2.74bn Trade

By Sanghyun Park, Clepsydra Capital

Using data from the close on 20 November, there could be 6 adds and 5 deletes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in December.
There will also be capping and funding flows that will lead to a one-way turnover of 17.8% and a one-way trade of US$1.37bn.
There are 16 stocks with at least 3 days ADV to trade from passive trackers and another 10 stocks that have at least 1-day ADV to trade.

3. Understanding Extreme SSF Spreads in Korea & Trading Approaches

Futures backwardation resulting from the short selling ban will persist. Also, the contraction of market making will lead to more widespread and frequent occurrences of extreme spreads.
The straightforward sell arbitrage (reverse cash and carry) is no longer viable. We must pay attention to the emergence of new price and trading patterns driven by these market conditions.
One potential pattern is the possibility of spot buying centered around those that exhibited extreme spreads at expiration. This has already been observed to some extent in this month’s expiration.

4. EOFlow (Further) Tests Investor Patience

By David Blennerhassett, Quiddity Advisors

Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms.

5. What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?

By Sanghyun Park, Clepsydra Capital

The day the basis spread disappears is this Friday, the 24th of November. This mirrors a comparable pattern observed during Korean Air’s rights offering in 2020.
If the spot price does not fall below the futures price of our entry until this Friday, we could potentially be in a profitable range.
There has been a notable pattern where the spread continues to exist until just before the moment when new share selling becomes feasible.

6. HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added

Keep Inc (3650 HK) and Tuhu Car (9690 HK) will be added to the Hang Seng Composite Index (HSCI) after the close of trading on 1 December.
Keep (3650 HK) will be added to Southbound Stock Connect from the open on 4 December while Tuhu Car (9690 HK) will only be added to Stock Connect in April.
There are lock-up expiries on both stocks, prior to or after inclusion in Stock Connect, and trading strategies will need to take that into account.

7. Origin Energy (ORG AU): State of Play

The Origin Energy (ORG AU) scheme vote is on 23 November. Brookfield/EIG’s best and final offer is A$6.59 and US$1.86 per share, currently worth A$9.45.
With AusSuper reportedly increasing its stake past 17% on Friday, the scheme vote remains too close to call. Brookfield/EIG will need a large YES vote turnout for a successful vote.
If the scheme is voted down, there are mainly three Plan Bs – Brookfield/EIG’s alternate transaction structure, Board-initiated strategic review or maintaining the status quo.

8. Tata Technologies IPO: Offering Details & Index Inclusion

Existing Tata Technologies (TATATECH IN) shareholders are looking to sell 60.85m shares and raise between INR 28.9-30.4bn (US$347-365m) giving the company a market cap of between US$2.31-2.44bn.
Tata Technologies (TATATECH IN) will have a float of around 10% at the time of listing and that will increase close to 30% after the pre-IPO lock-up ends.
Tata Technologies (TATATECH IN) could be added to global indices in May and June, but inclusion in local indices with meaningful tracking assets will take longer.

9. Daito Trust (1878) Doing a ToSTNeT Buyback Which Is NOT a ToSTNeT Buyback… Unless It Is.

Back on 30 October, Daito Trust Construct (1878 JP) announced a large earnings, a new Shareholder Return policy, a higher payout this year, and a big buyback.
It said the buyback period would start two days later, but they did not specify the method (Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year
Today they announced a ToSTNeT-3 purchase for “the whole size”, which is accompanied by a “Japan-style ASR.” Know your details.

10. S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement

There could be 3 changes for the S&P/ASX 200 (AS51 INDEX) in December. There are unlikely to be any changes for indices higher up the hierarchy.
Passive trackers will need to buy between 7-11 days of ADV in the inclusions while the impact on the deletions will be larger at between 11-23 days of ADV.
Short interest has decreased on the potential inclusions and increased on the potential deletions. There is significant pre-positioning on some of the stocks.

Weekly Top Ten Event-Driven and Index Rebalance

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Nov 26

Weekly Top Ten Tech Hardware and Semiconductor – Nov 26, 2023

By Smartkarma Content | Tech Hardware and Semiconductor

1. As Expected from Our Earlier BOM/CoWoS Analysis, Consensus to Raise Nvidia Estimates Inevitably

By Andrew Lu

Nvidia reports/guides a better than expected 3Q/4Q23 sales, margin, and EPS on stronger AI GPU sales growth of nearly 3x.
Nvidia reports a healthy 3.04 MOI, down 5% q/q and down 37% y/y and contributes nicely to account for 9% of TSMC sales.
In spite of concerns on good news priced in, seasonal weaker 1Q24, and MI300X/ASIC alternative AI solutions, we expect more raise to come in 2024-2025E.

