Smartkarma Daily Briefs

Happy Sunday and welcome to our flagship editorial! Everyone seems to have been occupied with Chinese doom-mongering over the past week as the malaise in the Real Estate sector is now out in the open once again.
It is obvious to everyone that China is stuck in a mess but how grave are the issues really?
Another couple of trading days as we have had last week and we will be back at the abysmal October lows in traded property stocks, which prompted or even forced the CCP to initiate a surprise reopening of the economy in November last year.

Positioning Watch: Is Anyone Even Invested in China at This Stage?

We hope you have enjoyed our China Week coverage with extensive analysis on the ongoing malaise in Chinese Real Estate.
Positioning in CNY markets is an underreported angle in the discussion on China as it may help guide asset performance from here, now that everyone and their mother agrees that China is stuck in a mess.
Are international investors even involved in China anymore?

Portfolio Watch: Catching a Chinese Cold?

By Emil Moller

Hello everybody and welcome back to our weekly Portfolio Watch! This week we have witnessed considerable turmoil in the markets, and it would be an exaggeration to claim that we’ve emerged from it unscathed.
A few positions have been stopped-out but it is some source of consolation that our strongest conviction trades remain performers in an otherwise red massacre in financial markets. We have been rather vocal about our major conviction of a steepening of the yield curve was if not inevitable then at least very favourable on a r/r basis.
I too have clearly declared my aversion against the momentum of risk assets.

Back with a Bang! – Macro and Sentiment Call for an Underweight in Equities

By Jeroen Blokland

China could become a ‘Credit Event.’ Despite a slew of new stimulus measures by the Chinese government, they are not comprehensive enough to rule out one or more credit events.
200-Day moving averages hit. Several equity market indices have dipped below their 200-day moving average, including the MSCI Emerging Markets Index.
Response to the latest US inflation figure. In contrast to previous favorable inflation figures, American stocks closed lower on the day following the publication.

EM By EM #17 China: Real Estate Complex and The “Phony” Stimulus

By Emil Moller

In the past month, the focus of the markets revolved around the Bank of Japan and now August appears to have shifted its attention towards China.
Surprisingly, Japan’s current economic performance seems to be outpacing that of China- a sentence that would have merited a straightjacket and a padded room not long ago.
In my last PBoC piece on the “The People’s Bank Pickle” I outlined the conflicting monetary policy objectives within China, and how that circumstance would impose on them to commit to one at the expense of the other- in short defending the Remnibi would prevent the PBoC to address the domestic trend of deflation.

Macro Strategy Nugget: Why USDCNH > or < 7.30 is everything you need to watch

In our “Nugget series” we aim at visualizing the most important themes in global macro with a few timely charts and very few words.
This nugget will show why USDCNH is the by far most important global bellwether at this stage and why 7.20 (or 7.30) will serve as the most important level to watch in global macro.
Let’s look at 3 charts why USDCNH is a very binary predictor of risk assetsUSDCNY has served as a risk asset barometer around key intervention levels.

Rates & FX nugget: The PBoC doom-loop

In our “Nugget series” we aim at visualizing the most important themes in global macro with a few timely charts and very few words.
Today we will explain the market moves of the day with our “PBoC doom loop”.
Today’s market in short: A rebound in CNY after intervention above 7.30 against the USD, a sharp move higher in USDJPY and higher USD rates.

The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Rout, GoTo’s Budget Focus, and Indosat’s Surge

By Angus Mackintosh

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 South East Asia.
The past week saw insights on Sea (SE US), GoTo (GOTO IJ), Indosat (ISAT IJ), Bumrungrad Hospital (BH TB), Home Product Center (HMPRO TB), and Vinfast (VFS US).
There was also an insight on Bank CIMB Niaga (BNGA IJ) plus insight looking at Chinese involvement in the South-East Asia data centre market.

Malaysia: State Elections Bolster Anwar Near-Term; Long-Term PAS Shadow Grows

By Prasenjit K. Basu

PM Anwar was strengthened in the near-term by PH comfortably winning the 3 states where it was the incumbent, although the alliance helped UMNO gain leverage in Negri Sembilan.
PAS won landslide victories in Kelantan, Terengganu and Kedah (three states that were part of Thailand until 1909, with smaller non-Malay populations). Bersatu is a token junior partner everywhere.
As the prospect of PAS gaining national power grows, non-Malay emigration and capital flight will increase, reversing the positive gain from the PKR-DAP vision of renewed strength for multi-racialism.

