Smartkarma Content

TSMC’s ADR premium is 10.4%, this is a decent level to short it based on the historical trading range.
UMC’s ADR premium is near a good level to short the spread but one should wait for it to rise above 1.5% in our view.
UMC ADR short interest continues to trend higher; TSMC ADR short interest continues to fall.

2. Takeaways After Global Semi Equipment Model Updated and Our View on 2024/2025

Takeaways: 1. Semi equipment vendors beat 4Q23E; 2. China and DRAM customers stronger ; 3. Margin stable due to lack of depreciation; 4. Top four controls over 90% of shares;
More takeaways: 5. Semi equipment companies’ share price performance should lag behind foundries, foundries should lag behind fabless customers; 6. China semi equipment vendors outperforming global peers on local replacement;
Estimating a flattish global semiconductor equipment sales growth for 2023 and 2024 but expecting a double digit y/y sales growth of 17% for 2025 and 10% for 2026.

3. Semiconductor Events Deserving Your Attention @ 13/11/23

TSMC Reported October revenues of NT$243.20 billion, an increase of 34.8% QoQ and an increase of 15.7% YoY.
According to IDC, worldwide smartphone shipments amounted to 302.8 million units in Q323, still down 0.1% YoY, but up ~14.1% sequentially.
Silicon wafer area shipments for Q323 amounted to 3,010 MSI, down 19.5% YoY & down 10% QoQ. Why are wafer shipments declining when key end markets are in recovery mode?

4. Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb

Global silicon wafer area shipments declined 10% QoQ in Q323 but customer inventory remains at historical highs and is showing no signs of declining
SUMCO’s Operating Profit forecasted to fall by ¥8.6 billion QoQ in Q423
The company vowed to make “substantial” production cuts in a bid to bring their inventory situation under control.

5. Taiwan Tech Weekly: AI Names Rally But Nvidia Long/Short Still Working; Hon Hai & Asustek Take-Aways

By Scott Foster, LightStream Research

Earnings season wrapping up — Hon Hai & Asustek recently reported… Some AI names rallied hard but our Nvidia L/S trade still working
Hon Hai’s margin expansion story is finally starting to be realized. Stock’s perceived political risk could be an opportunity.
How Asustek plans to take the lead globally in AI PCs; Gaming PCs will be the first key battleground. MSI could be an interesting play on Asustek’s recent strong performance.

6. Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down

The share price has risen by more than 20% in the past month as 1H results beat guidance, FY guidance was raised and the yen weakened.
The 2-for-1 stock split may also have attracted retail investors. But the new FY guidance implies lower 2H guidance.
The outlook is for higher but volatile sales and profits. Valuations are reasonable but not compelling. Wait for a pullback.

7. Semiconductor Cycles: Industrial and EVs

By Douglas O’Laughlin, Fabricated Knowledge

This earnings season, Industrial semiconductor demand has been the biggest incremental softening in end market demand. That’s not surprising.
I have been talking about the FIFO (First-In, First-Out) cycle, and the only two remaining segments that have not had a meaningful correction are Industrial and Automotive.
We are now seeing the beginning of Industrial weakening.

8. How Asustek Plans to Take the Lead Globally in AI PCs; Gaming PCs First Key Battleground

Asustek reported results on November 13th that beat analyst expectations thanks to a major margin rebound. The stock soared post results.
Asus plans to be the first company globally to release an AI PC, leveraging extensive AI R&D across different devices as well as its leading market share in gaming PCs.
However, gaming PC competitor MSI is already moving fast; Shows how gaming PCs are likely to be the first AI PC battleground. Long Asustek, remains preferred over Acer.

9. Silergy (6415.TT): Silergy Expect to Grow Slightly in 4Q23F.

By Patrick Liao

The inventory adjustment of consumer electronics products is nearing completion and industrial products will end later.
Silergy Corp (6415 TT)‘s short-term growth momentum comes from the demand of new smartphone, while its long-term growth momentum comes from the automotive, new energy and high-performance computing area.
In 1H24, the pro forma gross profit margin can be maintained at around 50%.

10. Hon Hai’s Margin Expansion Story Finally Starting to Be Realized? Results Imply Yes

Hon Hai beat expectations yesterday when it reported thanks to higher than expected margins. Gross margin rose to its highest level since 2018, hitting 6.7%.
The company has maintained its 2025E 10% gross margin target and implied that 2024 will see significant margin improvement as new higher margin businesses ramp up revenue contribution.
Two key market concerns: News of Chinese government investigation and political risk given Mr. Gou running for president. Company said operations continue as normal. Hon Hai remains a Structural Long.