2. NVIDIA. Another Beat & Raise, Yet Shares Slide. But Why?

Q3FY24 revenues of 18.1 billion, up 34% QoQ and up a staggering 206% from the year ago period. It was also ~$2 billion higher than the guided number
NVIDIA’s current quarter forecast was for a further revenue raise of almost $2 billion with gross margins staying roughly flat at 74.5%
Share price reaction was negative, closing down 2.5% the following day. But why?

3. A Turnaround Story for Intel by Accelerating 3nm Outsourcing to TSMC?

By Andrew Lu

By offering 15k and 30k/m 3nm capacity by 4Q24/4Q25 to Intel, TSMC will see Intel becoming one of its top 3 customers by accounting for 12% of TSMC 2025 sales
By leveraging 3nm outsourcing, Intel will have incremental sales/capacity growth of 19-20% per year by accounting for 28%/44% of sales in 2024/2025, beating consensus’ 14%/9% y/y sales growth for 2024/2025.
We estimate 30-35% 5 years EPS CAGR for Intel, driven by TSMC’s 2/3nm foundry support, lower cost and process R&D, lower capex and depreciation cost, and AI PC CPU launch.

4. Nvidia Still Cheap: Enterprise AI Next Driver to Kick-In; Adjusting Our Taiwan AI Plays Short Hedge

By Douglas O’Laughlin, Fabricated Knowledge

Nvidia’s street-beating results indicate strong growth to continue; Generative AI demand will next expand from startups, consumer internet, and cloud service providers increasingly to enterprise AI-linked demand.
Nvidia is not expensive despite recent market concerns. We believe Nvidia can meet or even beat its current calendar year 2024 earnings expectations and forward PE is cheap.
Short a basket of Taiwan AI concept stocks vs. a core Nvidia long position rather than take profits in Nvidia. We have swapped one Taiwan stock in our short basket.

5. OpenAI Boardroom Battle: Safety First

OpenAI was founded in 2015 by investors, including Elon Musk, Reid Hoffman, Peter Thiel, AWS, and YC Research.
The goal was to pursue Artificial General Intelligence (AGI) safely for the benefit of humanity.
There was an initial pledge of $1 billion, but the money that came in was $100 million from Elon Musk and $30 million from Open Philanthropy.

6. TSMC (2330.TT; TSM.US): N2 Technology Is Scheduled in 2025F.

By Patrick Liao

TSMC’s N2 technology is currently undergoing verification for a 256Mb SRAM, and it will be implemented in Hsinchu and Kaohsiung, Taiwan.
The TSMC N3 technology capacity was 65kwpm in 3Q23, and the current version is N3B, which were adopted by Apple for the iPhone 15 this year.
Both N3E and N2 only have 20 layers EUV masks.

7. Taiwan Tech Weekly: Nvidia Results Today; Taiwan Market Surged But Why It Might Be Still Underowned

Nvidia Results Today U.S. Time — Taiwan Market Surged Recently on Improving AI/Semiconductor Expectations and Potential for Easing U.S.-China Tensions.
Taiwan: Underowned, Yet Gaining on Peers. Our Fellow Insight Provider Analyzes Why Taiwan Might Still Be Underowned.
Asia Geopolitics: Following Biden-Xi Meeting, Asia Is a Safer Place For Now.

8. Taiwan Dual Listings Monitor: TSMC Premium Slumps; CHT & ChipMOS at Rare Opportunity Levels

TSMC: 7.4% Premium — Previous Short Has Worked, Now Wait For Better Levels
ChipMOS: -2.0% Discount — Good Level to Go Long the Spread
CHT: -1.2% Discount — Good Level to Go Long the Spread

9. Q323 Memory Segment Review, Outlook

Q323 DRAM revenues amounted to $13.210 billion, up a robust 19.25% QoQ, but still down 27% from the year-ago period.
In the case of NAND, Q323 revenues amounted to $9.3 billion, up 4% QoQ but down 31.7% YoY.
All memory players remain loss making. We don’t anticipate a return to black until Q224.

10. What Oct US SEMI Equipment and Sep SIA/WSTS Global Sales Tell Us?

By Andrew Lu

SEMI reports Oct front/back end equipment billings decline of 14% and 18% y/y, respectively, which was improved from 18% and 24% y/y decline in September, implying early signs of recovery.
WSTS/SIA earlier reported September sales of US$44.89bn, up 1.9% m/m and down only 4% y/y (vs. 16% decline in June), suggesting semi sales y/y improvement and pass the cycle trough.
We are positive on SOX INDEX likely to break new high of over 4,000 in six months and expect PC/smartphone/training AI semi and DRAM semi/equipment vendors to outperform in short.