Traders Remain Neutral Commodities // Copper Loses as China Falls Apart

By The Commodity Report

Orange juice futures hit an all-time high last week as citrus crops all across the US have been hammered by a series of hurricanes and the spread of citrus greening, an incurable disease spread by insects.
The vast majority of oranges produced in the US come from Florida, which has been hobbled by hurricanes and a cold snap, massively hampering supply.
Such headwinds are responsible for the supply shortage in oranges, which has driven up prices that will eventually filter through to consumers.

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Aug 22

Most Read: Tokyo Stock Exchange Tokyo Price Index Topix, East Buy Holding , E Guardian Inc, AAC Technologies Holdings, Accton Technology, Samsung Electronics Pref Shares, Trip.com Group , Ping An Insurance (H), SK Rent A Car, Ventia Services Group Pty and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Share Buybacks In Japan – A 2023 Primer
HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
E-Guardian (6050) Partial Offer Update
Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%
Yuanta ETFs Rebalance Preview: Changes Galore as Stocks Soar; Shorts Increase, Then Cover
Market Information About Samsung Electronics’ Shareholder Return
HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way
Ping An A/H Premium: Sell the A’s, Buy the H’s; National Team at Work?
SK Rent A Car: SK Networks’ Tender Offer
Ventia Services Group US$450m Placement Lockup Expiry – Past Deals Have Done Well

Share Buybacks In Japan – A 2023 Primer

The TSE and Government are pressuring low-PBR companies to DO SOMETHING to raise their PBR to >1.0x. The easiest way to do that is raise ROE.
Raising R requires customers “agree” (buying more, paying a higher price, etc). Lowering E means buying back shares or paying big special dividends. That’s easier for a company.
So buybacks have been increasing in number, and breadth, and to some degree in size. This insight describes the mechanics/details of how buybacks work in Japan.

HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks

As expected, East Buy Holding (1797 HK) replaces AAC Technologies Holdings (2018 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 September.
Estimated one-way turnover is 3.5% leading to a one-way trade of HK$3.4bn (US$435m). There are 4 stocks with over 1 day of ADV to trade.
Short interest is 15% of float on both stocks. Short covering could take East Buy Holding (1797 HK) higher while providing support for AAC Technologies (2018 HK) closer to deletion.

E-Guardian (6050) Partial Offer Update

When this was launched, it traded more volume than expected on the first day, then again on the second day. Since then it has traded cheap vs initial estimates.
A week after the launch, two separate Large Shareholder Filings came out. Those bear scrutiny.
The back end trade is still an interesting one in my opinion.

Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%

The Sep 23 review results for the Hang Seng Tech Index were announced on Friday 18 August after the close.
East Buy Holding (1797 HK) (formerly Koolearn) was an ADD. AAC Technologies Holdings (2018 HK) is a DELETE.
AAC is a significant flow event, and worth looking at. There are a few odds and ends too.

Yuanta ETFs Rebalance Preview: Changes Galore as Stocks Soar; Shorts Increase, Then Cover

There should be 4 changes to the Yuanta/P-Shares Taiwan Top 50 ETF and 1 deletion for the Yuanta/P-Shares Taiwan Dividend Plus ETF in September.
The potential adds are driven by the AI-frenzy that has swept the market for the last few months. Most potential deletions are shipping stocks that are way off their highs.
Short interest on the potential deletions is high in terms of days of ADV and free float. The rise in shorts on the potential adds is being rapidly covered.

Market Information About Samsung Electronics’ Shareholder Return

By Sanghyun Park

The local market is increasingly convinced that Samsung Electronics’ quarterly dividends for the latter half of this year will experience a reduction.
Samsung Electronics plans to apply the updated regulations from the 2024 1st quarter dividends, following the conclusion of the capital market law revision at the end of this year.
It might be prudent to refrain from trading that bets on a reduction in the 1P discount in the first half of this year.

HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way

The HSCEI Review for Sep 2023 was announced on Friday 18 August. There is one ADD Trip.com Group (9961 HK) and one DELETE Country Garden Services (6098 HK).
Neither of these two are a surprise. Neither are hugely impactful.
There is about 2.5% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

Ping An A/H Premium: Sell the A’s, Buy the H’s; National Team at Work?