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Nov 19

Weekly Top Ten Macro and Cross Asset Strategy – Nov 19, 2023

By Smartkarma Content | Macro and Cross Asset Strategy

1. Increase in Trading of Inverse ETFs in Korea Post Temporary Ban on Stocks Short Selling

In this insight, we discuss the increase in trading of inverse ETFs in Korea post the temporary ban on stock short selling.
From 6th to 14th November, individual investors made net purchases of 46 inverse ETFs worth 3.7 trillion won. Local institutions also made net purchases of 1.6 trillion won.
On the other hand, foreigners net sold 5.8 trillion won worth of inverse ETFs.

2. Steno Signals #73 – An Abysmal Impulse for 2024

Happy Sunday and welcome to our flagship editorial! As per usual we take you for a chart-heavy guided macro tour around major asset classes.
Conclusions up front: – The credit impulse for 2024 looks abysmal– Rates volatility is likely going to rise sharply again– Equities still look (too) expensive on most parameters – JPY and CNY trends to continue worsening– Oil bulls have less to cheer about than Nat Gas bulls
Momentum in 2023 saw a positive impulse from 1) lower input costs for production due to lower commodity and energy prices than in 2022 and 2) Easing financial conditions due to higher multiples and an easing momentum in rates.

3. EUR Watch: Damned if You Do Until You Are Damned if You Don’t

EUR assets will suffer if the activity levels rebound too quickly due to a lack of elasticity in the commodity/energy supply in Europe.
The EUR (and EUR assets) have suffered from a damned if you do, damned if you don’t a scenario in recent years as the scarcity of energy has taken center stage in the pricing of everything from the EUR, to EUR discount rates and EUR risk assets.
Low volatility in energy prices allows energy-sensitive industrials to brighten up the outlook, which is initially good for the EUR, but the problem is just that there is a potential negative embedded feedback loop in that journey.

4. Positioning Watch – The Cocktail of Heavy Logs in Both Equities and Bonds

By Ulrik Simmelholt, Steno Research

Hello everyone, and welcome back to our weekly positioning watch, which due to delays in the CFTC data has been postponed to today (data was available yesterday evening).
Almost as usual, markets find themselves in an odd position, as they await the next big event to move price action after Powell’s latest shocker a couple of weeks ago coupled with a severe sell-off in bonds in recent weeks.
Today’s CPI report will likely not change a whole lot, but equity markets may continue their run upward if we are right in our prediction from yesterday (more on that here).

5. Energy Watch: Time to Buy Oil Again?

Conclusions up front: – We agree with OPEC that the demand side seems to be doing decent; paper markets are net short oil again.
Our model is approaching the buy zone despite the recent weakness seen in Oil.
The big risk to our model is a supply increase from an exhausted Saudi Arabian one-man-army.

6. USD CPI Watch: The tricky path to 2% despite a soft report

Another CPI report, another preparation piece, where we as always share our thoughts on the coming report, what to expect next, and how far the Fed is from their all-important mandate of 2% inflation.
Main conclusions/notes upfront: 1) The path to 2% is tricky or almost impossible for the next 6 months.
CPI needs to average 0% MoM, which does not seem feasible.

7. Five Bullish Risk Reversals You May Have Missed

By Cam Hui, Pennock Idea Hub

We’re old enough to remember how the market was panicked about a U.S. recession and a rising term premium in the Treasury market.
Since then, a series of positive technical, macro and fundamental reversals have occurred to alleviate those concerns.
These reversals of an extremely bearish psychology are bullish for risk assets.

8. UK CPI Watch: No Path to 2% Unless Inflation Deflates on a Monthly Basis

By Jeroen Blokland, True Insights

Welcome to our short and chart-packed preview of UK inflation out tomorrow morning.
Extreme base effects are at play in October due to energy price revisions in October 2022
Housing and household services are about to turn negative year over year

9. US Inflation: First Take!

Disinflation Lives! US consumer prices were unchanged in October. As a result, headline inflation dropped to 3.2%. Core inflation declined to 4.0%, the lowest level in two years.
However, like last month, the underlying data look less upbeat. The 3-month annualized Core Services excluding Housing CPI has risen for four(!) consecutive months and reached 4.9% in October.
The disinflation narrative remains intact, opening the door for the Fed to proactively lower interest rates. But it remains doubtful whether Powell & Co. are truly inclined to do so.

