Smartkarma Daily Briefs

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Travis Lundy as he gives us a quick rundown about what is the current situation that is happening with Adani Enterprises and where they are headed from this point on.

The webinar will be hosted on Wednesday, 1 February 2023, 17:00 SGT/HKT.

Travis Lundy has 20+ years of experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies, with most of that time spent managing money.

• The review period for the February Quarterly Comprehensive Index Review (QCIR) of the MSCI indices ended yesterday. There will be a number of changes in the Asia Pacific region.
• Most of the inclusions are in China and the country weight in the MSCI Emerging Markets Index should increase leading to outflows from other markets.
• On average, the potential adds have outperformed the potential deletes over the last few weeks. At a glance, pre-positioning appears to be lighter than in the past.

• The review period for the March rebalance ends today. We forecast 2 changes using a 12-month minimum listing history, and 5 changes using a 6-month minimum listing history.
• We expect the index committee to continue using a 6-month minimum listing history. The impact on the potential deletes is a lot higher than the impact on the potential adds.
• With 5 changes to the index, estimated one-way turnover is 5.1% resulting in a one-way trade of CNY 4,549m. There is a reasonably large reverse funding trade.

• As discussed in Nikkei 225 March Review – Quiddity Leaderboard (Jan 2023) (and earlier versions), Oriental Land (4661 JP) is a candidate to join the Nikkei 225 in March 2023.
• As of early January, it was the top-ranked impact name with 11.8 days of ADV to buy, and if it underperformed the Nikkei from there, there’d be more to buy. 
• With the data collection period now complete, it is top-ranked, still. And it is still ~10-12 days to buy. Understanding shareholder structure, however, is key. So I dive in.

• Last Friday, Sembcorp Marine (SMM SP) announced it had Approval-In-Principle for its Proposed Combination with Keppel Corp (KEP SP), contingent on the Circular being despatched by 31 January 2023.  
• At 6:50pm local time on 31 January, Sembcorp Marine released its 679-page Circular (and EGM Announcement (16 Feb EGM)). Phew! 
• Now we have a deal in sight, we have to think about next steps. SMM NEWCO needs a story vs flow. Orderbook is nice but may not cut it near-term.

• The Sembcorp Marine (SMM) EGM is scheduled for 16 February. If approved by shareholders, the Asset Co transaction and completion of the KOM restructuring will be done by 28 February.
• We expect no market trade from FTSE trackers, buying from MSCI trackers, while there is a question mark over treatment in the FTSE Straits Times Index (STI) (STI INDEX). 
• There could be selling in Sembcorp Marine (SMM SP) from active Keppel Corp (KEP SP) shareholders and that could have a bigger impact on the stock.

• The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. 
• For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. 
• Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.

• After Greatview Aseptic (468 HK) was suspended on the 30 January, it emerged that Shandong Xinjufeng (301296 CH) had entered a SPA to acquire Jardine Matheson (JM SP)‘s 28.22% stake
• Greatview has now confirmed the transaction. Shares were supposed to resume trading this afternoon but were immediately suspended again.
• Importantly, Inner Mongolia Yili Industrial Group (A) (600887 CH), Xinjufeng’s largest customer is a main competitor of Greatview’s largest customer. That may be an untenable situation, according to the announcement.

• For the month of January, four new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$3bn.
• The average premium for the new deals announced (or first discussed) in January was ~28%, which is distorted by the take under for Esso Thailand (ESSO TB).
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• In this deep dive report, we initiate coverage on Softbank Group with a ¥6,300 target price and Neutral recommendation
• We are cautious on global tech and consider that the main risk to the story but a recovery in China sentiment provides some offset
• For Q3 results next week, we expect the defensive theme of the last two quarters to continue