The premium of Ping An Insurance Group of (601318 CH) to Ping An Insurance (H) (2318 HK) has jumped from 4% to 14% in the space of a week.
There has also been a jump in the Hang Seng Stock Connect China AH Premium Index and big inflows to mainland China ETF raising the possibility of National Team buying.
A stabilisation in onshore China markets could lead to the AH premium dropping back towards parity and we would gradually scale out of long A/ short H positions.

SK Rent A Car: SK Networks’ Tender Offer

By David Blennerhassett

Korean car rental play SK Rent A Car (068400 KS) has announced a Tender Offer from SK Networks (001740 KS), its largest shareholder with ~76%.
SK Rent shareholders have the option of receiving cash or SK Networks scrip. Appraisal rights are also afforded.
The shareholder vote is a lock. The current trade is the cash offer, which is trading tight to terms.

Ventia Services Group US$450m Placement Lockup Expiry – Past Deals Have Done Well

By Sumeet Singh

Ventia Services Group Pty (VNT AU)’s two largest shareholders, Apollo Global Management and CIMIC Group, will come off their placement linked lockup soon.
The two largest shareholders together owned nearly 30% of the company and have pared their stake twice this year.
In this note, we will talk about the likely placement and past deal performance.

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Aug 21

Daily Brief Australia: Costa Group Holdings and more

By Smartkarma Daily Briefs | Australia, Daily Briefs

In today’s briefing:

Merger Arb Mondays (21 Aug) – Costa, OreCorp, Sanei, T&K Toka, Celltrion, Eoflow, Golden Eagle

Merger Arb Mondays (21 Aug) – Costa, OreCorp, Sanei, T&K Toka, Celltrion, Eoflow, Golden Eagle

By Arun George

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – 111 Inc (YI US), Symbio Holdings (SYM AU), ENM Holdings (128 HK), Eoflow (294090 KS), Orecorp Ltd (ORR AU), Mason Group Holdings (273 HK), Costa Group.
Lowest spreads – Healius (HLS AU), Toyo Construction (1890 JP), Celltrion Healthcare (091990 KS), Yaizu Suisankagaku Industry (2812 JP), Kenedix Retail REIT (3453 JP), Penguin International (PBS SP).

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Aug 21

Daily Brief South Korea: Eoflow , Celltrion Healthcare and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Eoflow’s US Subsidiary (Nephria Bio)’s Technology in MXene Advanced Material
Weekly Deals Digest (20 Aug) – Celltrion, Sanei, T&K Toka, Costa, DDH1, Tesserent, VinFast

Eoflow’s US Subsidiary (Nephria Bio)’s Technology in MXene Advanced Material

By Douglas Kim

Eoflow (294090 KS)’s shares rose 2.7% to 27,000 won on 18 August with 1.4 million shares traded, which was 5.7x higher than the previous three days of trading.
The main reason for this was due to the local news flow on Eoflow’s US subsidiary’s (Nephria Bio) technology on the advanced material MXene.
This news flow on MXene is likely to put further positive boost to Eoflow’s share price closer to the tender offer price (or at least limit further downside risk).

Weekly Deals Digest (20 Aug) – Celltrion, Sanei, T&K Toka, Costa, DDH1, Tesserent, VinFast

By Arun George

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Vinfast (VFS US)‘s rollercoaster debut, Rakuten Securities (RAKUSEC JP), EbixCash (EBIXC IN) and Lalatech Holdings Co Ltd (LALA HK) IPOs.
Event-Driven developments – Celltrion Healthcare (091990 KS), Sanei Architecture Planning (3228 JP), T&K Toka Co Ltd (4636 JP), Costa Group Holdings (CGC AU), DDH1 (DDH AU), Tesserent Ltd (TNT AU).

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Aug 21

Daily Brief Indonesia: Gajah Tunggal and more

By Smartkarma Daily Briefs | Daily Briefs, Indonesia

In today’s briefing:

Morning Views Asia: China Hongqiao, Gajah Tunggal

Morning Views Asia: China Hongqiao, Gajah Tunggal

By Charles Macgregor

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.