10. 5 Things We Watch: Trump, Electricity, CPI, Crude Oil, Fixed Income

By Ulrik Simmelholt, Steno Research

This week we start out by looking at Trump’s chances of getting reelected then move on to European electricity markets after that we’ll discuss yesterday’s CPI print before moving on to crude oil and then ending with fixed income positioning.
President Biden’s approval ratings continue to sour as the country heads into potential Oil price headwinds and numerous unsolved foreign policy challenges.
The Biden camp has launched a number of PR offensives during 2023 – most notably the coining of “Bidenomics”, but none have managed to close the gap, which has even accelerated since summertime.

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Nov 12

Weekly Top Ten Tech Hardware and Semiconductor – Nov 12, 2023

By Smartkarma Content | Tech Hardware and Semiconductor

1. Taiwan Tech Weekly: Positive Signs for Memory, PC, Smartphones; Key Autos & Display Color This Week

Last week global heavyweights AMD, Samsung, and Qualcomm delivered good news, including for the Memory, PC, and Smartphone industries. Taiwan company results supported their views as well.
Looking ahead, Novatek, Asustek, and Himax are set to release in Taiwan. Combined with NXP abroad, this will provide color on display demand, automotive, and servers/PCs.
A new Chinese memory chip maker just received major government investment, with an IPO of its related company planned.

2. UMC. Automotive Weakness Prolongs Downturn

Q323 revenues of NT$57 billion, up 1.4% QoQ but down 24.3% YoY. For 2023 YTD, revenues have amounted to NT$167,575 billion, down 20.5% YoY.
Net income was NT$15.97, essentially flat QoQ. Gross margin came in at 35.9%, also flat QoQ. Utilisation for the quarter was 67%, down from 71% in the prior quarter.
Utilization set to further decline to low 60% levels in Q423, the lowest since the downturn began.

3. GlobalFoundries Pops On Q323 Earnings. But Why?

Q323 revenues of $1.85 billion, flat sequentially but down 11% YoY. Net income was $249 million, up 5% sequentially but down 26% YoY.
At a midpoint of $1.85 billion, forward guidance is once again flat sequentially. Overall it was a solid report with guidance slightly better than UMC delivered last week.
Despite the solid quarter, the company’s outlook for 2024 was bleak with a 50% CapEx cut, LTAs under mounting pressure & ominous-sounding LTA “True Up” on the horizon.

4. HHGrace. Yikes! Things Just Got Really Ugly

By Scott Foster, LightStream Research

Revenues of US$568.5 million, down 10% sequentially and down 9.7% YoY, at the bottom of the previously guided range.
Net loss of $25.8 million compared to a profit of $7.8 million in the previous quarter and $65.5 million in the year ago period.
With current quarter gross margins in the 2-5% range, HHGrace has flipped from best in class in H123 to the worst in class now.

5. SMIC (SEHK: 00981; SSE Star Market: 688981): Back to Reality

Reports emphasizing that SMIC fell short of 3Q expectations don’t make much sense. The real test starts this quarter with 7nm smart phone processors for Huawei in mass production.
Profits are under pressure from low capacity utilization, rising depreciation and continued high investment. Cash flow is adequate. The balance sheet is sound.
The share price dropped 6.8% on Friday after rising 44% from late August to early November. 4Q guidance points to near-zero operating and net profit. Recovery will take time.

6. SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.

By Patrick Liao

Based on the some judgments, SMIC consider it will be relatively flat demand in 2024F.
SMIC took into consideration geopolitical instability and allowed equipment vendors to submit orders in advance.
Currently, only a few manufacturers are stockpiling smartphones in response to this wave. The overall industry remains relatively stable.

7. Takeaways Post Our Global Foundry Model Updated and Initial View on 2024

Takeaways post model updated: 1. most foundries miss 4Q23 but y/y decline to decelerate; 2. y/y sales passed the trough but utilization later; 3. wafer shipment down 18-20% in 2023;
More takeaways: 4. different mix with different price; 5. some are defensive this year, some might have larger upside for 2024; 6. gross margin still falling and capex cut needed.
Automotive/Industrial lags only not beginning of the fall: Smartphone, pc, consumer/IOT foundry orders might recover earlier than automotive/industrial for 2-3 quarters, resulting fablesses in these area to outperform.

