In today’s briefing:
- HSTECH Index Rebalance: No Constituent Changes; Float/Capping Changes Lead to US$4bn Trade
- HSCI Index Rebalance: 24 Adds, 22 Deletes, Changes to Southbound Stock Connect & BIG Outperformance
- Merger Arb Mondays (25 Aug) – Dongfeng, ENN Energy, Shibaura, Santos, Lynch, Smart Share
- Tencent (700 HK) Vs. Hang Seng (HSI INDEX): Price-Ratio Hits Trigger Zone
- ENN Energy (2688 HK): Chipping Away at the Precondition
- Hang Seng Index (HSI) Rebalance: Pop Mart, China Telecom, JD Logistics Added to Get to 88 Members
- [Quiddity Index] Sep25 HS Healthcare Index Review Announced; 10 ADDs, 4 DELs, 1 More Member Net
- A/H Premium Tracker (To 22 Aug 2025): BIG Beautiful Skew Corrects
- [Quiddity Index] Sep25 HS Internet & IT Index Review; Funding Flows Dominate in $850mm Trade
- [Quiddity Index] Sep25 HSTECH Review Announced; No Name Changes, Big Flows
HSTECH Index Rebalance: No Constituent Changes; Float/Capping Changes Lead to US$4bn Trade
- There are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in September. However, there are float and capping changes.
- Estimated one-way turnover is 6.3% leading to a round-trip trade of HK$31.1bn (US$4bn). There is plenty to buy in Horizon Robotics (9660 HK), BYD (1211 HK) and Meituan (3690 HK).
- Short interest is elevated in some of the stocks with large flows and shorts could be active in the stocks over the next couple of weeks.
HSCI Index Rebalance: 24 Adds, 22 Deletes, Changes to Southbound Stock Connect & BIG Outperformance
- There are 24 adds and 22 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents up to 504.
- We expect 20 of the 24 HSCI inclusions to be Stock Connect adds from the open on 8 September. 19 of the 22 deletions could be removed from Stock Connect.
- On average, stocks that are expected to be added to Southbound Stock Connect have outperformed stocks that are expected to be removed from Southbound Stock Connect.
Merger Arb Mondays (25 Aug) – Dongfeng, ENN Energy, Shibaura, Santos, Lynch, Smart Share
- I 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: Dongfeng Motor (489 HK), Mayne Pharma (MYX AU), Smart Share Global (EM US), ENN Energy (2688 HK), Santos Ltd (STO AU), Shibaura Electronics (6957 JP).
- Lowest spreads: Bright Smart Securities (1428 HK), Pacific Industrial (7250 JP), Humm Group (HUM AU), Ainsworth Game Technology (AGI AU), Ashimori Industry (3526 JP), PointsBet Holdings (PBH AU).
Tencent (700 HK) Vs. Hang Seng (HSI INDEX): Price-Ratio Hits Trigger Zone
- Context: The Tencent (700 HK) vs. Hang Seng Index (HSI INDEX) price-ratio has deviated more than two standard deviations from its one-year average, presenting a potential relative value opportunity.
- Highlights: After Tencent’s recent outperformance, going long the HSI and short Tencent targets an 8% return.
- Why Read: Essential for quantitative traders seeking mean-reversion opportunities, with detailed execution framework, risk management protocols, and historical simulation showing the statistical basis for this relative value play.
ENN Energy (2688 HK): Chipping Away at the Precondition
- ENN Natural Gas (600803 CH) has made steady progress in satisfying the precondition for its ENN Energy (2688 HK) offer. On 22 August, NDRC approval was obtained.
- The appraised offer HK$80.00 value is the key debating point. Based on several methodologies, I estimate a realistic offer value of HK$74.44 (range of HK$67.84 to HK$83.64).
- The protest votes for director re-elections at the 23 May AGM are a risk. On balance, the scheme vote should pass as the offer is reasonable and strategically sensible.
Hang Seng Index (HSI) Rebalance: Pop Mart, China Telecom, JD Logistics Added to Get to 88 Members
- China Telecom (H) (728 HK), JD Logistics (2618 HK) and Pop Mart (9992 HK) will be added to the Hang Seng Index (HSI INDEX) at the close on 5 September.
- Estimated one-way turnover is 2.5% and the estimated round-trip trade is HK$11.25bn (US$1.44bn). The official capping will be done based on closing prices from 2 September.
- At 88 constituents, we near the 100-index member target. The target is likely to be reached by early-2027 – maybe 2026 given mainland companies listing of H-shares on the HKEX.
[Quiddity Index] Sep25 HS Healthcare Index Review Announced; 10 ADDs, 4 DELs, 1 More Member Net
- On Friday 22 August, the Hang Seng Index team announced the changes to the Hang Seng Healthcare Index for the September 2025 rebalance. That takes us to 73 constituents.
- Team Quiddity had expected 6 ADDs+1 DEL. We got 10 ADDs and 4 DELs. Our 7 names were correct and the other three DELs were our next three choices.
- This is a smallish index, so we see US$300+mm to trade but there are a couple of big buys in terms of ADV.
A/H Premium Tracker (To 22 Aug 2025): BIG Beautiful Skew Corrects
- HUGE, rampaging, “Beautiful Skew”… unwinds. Big swings in H/A ratios continue, this time on average with 2.3% H underperformance vs As, 4% wider on the highest AH premia.
- Last week’s long reco on Guangzhou Automobile Group (2238 HK) was up 1 tick on the week in Hs and Hs underperformed the A by 1.5%.
- The data tables below update on a daily basis in the Tools section of Smartkarma. The SOUTHBOUND Flow Monitor and AH Pairs Monitor are both there free for SK readers.
[Quiddity Index] Sep25 HS Internet & IT Index Review; Funding Flows Dominate in $850mm Trade
- On Friday 22 August, the Hang Seng Index team announced the changes to the Hang Seng Internet and IT Index for the September 2025 rebalance.
- There are 3 ADDs and 3 DELs. We predicted 2/3 ADDs and 3/3 DELs correctly.
- The funding flows and FAF re-weight flows are bigger than the ADD/DEL flows but there should be ~US$850mm to trade.
[Quiddity Index] Sep25 HSTECH Review Announced; No Name Changes, Big Flows
- On Friday 22 August, the Hang Seng Index team announced the changes to the Hang Seng Technology Index for the September 2025 rebalance.
- Team Quiddity had one low conviction ADD/DEL pair “predicted” but there were no name changes announced.
- Horizon Robotics (9660 HK) is a big FAF upweight, as expected. There are other small changes and big capping/re-capping moves. We see US$3.9bn to trade.
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