China Hongqiao
Gajah Tunggal

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Aug 21

Daily Brief India: Jana Small Finance Bank and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

Jana Small Finance Bank Pre-IPO Tearsheet

Jana Small Finance Bank Pre-IPO Tearsheet

By Ethan Aw

Jana Small Finance Bank (3667144Z IN) is looking to raise up to US$100m in its upcoming India IPO. The deal will be run by Axis Capital, ICICI-Sec and SBI Capital.
Jana Small Finance Bank (JSFB) is the fourth largest small finance bank in India in terms of AUM and deposit size as of FY23 (Year ended 31st Mar 2023).
The firm has served nearly 12m customers since 2008, including 4.57m active customers as of FY23.

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Aug 21

Daily Brief China: Sinopharm Group Co Ltd H, East Buy Holding , BYD, Dali Foods Group, AAC Technologies Holdings, Evergrande, Trip.com Group , JD Logistics , Fu Shou Yuan and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted
HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
Week 2 of the Brand New and Extra Spiffy 🦄 H/A-Share Discount/Premium Weekly (As of 18 Aug 2023)
Dali Foods (3799 HK): Widening Spread Ahead of the 23 August Vote
Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%
HSI Sep23 Index Review/Flows – Sinopharm (1099) IN, CoGard (2007) OUT; 100 Names a Loooong Way Off
Why Evergrande’s Bankruptcy Filing Is a Positive Development
HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way
JD Logistics (2618 HK): 2Q23, External Revenue Still Grew Rapidly, 70% Upside
Fu Shou Yuan (1448 HK): More than Just a Recovery from Low Base

Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted

Sinopharm Group Co Ltd H (1099 HK) will be added to the Hang Seng Index (HSI INDEX) on 1 September while Country Garden Holdings Co (2007 HK) will be deleted.
Both changes are a surprise, but the impact on Sinopharm Group Co Ltd H (1099 HK) will be much larger. Given the recent increase in shorts, there could be covering.
Estimated one-way turnover is 1.9% leading to a one-way trade of HK$3.65bn. Capping will result in selling on Alibaba Group Holding (9988 HK), Tencent (700 HK) and HSBC (5 HK).

HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks

As expected, East Buy Holding (1797 HK) replaces AAC Technologies Holdings (2018 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 September.
Estimated one-way turnover is 3.5% leading to a one-way trade of HK$3.4bn (US$435m). There are 4 stocks with over 1 day of ADV to trade.
Short interest is 15% of float on both stocks. Short covering could take East Buy Holding (1797 HK) higher while providing support for AAC Technologies (2018 HK) closer to deletion.

Week 2 of the Brand New and Extra Spiffy 🦄 H/A-Share Discount/Premium Weekly (As of 18 Aug 2023)

This is the Brand Spanking New and Improved and Extra Spiffy H/A-Share Discount/Premium Weekly designed to help investors see H/A relationships easily.
We used to do it and decided to bring it back better. There are lots of cool interactive tables, and charts, heat maps, and comparative data. And 19 Trade Recommendations.
We hope this new version serves readers even better. Improvements this week due to popular demand, and updated format. Further feedback is welcome/appreciated.

Dali Foods (3799 HK): Widening Spread Ahead of the 23 August Vote

By Arun George

Dali Foods Group (3799 HK)‘s gross spread on the Founder’s (Mr Xu Shihui) HK$3.75 per share offer has sharply increased and stood at 5.3% at the last close.
The rising gross spread is due to the recent market selloff (the gross spread of all HKEx merger arbs we track increased this week) and vote risk.
The vote risk is due to no interim results, the high AGM minority participation rate and a modest offer. There is little evidence that these risks will derail the vote.

Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%

The Sep 23 review results for the Hang Seng Tech Index were announced on Friday 18 August after the close.
East Buy Holding (1797 HK) (formerly Koolearn) was an ADD. AAC Technologies Holdings (2018 HK) is a DELETE.
AAC is a significant flow event, and worth looking at. There are a few odds and ends too.

HSI Sep23 Index Review/Flows – Sinopharm (1099) IN, CoGard (2007) OUT; 100 Names a Loooong Way Off

On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
Sinopharm Group Co Ltd H (1099 HK) is ADDED, Country Garden Holdings Co (2007 HK) – in no surprise, is deleted.
I see HK$4bn a side to trade, and the only “compelling” trade by ADV here is Sinopharm, but correlations with a Peer Basket are low.