8. Why Is Vanguard Semi Becoming to a Bad Student, Cyclical or Structural?

Shortage/Oversupply, price hike/cut, automotive/industrial demand and inventory corrections are still cyclical. Gross margin should double from 22-24% now once utilization returning to 100% and no more free wafer by 2025.
LCD driver foundry is facing a structural competition as China panel customers are building a local supply chain.
Attractive below NT$70 as: 1. inventory correction should be done by 2Q24; 2. global 8″ foundry sales y/y improvement began 3Q23; 3. closing to cyclical low P/BV of 2.5x.

9. With No Surprise, Diodes Guides Automotive/Industrial Semi Demand to Fall over 20% Q/Q

Like other automotive/industrial semi vendors, Diodes guides 4Q23 sales of 20% q/q and 35% y/y decline (miss by 21%) and weaker gross margin/operating margin of 35%/7% (miss by 5ppts).
The company sees 4Q23 sales decline of 20% mainly from 19% of automotive and 26% of industrial customers due to customer inventory cut coupled with year-end distributor inventory management.
We expect this adjustment for automotive/industrial IDMs to last for at least 6 months and suggest our clients to avoid these names unless valuation becoming attractive.

10. What Early Indicators from the Reported Oct 23 Taiwan Semi Sales

More y/y improvement (or decline deceleration) for PC/server, power management IC (PMIC), CMOS sensor/touch controller, GaAs RF/VCSEL, gaming GPU card, memory, and foundry vendors
GaAs RF/VCSEL and gaming GPU card vendors saw very impressive sales growth, driven by new phones introduction and rush orders to use NVIDIA RTX 4090 gaming card for AI training.
Stronger than expected Oct for TSMC and Gigabyte might drive 4Q sales and near term share price upside; Visera, Andes Tech, and AP Memory might see sales and price downside.

Weekly Top Ten Tech Hardware and Semiconductor

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By Ethan Aw, Aequitas Research

Nov 12

Weekly Top Ten Equity Capital Markets – Nov 12, 2023

By Smartkarma Content | Equity Capital Markets

1. Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help

INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

2. WuXi XDC Cayman IPO – Decent Upside from IPO Range, Bulk of the Deal Taken up by Marquee Investors

By Clarence Chu, Aequitas Research

WuXi XDC Cayman (1877628D HK) is looking to raise 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 this note, we will look at the deal dynamics and share our final thoughts on valuation.

3. Will Semiconductor GDR Listing – Well Flagged and Short Interest Has Been on the Rise

By Clarence Chu, Aequitas Research

Will Semiconductor Shan (603501 CH) is looking to raise US$450m in its Switzerland GDR listing. The bookrunners on the deal are UBS and JP Morgan.
In its base deal, the firm is offering 31m GDRs (1 GDR to 1 ordinary A-share) for sale, at a 5.4-17.2% discount to last close on its A-share leg.
The base deal would be a relatively small one for the firm to digest, representing just 3.8 days of three month ADV on its A-share leg.

4. WuXi XDC IPO: Valuation First-Look

By Arun George, Global Equity Research Ltd

WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
In this note, we present our forecasts and take the first look at WuXi XDC’s potential valuation range.

5. WuXi XDC IPO: Valuation Insights

By Arun George, Global Equity Research Ltd

WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.

6. Bajaj Finance QIP – Very Well Flagged US$1bn Raising, past Deals Have Done Well

By Sumeet Singh, Aequitas Research

Bajaj Finance Ltd (BAF IN) , one of India’s largest NBFCs, aims to raise around US$1bn via a QIP.
Bajaj Finance is an NBFC offering auto, consumer and home loans, along with other products as well.
In this note, we run the deal through our ECM framework and talk about the deal dynamics.

7. Trading Strategy of Ecopro Materials IPO Post Book Building Results and Short Selling Ban

By Shifara Samsudeen, ACMA, CGMA, LightStream Research

Ecopro Materials reported disappointing IPO book building results. IPO price has been finalized at 36,200 won, which is at the low end of the IPO price range.
The demand ratio was 17.2 to 1 which was low. Total IPO offering amount was 419 billion won. Ecopro Materials will start trading on 17 November.
Our base case valuation of Ecopro Materials is target price of 37,436 won per share, which is 3.4% higher than the IPO price. We remain negative on this IPO.

8. WuXi XDC IPO Valuation Analysis: Premium Multiples Reflect 100%+ Top-Line Growth

By Andrei Zakharov

WuXi XDC set terms for an upcoming IPO: the fast-growing CRDMO offers 178.4M shares at the price range of HK$19.90-HK$20.60, implying a market cap of ~HK$23.9B (~$3B) at the midpoint.
Cornerstone investors agreed to subscribe and buy ~116M shares, assuming the IPO price of HK$20.25 at the midpoint. WuXi XDC shares will begin trading on Friday, November 17.
My PT of HK$25.57 implies a ~26% upside to the IPO price at the midpoint. WuXi XDC’s premium multiples reflect 100%+ top-line growth and the company’s leadership position.