Weekly Top Ten Tech Hardware and Semiconductor

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Nov 26

Weekly Top Ten Macro and Cross Asset Strategy – Nov 26, 2023

By Smartkarma Content | Macro and Cross Asset Strategy

1. Steno Signals #74 – Did King USD Just Break?

By Said Desaque, DeSaque Macro Research

The sharp move in USDJPY and other USD pairs towards the end of last week has caught our attention and it arrives on the back of Powell letting go of the steering wheel on USD real rates.
The weekly credit data from the US economy keeps weakening and we are en route for a credit contraction in the US during Q1/Q2 next year.
Powell is probably right to let go of the tightness in USD real rates, but the question is whether he could be tempted to take back control in December in a final policy error?

2. KOSPI 200 and KOSDAQ 150 Rebalance Additions and Deletions Announced (December 2023)

By Douglas Kim

Korea Exchange announced KOSPI 200 rebalance additions and deletions today. There were 14 new additions and deletions (7 each).
Some surprises in KOSPI 200 rebalance included addition of Seah Besteel and deletion of HDC Hyundai Development.
There were a lot more additions and deletions in KOSDAQ 150 (34 total additions and deletions). Among the KOSDAQ 150 additions included Neowiz, JNTC, Lunit, and Jeio.

3. The Land of Swaying Yen: Will The BoJ Intervene? How Will Yen Respond?

By Pranay Yadav, Mint Finance

Japan faces a raft of economic headwinds which shows up in Yen’s underperformance. BoJ’s job is not one to be envied given near-term issues plus structural challenges.
Since the start of Sep, the Yen has underperformed the most among currency majors declining to a 33-year low relative to the USD.
A frail outlook warrants continued loose monetary policy. However, that creates other problems forcing BoJ intervention to support the Yen.

4. Charting Beyond the Euro Area Headlines

By Thomas Lam

Available data through October implies that prevailing GDP growth is possibly tracking weaker than the prior quarter
A proxy of household saving propensity seems to be hovering around elevated levels partly because of greater uncertainty
Notwithstanding the recent disinflationary prints, the most persistent category of HICP inflation appears to be sticky at roughly twice the pre-pandemic average level

5. Fed’s Policy Rate Benchmark Under Scrutiny: Goodbye to the Federal Funds Rate?

The poor results from the US Treasury’s latest 30-year bond auction highlights limited private investor appetite. Pressure on the Treasury to persist with high levels of short-term borrowing has increased.
Aggressive quantitative easing and interest on reserves have significantly lowered trading in the federal funds market by US banks, while Federal Home Loan Banks currently dominate lending.
The Fed’s policy rate could shift to the Secured Overnight Funding Rate. Functionality could be impacted by shifting perceptions about the collateral quality of Treasury securities due to high borrowing.

6. Asia Geopolitics: Following Biden-Xi Meeting, Asia Is a Safer Place For Now

By Manu Bhaskaran, Centennial Asia Advisors

The Biden-Xi meeting signals a positive phase for lower geopolitical risks in the Asia Pacific. Beijing and Washington are prioritising handling its domestic challenges over ratcheting up competitive activity.
Taiwan’s presidential polls also motivate China’s “wait-and-see” approach as the Sinoskeptic DPP faces headwinds in maintaining its grip on power.
Japan’s more nuanced strategy has gained it traction with Asian nations. It is why it is emerging as a real winner in the geo-political game in Asia.

7. How Far Can This Rally Run?

By Cam Hui, Pennock Idea Hub

The U.S. equity rally off the bottom in late October is characterized by strong price momentum and shows a high degree of upside potential.
Point and figure charting signifies measured objectives indicating percentage gains in the high teens or low 20s.
We also offer a series of sell signal triggers that indicate possible inflection points in risk/reward potential.

8. 5 things we watch: IFO, US rates, Earnings revisions, USD & Gasoline

We start off this week’s 5 Things We Watch by having a look at the Ifo survey coming up this Friday in the midst of the Schwarze Null ruling.
This is followed by talking about US rates and Nvidia earnings and we then move on to talking about the USD while lastly finishing off with gasoline demand.
This week we are watching out for the following 5 topics within Global macro: IFO, US Rates, Earnings revisions, The USD, Gasoline.