Why Evergrande’s Bankruptcy Filing Is a Positive Development

By Fern Wang

Evergrande’s filing in itself does not signify a deterioration in its financials; it was already insolvent as of end 2021.
The bankruptcy filing provides the benefits of automatic stay and is a necessary step to validate the Group’s offshore restructuring plan.
Evergrande’s long term viability still depends on recovery of the China property market.

HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way

The HSCEI Review for Sep 2023 was announced on Friday 18 August. There is one ADD Trip.com Group (9961 HK) and one DELETE Country Garden Services (6098 HK).
Neither of these two are a surprise. Neither are hugely impactful.
There is about 2.5% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

JD Logistics (2618 HK): 2Q23, External Revenue Still Grew Rapidly, 70% Upside

By Ming Lu

In 2Q23, total revenue grew by 31% YoY and revenue from external customers grew by 56% YoY.
The operating margin can still breakeven during the rapid growth.
We believe the stock has an upside of 70% for yearend 2024. Buy.

Fu Shou Yuan (1448 HK): More than Just a Recovery from Low Base

By Osbert Tang, CFA

Fu Shou Yuan (1448 HK) has a solid 1H23 with net profit jumped 78% YoY. Its margin reached the highest level, reflecting resurgance in demand and good cost control.
Both volume and ASP growth led us to believe there is positive room for profitability improvements. Its balance sheet has also strengthened with net cash equals 17% of share price.
A 18.4% increase in pre-need contracts signed suggests encouraging underlying demand. More M&As are added drivers to earnings prospects.

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Aug 21

Daily Brief Japan: Tokyo Stock Exchange Tokyo Price Index Topix and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Diversity Is a Goal of Effort Left to a Company with a Sideways Eye on the Government’s Seriousness

Diversity Is a Goal of Effort Left to a Company with a Sideways Eye on the Government’s Seriousness

By Aki Matsumoto

The TSE listing rules that include numerical targets for female board members are limited to prime market listed companies, so the majority of listed companies are not covered.
The “priority policy” on diversity is not budgeted or legislated. In the absence of underlying legislation, it is left to companies to decide how seriously they will implement it.
Regarding “30% or more female board members by 2030,” if companies want to achieve this goal, they’ll have to rely on female outside board members to make up the numbers.

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Aug 21

Daily Brief Quantitative Analysis: A-H Premium Weekly (Aug 18th):China Vanke and more

By Smartkarma Daily Briefs | Daily Briefs, Quantitative Analysis

In today’s briefing:

A-H Premium Weekly (Aug 18th):China Vanke, China East Air, China Life, China Longyuan
Hong Kong Connect Flows (Aug 18th): Tencent, China Mobile, Country Garden Services, Meituan, CCB
Northbound Flows (Aug 18th): Wuliangye, Moutai, CMB, Ping An Insurance, Longi Green, BYD, CATL
HK Short Interest Weekly: Ping An, Wuxi Apptec, HSBC, Petrochina, Li Auto

A-H Premium Weekly (Aug 18th):China Vanke, China East Air, China Life, China Longyuan

We analyse the changes of A-H premium on 146 stocks over the last week. The average A-H premium was 120.1% as of Aug 18th.
The average A-H premium changed by 2.9ppt week on week, led by utilities, financials, industrials and offset by consumer staples.
We highlight weekly changes in A-H premium for China Vanke, China East Air, China Life, China Longyuan.

Hong Kong Connect Flows (Aug 18th): Tencent, China Mobile, Country Garden Services, Meituan, CCB

We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of August 18th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight flows for Tencent, China Mobile, Country Garden Services, Meituan, CCB, Ping An Insurance (Group) Company Of China, Ltd.-Hkd Traded Shares, AIA.

Northbound Flows (Aug 18th): Wuliangye, Moutai, CMB, Ping An Insurance, Longi Green, BYD, CATL

We analyze the weekly Shanghai/Shenzhen northbound Connect flows with our data engine for holding position as of August 18th.
We estimate the weekly outflows to be US$4,168.8 million, led by consumer staples, materials.
We highlight flows for Kingsoft Office, Foxconn Industrial Internet, Wuliangye, Moutai, CMB, Ping An Insurance, Longi Green, BYD, CATL, Mindray, China Tourism, Inner Mongolia Yili Industrial.

HK Short Interest Weekly: Ping An, Wuxi Apptec, HSBC, Petrochina, Li Auto