9. WuXi XDC Cayman IPO: Robust Top Line Growth but Margins Remain Under Pressure

WuXi XDC Cayman (1877628D HK) is a leading contract research, development and manufacturing organisation (CRDMO) focused on the global antibody-drug conjugate (“ADC”) and broader bioconjugate market.
The company has announced the terms for its HKEx IPO and plans to raise proceeds of around US$470m through the IPO.
Wuxi XDC’s revenues have seen robust growth during the last 3-years driven by growth in ADC market while margins have continued to decline.

10. Hybe Placement- Another Block Incoming

By Ethan Aw, Aequitas Research

HYBE (352820 KS)‘s second-largest shareholder, Netmarble, seeks to raise approximately US$408m through a secondary block deal, selling approximately 2.5m shares (6% of TSO).
The deal is a slightly large one to digest at 10.9 days of three month ADV and 5.5% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

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Nov 10

Weekly Top Ten Event-Driven and Index Rebalance – Nov 10, 2023

By Smartkarma Content | Event-Driven and Index Rebalance

1. Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

By Sanghyun Park, Clepsydra Capital

Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.

2. Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights

There seems to be no immediate requirement to close existing contracts. However, even the chairman of the Financial Services Commission was unable to offer a definitive answer.
The comprehensive investigation and prohibition of the customary naked short selling could lead to a rapid decline in overall market liquidity.
The first is the short-term view, focusing on futures backwardation, and the second is the medium to long-term perspective, examining how the overall market liquidity decline will affect market flows.

3. Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates

By Sanghyun Park, Clepsydra Capital

Tencent (700 HK) announced in-specie dividends of JD.com (9618 HK) (US$15bn+) in 2021 and Meituan (3690 HK) (US$20bn) in 2022.
With the Tencent (700 HK) Board meeting on 15 November to approve Q3 results and considering the payment of a dividend, the pattern could repeat this year.
Tencent (700 HK) owns stakes of US$1bn+ in 10 listed companies. We take a look at the stocks that could be next in line to be paid as in-specie dividends.

4. Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation

We should consider the complete prohibition of short selling for the next six months as practically finalized.
Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.

5. Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

By Travis Lundy, Quiddity Advisors

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

6. Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban

By Sanghyun Park, Clepsydra Capital

Given Korea’s blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.

7. Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

8. Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes

Lee family plans to sell additional 2.6 trillion won worth of Samsung Group companies as part of their fourth installment of inheritance taxes.
This inheritance tax share sale is likely to have a negative impact on Samsung Electronics, Samsung C&T, Samsung SDS, and Samsung Life Insurance.
This may be just a coincidence but the regulators announced today a temporary ban on stock short selling which should help the Lee family to unload their shares.

9. Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

10. SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out

With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.

Weekly Top Ten Event-Driven and Index Rebalance

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By Michael J. Howell, CrossBorder Capital

Nov 09

Weekly Top Ten Macro and Cross Asset Strategy – Nov 9, 2023

By Smartkarma Content | Macro and Cross Asset Strategy

1. QT Dead…Risk On Again?

Risk asset markets are racing ahead. Is the bull back? We argue that not much has changed, except that QT (quantitative tightening) is effectively ‘dead’

Three events have changed investors’ mood: US Quarterly Refunding (QRA), Fed FOMC Statement and H4.1 Release, and a downbeat October ISM Print
Most important by far is the QFA. This effectively ‘added’ a net US$80 billion of liquidity to US markets. It confirm ‘fact’ that QT effectively dead
Risk still remain in our view. These events underscore a flat market in risk assets. Equity bull market still requires positive Central Bank liquidity injections and a stable bond market

2. Korean Government Ready to Temporarily Suspend Short-Selling: A Move to Gain More Votes?

On 3 November, numerous local media outlets reported that the Korean government is likely to temporarily suspend short selling in the Korean stock market for about six months.

On 3 November, numerous local media outlets reported that the Korean government is likely to temporarily suspend short selling in the Korean stock market.
According to a high level ruling party official, the Korean government plans to announce temporary ban on short selling stocks no later than on 15 November for about six months.
There is a major legislative election in Korea in April 2024. If there is a temporary ban on short selling stocks, this could be viewed negatively by many foreign investors.

