Smartkarma Daily Briefs

• 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.

• On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
• Li Auto (2015 HK) and WuXi AppTec (2359 HK) are added. There are no deletions.
• I see 3.4% a side to trade and across the three major indices there are larger net flows, but few compelling ones given possible pre-positioning.

• For a second review running, Zhongsheng Group (881 HK) has avoided being deleted from the Hang Seng China Enterprises Index (HSCEI INDEX).
• That means China Unicom Hong Kong (762 HK) misses out on index inclusion, but there is still hope for the next one.
• There does not appear to be any significant positioning on either stock and any large moves early in the coming week could be short lived.

• The HSCEI Review for December 2023 was announced on Friday 17 November. 
• There were no ADDs and no DELETEs, which was a bit of a surprise.
• There is about 2.8% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

• The New and Better (16 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• Hs with H/A pairs outperform their As on average with higher-liquidity Hs outperforming more. High Premium As not seeing shrinking premia on average.
• SOUTHBOUND and NORTHBOUND were net sells overall. It looked like the combination of NORTHBOUND and SOUTHBOUND put on a long H short A in the non-bank financial sector.

• This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
• SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week that trend moderated significantly.
• SOUTHBOUND breaks a 17-week inflow streak with HK$2.1bn of net outflows entirely driven, it appears, by relatively few accounts punting large size in local (HK-listed) ETFs

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Country Garden Holdings Co
• Melco Resorts & Entertainment
• Road King Infrastructure

• Besides turnaround in the bottom line, Sa Sa International (178 HK) achieved good store efficiency improvement and enviable cost control. It will enjoy further operating leverage.
• The 5.3pp sequential increase in sales contribution from tourists highlights its position to benefit from revival of tourist arrivals. Three to-be-opened stores will boost sales momentum. 
• Initial sales figures for 3QFY24 point to 27% overall sales growth, which is encouraging. Sa Sa stays in a very solid financial position with HK$196m of net cash.

• The Keepers Holdings (KEEPR PM) reported a soft Q3 2023 with revenue up 6.7% YoY and profits 4.5% YoY (ex-one offs of 38 mn pesos profits up 11% YoY). 
• The company guided a good build-up into Q4 2023 as the festive season showed signs of a good pick-up. 
• Trading at 8.2x/7x FY23e/24e with a 5.4%/6.3% dividend yield, we like the name, although there are a few short-term risks on working capital that the company needs to address.