9. Energy Cable #47: Price Always Leads Narrative

By Steven Holden, Copley Fund Research

Happy Monday to everybody from a cold and rainy Copenhagen.
We are now long crude oil again as we find the narrative too bearish given the fundamentals.
Before we start to talk about our crude oil case, we would like to highlight the volatility in post covid energy markets and how these have benefitted sellers in the futures markets more than buyers keeping storage costs constant.

10. Taiwan: Underowned, Yet Gaining on Peers

The percentage of Global funds invested in Taiwan hits an all-time high of 57.8%.
Taiwan has been a key beneficiary of manager rotation alongside India, Argentina and South Korea over the last 6-months.
TSMC is the dominant stock holding, with 49.8% of funds holding a position and has hit record ownership among Global funds.

Weekly Top Ten Macro and Cross Asset Strategy

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Nov 22

Smartkarma Doubles Down on Tech Hardware & Semiconductor Research

By Smartkarma Content | Smartkarma Press Releases

SINGAPORE, 22 November 2023: Smartkarma has rapidly scaled its bench of Tech Hardware & Semiconductor Focused Independent Research Providers to complement existing strengths in Tech, Internet & Communication Services.

With this, Smartkarma now hosts the foremost assembly of independent analysts specialising in technology — a testament to our commitment to providing unparalleled institutional-grade expertise.

Shortlist of Top Tech Hardware & Semiconductor Analysts on Smartkarma:

Name	Focus Area	Previous Experience	What’s Unique
Andrew Lu	Asia & Global Semiconductor and Tech Hardware	Barclays, Citi, China International Finance Securities	II-ranked, first-hand research knowledge of the China semiconductor ecosystem
Patrick Liao	Greater China Semiconductor Industry, Taiwan Tech	JPMorgan, Nomura, Macquarie	Taiwan, on-the-ground Insight with data-driven focus, management access
William Keating, Ph.D.	IT/Semiconductor Industry (Global)	Intel Corporation, Founder of Ingenuity	Deep semiconductor industry experience
Jim Handy	Electronics Industry, Semiconductor, SSD (Global)	Founder of Objective Analysis	Deep memory sector expertise over multiple cycles
Douglas O’laughlin	Semiconductors, Moore’s Law, Equity Long-Short (Global)	Bowie Capital, Founder of Fabricated Knowledge	Buyside experience and global perspective
Scott Foster	Japanese Semiconductor and Tech Focus	BNP Paribas Securities (Japan), HSBC Securities, Lightstream Research	Japan, on-the-ground coverage and management access
Vincent Fernando	Taiwan Tech and Private Companies Focus	Macquarie, Citi Investment Research, Managing Director of Zero One	Taiwan, on-the-ground coverage and management access

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Key Research Collections to Follow:

OF NOTE:

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Nov 19

Weekly Top Ten Equity Capital Markets – Nov 19, 2023

By Smartkarma Content | Equity Capital Markets

1. Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns

A group of shareholders are looking to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
The deal would represent 23 days of Asahi’s three month ADV. Its latest extended large primary deal has done very well.
While the deal isn’t particularly well flagged, it is an extended one allowing the market to price in the impact of the share sale.

2. Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets

Zeekr, a premium EV brand by Geely Auto (175 HK) , aims to raise around US$500m in its US listing.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
In this note, we talk about the positive aspects of the deal.

3. Zeekr Pre-IPO – The Negatives – Remains Highly Dependent on Geely

ZEEKR, a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
In this note, we talk about the not-so-positive aspects of the deal.

4. Ajinomoto Placement – Share Buyback Should Aid Group Selling

A group of shareholders are looking to raise US$444m by trimming their respective stakes in Ajinomoto Co (2802 JP) via an extended secondary follow-on.
While the selldown doesn’t seem particularly well flagged, it won’t be a very large one to digest at just eight days of three month ADV.
In a bid to cushion the selldown, Ajinomoto plans to buyback its stock to the tune of 10m shares, which would amount to 80% of the base shares on offer.

5. WuXi XDC Cayman IPO Trading – Strong Subscription Rates Heading into Listing

WuXi XDC Cayman (1877628D HK) raised US$470m in its Hong Kong IPO.
WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the trading dynamics.

6. Steadfast Group Placement – While Accretion Here Is Limited, Past Deals Have Done Well

By Shifara Samsudeen, ACMA, CGMA, LightStream Research

Steadfast (SDF AU) is looking to raise around A$280m (US$180m) to fund the acquisition of Sure Insurance, and provide headroom for potentially additional acquisitions over the year.
SDF has undertaken a number of capital raises in the past to similarly fund its active acquisition strategy. Overall, the firm’s past deal record has been strong.
In this note, we will talk about the acquisition and run the deal through our ECM framework.