3. 5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company

The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).

In this insight, we discuss the five important factors impacting potential regulations changes of shorting stocks in Korea.
The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).
More than 400 years ago in 1609, a Dutch businessman called Issac Le Maire started to short shares in the Dutch East India Company.

4. Credit Watch: The Worst Is Behind Us in the SLOOS, But…

By Emil Moller, Steno Research

The quarterly SLOOS survey from the Fed was released a bit more than an hour ago and the results resemble the quarterly credit surveys from Japan…

The quarterly SLOOS survey from the Fed was released a bit more than an hour ago and the results resemble the quarterly credit surveys from Japan and Europe released ahead of the US ditto.
There is a sequential improvement in demand, while fewer banks tighten standards compared to Q3.
So, is it good news or did the survey rather confirm the credit contraction?

5. Portfolio Watch: November Bear Market Rally?

As I am sure you are aware we have been awaiting the exact market move we have seen this week: The long end of the UST curve catching a breather fueling an inevitable risk-on rally.

Hello Everybody and welcome back for our weekly Portfolio Watch! As I am sure you are aware we have been awaiting the exact market move we have seen this week: The long end of the UST curve catching a breather fueling an inevitable risk-on rally.
That fear is essentially why we have abstained from going full-on short beta these past weeks.
A decision we are content with this week.

6. Steno Signals #72 – When a Recession Meets a Melt-Up in Equities and Bonds

By Manu Bhaskaran, Centennial Asia Advisors

The BoJ no longer has a firm guidance towards higher 10yr bond yields, the Fed accepted higher long bond yields as an excuse to pause and economic data has been abysmal.

Happy Sunday and welcome to our flagship editorial! What a week.
The BoJ no longer has a firm guidance towards higher 10yr bond yields, the Fed accepted higher long bond yields as an excuse to pause and economic data has been abysmal.
That cocktail has so far allowed the everything rally to thrive in a way we haven’t seen in quarters, but the feedback loop introduced by the big central banks may limit the scope of the bear market rally.

7. Thailand: Government Shows Early Signs of Impotence

Bangkok’s haphazard planning of the digital wallet stimulus is a symptom of broader policy paralysis given the unwieldy coalition government.

The cyclical outlook for Thailand remains mixed despite the formation of the government. Signs of policy impotence are emerging, limiting the administration’s ability to respond.
The messy implementation of Pheu Thai’s flagship digital wallet is but one sign of policy paralysis. The pro-Thaksin party is stuck in myopic populism to prop up its support.
The unwieldy composition of the coalition means that hopes for economic and political reform are unlikely to be met. Economic upsides from political stability are thus limited.

8. EIA Watch: Oil demand up, Fuel demand down..

By Srinidhi Raghavendra, Mint Finance

Welcome to our weekly EIA Watch where we use our sophisticated models to filter noise from actual trends in the EIA demand data for Energy…

Welcome to our weekly EIA Watch where we use our sophisticated models to filter noise from actual trends in the EIA demand data for Energy products.
Since a week ago, Oil has rebounded in the non-adjusted implied demand while transportation fuel demand weakness is seen across Gasoline and especially Diesel.
We continue to find the Gasoline demand out of whack with reality, while the Oil demand looks to be closer to the actual demand.

9. Will Euro Shrink to Parity to the Dollar on Diverging Macro Economic Conditions?

Euro-Dollar parity murmurs are creeping back into the market. Economic divergence will force euro to weaken but others believe that pessimism is already priced in.

Since December 2002, the euro has traded above parity to the USD with the only exception being the last quarter of 2022.
Following central banks rate decisions to pause hikes across both sides of the Atlantic, volatility in the Euro/USD pair is near 12-month lows.
Low volatility equates to lower option premiums. Periods of low volatility offer best opportunity for going long options.

10. Macro Regime Indicator: Heavy Long in Cyclical FX

By Elias Lisberg Glistrup, Steno Research

We anticipate consistent QT in both USDs and EURs in the forthcoming month. On a 3-month time frame, and given the assumed conditions, our model suggests a substantial allocation towards gold.

With the turn of October, it’s time for our monthly evaluation of both the present and coming month’s macroeconomic conditions, in which we weigh risks against rewards.
In order to do so, we employ both our Macro Regime Indicator framework and the interactive Structural Asset Allocation Model.
In combination, these tools provide an empirically rooted portfolio allocation, given the identified macro conditions and drivers in financial markets.

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