Smartkarma Daily Briefs

• Updated forward dividend estimates and price moves lead to changes in adds/deletes and to estimated flows at the December rebalance. We now see 26 adds and 5 deletes in December.
• The estimated one-way turnover due to adds, deletes, funding and capping is 46.6% and will result in a one-way trade of TWD 72.7bn (US$2.26bn).
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 14 stocks. There will be trading opportunities galore.

• With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
• We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
• The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• Float and capping changes will require passive trackers to sell Bank Central Asia (BBCA IJ) and Emtek (EMTK IJ) while buying GoTo (GOTO IJ) and Telekomunikasi Indonesia (TLKM IJ). 
• There will be passive changes to other stocks too, though the impact is not material on most of the stocks.
• The passive buying on GoTo (GOTO IJ) on Monday offers an avenue to exit the stock ahead of the huge lock-up expiry on 30 November.

In the next webinar, we have Smartkarma Insight Provider Eric Fernandez, CFA who will be taking us through his top short trade ideas in the US. Have your burning questions answered in the live Q&A session that will follow after Eric’s presentation. 

The webinar will be hosted on Wednesday, 16 November 2022, 17:00 SGT/HKT.

Eric Fernandez, CFA, has 30+ years of research and investment banking experience in company modeling, equity valuation and credit is the backbone of Two Rivers Analytics analytical approach. He founded Two Rivers to remedy a shortfall of traditional short idea generation which relies primarily on thematic, top-down processes. Instead, Two Rivers combines a methodical framework to sift through the universe looking for markers of various types of short candidates, which are subsequently vetted via traditional fundamental analysis. Our Stocks at Risk (SAR 2.0) models are a comprehensive framework for identifying short sale candidates. Each model is tailored to the various types of short situations. The models generate ideas to match different client preferences in shorting styles, from lower beta, long horizon Declining Businesses, to higher volatility Breaking Growth short types. They help in diversifying short portfolios by type, beta, time horizon, risk/return, and other characteristics. On net, this framework produces more ideas, boosting returns, and saving time for portfolio managers and analysts.

• Tianqi Lithium (9696 HK) and JD Health (6618 HK) could be inclusions while XPeng (9868 HK) and Longfor Properties (960 HK) are near certain deletions.
• There are a few stocks that are close to the deletion threshold and could be deleted from the index if they continue to sell off over the next few weeks.
• Tianqi Lithium (9696 HK) is also a high probability inclusion to the FTSE All-World Index at the December rebalance. That will bring in additional inflows to the stock.

• MSCI announces the changes at the November SAIR pre-market open (Asia time) on 11 November. That day is also the market cap cutoff for the FTSE December QIR.
• There are some pretty big changes to the flows for the FTSE TWSE Taiwan Div+ Index following changes to forward dividend estimates and stock prices.
• Quiet week for ETF flows with large inflows to Huatai-PB CSI 300 ETF (510300 CH) and Tracker Fund of Hong Kong Ltd (2800 HK). 

• We have seven constituents of KOSPI 200, which are subject to a float rate adjustment due to major shareholder stake sales and lockup release in the upcoming rebalancing in December
• In terms of passive impact x ADTV, LG Energy Solution, KT Corp, and Shinhan Financial are expected to receive the most attention from flow traders.
• The preemptive setups of flow traders will likely be more inclined toward these float rate changes since this December rebalance will have the lowest number of constituent changes ever.

• Muji has been trying to both reduce prices and consumer perception of its price positioning in the past few years, both at home and abroad. 
• This has been hard but a new ¥500 chain will make it clear that Muji is shifting positioning.
• Muji will now even compete with discount and fixed price chains across food, home and clothing and the new price format will be much better suited to markets like China.

• Our base case valuation of the company is target price of 26,404 won per share, which represents 6% higher than the high end of the IPO price range.
• Given the low upside, we have a Negative view of this IPO.
• All in all, while we believe Millie’s Library is a solid company with excellent fundamentals, the IPO price range is not valued at meaningful discount to the intrinsic value.