7. Wuxi XDC: Thoughts on First Day Trading

Wuxi XDC priced its IPO at HK$20.60 per share (upper-end of range), and raised HK$3.5bn (US$417m) at a market capitalisation of HK$24.3bn and post-money EV of HK$20.4bn.
Both HK offering and the international offering of the company were significantly oversubscribed by 49.96x and 19.6x respectively.
Our DCF value per share is still at a significant premium to the final IPO price, and we expect Wuxi XDC’s IPO to have a strong debut.

8. WuXi XDC IPO: Trading Debut

By Ethan Aw, Aequitas Research

WuXi XDC Cayman (1877628D HK) priced its IPO at HK$20.60 per share to raise the gross proceeds of US$470 million. The shares will start trading tomorrow.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case, WuXi XDC IPO: The Bear Case and WuXi XDC IPO: Valuation Insights.
The market sentiment on the sector has modestly weakened. However, the IPO price is attractive, with our DCF valuation of HK$22.89 per share, 11.1% above the IPO price.

9. Ecopro Materials IPO Trading – One of the Weakest Subscription Rates of the Year

EcoPro Materials (ECO123 KS) raised around US$320m, after downsizing the deal and pricing its IPO at the low end of the range at KRW36,200/share.
Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
In this note, we will talk about the demand for the deal and other trading dynamics.

10. ZEEKR IPO: The Bull Case

ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has filed for a US$500 million IPO to list on the NYSE.
ZEEKR has launched three models – the luxury shooting brake coupe ZEEKR 001, the luxury pure electric MPV – ZEEKR 009 and the new luxury versatile SUV – ZEEKR X.
The bull case rests on bestselling premium BEVs, rapid vehicle sales growth, rising gross margin, debt-free balance sheet and a favourable cash conversion cycle.

Weekly Top Ten Equity Capital Markets

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Nov 19

Weekly Top Ten Event-Driven and Index Rebalance – Nov 19, 2023

By Smartkarma Content | Event-Driven and Index Rebalance

1. Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics

Today after the close with Benefit One Inc (2412 JP) reporting earnings, M3 Inc (2413 JP) announced a Partial Tender Offer to buy 81.21-83.31mm shares of Benefit One at ¥1600/share.
That cleans out Pasona, which owns 81.21mm shares. Or does it… Shareholder structure dynamics and the problems they cause later bear some detailed examination.
This one is going to be a fun special sit.

2. FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out

The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.

3. I Like Big Bank Buybacks And I Cannot Lie

Today, Sumitomo Mitsui Financial Group (8316 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) reported H1 earnings. Mizuho Financial Group (8411 JP) reported yesterday.
Mizuho raised full-year NP guidance by ~5%, passing the Street. SMFG raised its FY NP guidance 12.2%, also beating the Street. MUFG didn’t raise guidance but H1 saw 71% progress.
Today, SMFG raised its div, and both SMFG (¥150bn) and MUFG (¥400bn) announced buybacks. Cross-holding unwind progress is waaay lower than we’d like, but capital stronger as a result.

4. Pasona: The Wrong Price

As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
Though we don’t know what the future holds, Pasona now is the wrong price for its future.

5. Japan – Increase in Shorts on Some Interesting*** Stocks

Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.

6. CSI300 Index Rebalance Preview: 13 Potential Changes in December

With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

7. STAR50 Index Rebalance Preview: Big Impact Expected on the Changes

With the review period complete, we expect one change for the STAR50 INDEX in December if the index committee continues to use a 6-month minimum listing history.
With net inflows to mainland China ETFs over the last few months, passive trackers will need to trade between 9-25 days of ADV on the potential add and delete.
SMIC (688981 CH) will be capped and there will be reverse funding flows on the index constituents. One-way turnover is estimated at 1.8% resulting in a one-way trade of CNY2,580m.

8. Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting

Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there.
The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

9. Benefit One (2412 JP): M3’s Partial Tender Offer

By Sanghyun Park, Clepsydra Capital

Benefit One Inc (2412 JP) announced a partial tender offer from M3 Inc (2413 JP) at JPY1,600 per share, a 40.0% premium to the undisturbed price.
The transaction facilitates Pasona Group (2168 JP)‘s exit. The offer is for a minimum of 81.2 million shares (51.16% ownership ratio) and a maximum of 87.3 million shares (55.00%).
Irrevocables from Pasona represent a 51.16% ownership ratio, satisfying the minimum acceptance condition. The offer is light vs. historical multiples and share prices.

10. Key Points We Should Know Regarding the Current Status of EOFlow

It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

Weekly Top Ten Event-Driven and Index Rebalance

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