In today’s briefing:
- Hang Seng Index Dec22 Rebal – 3 IN, None Out (The March to 80 Continues)
- FTSE All-World/All-Cap Index Rebalance: Watch Golden Agri-Resources & Delhivery
- Hang Seng TECH Index Rebalance: Float & Capping Changes
- HSCEI Dec 2022 Rebalance – 4 IN, 4 OUT, 3% One-Way Flow
- Sapporo Holdings: Activist Investor, 3D Investment Partners Is Just A Few Steps From Turning Hostile
- Merger Arb Mondays (21 Nov) – Halcyon, Lifestyle, OZ Minerals, Perpetual/Pendal, Nearmap, Nitro
- Link Admin’s In-Specie Distribution of PEXA: Active Selling Followed by Passive Buying
- Hang Seng Tech Rebalance Dec 2022 – No Name Changes, Decent Flow
- Despature Family/Somfy: Lowball Simplified Takeout, Timetable
- Lowering Tick Sizes for KOSPI & KOSDAQ Starting Next January
Hang Seng Index Dec22 Rebal – 3 IN, None Out (The March to 80 Continues)
- Hang Seng Index continues its march to 80 names, after which it will commence a march, or a slog, to 100 names in an effort to gain more comprehensive coverage
- Doing so will admit names which move to Hong Kong from New York and will make way for more dynamism and lower SOE weights.
- The three ADDs are Tingyi Holding (322 HK), China Resources Mixc Lifestyle Services (1209 HK), and Haier Smart Home Co Ltd (6690 HK) with a pro-forma combined weight just <1%.
FTSE All-World/All-Cap Index Rebalance: Watch Golden Agri-Resources & Delhivery
- For Asia Pacific, there are 2 adds to the FTSE All-World Index, 2 adds to the FTSE All-Cap Index and 2 deletions from the FTSE All-World Index.
- All changes are on expected lines. The one surprise is the non-inclusion of Rainbow Children’s Hospital (RAINBOW IN) to the All-Cap Index where it likely just failed investable market cap.
- Sungeel Hitech (365340 KS) is also an add to the KOSDAQ 150 Index at the close on 8 December, while there is a huge lock-up expiry for Delhivery (DELHIVER IN).
Hang Seng TECH Index Rebalance: Float & Capping Changes
- As expected, there are no adds or deletes for the Hang Seng Tech Index (HSTECH INDEX) in December. However, there are plenty of capping and float changes to drive flows.
- The December rebalance is expected to have a one-way turnover of 2.3% resulting in a one-way trade of HK$1.9bn.
- Short interest is greater than 5% of float on a few stocks and a continued recovering in markets could lead to a squeeze higher.
HSCEI Dec 2022 Rebalance – 4 IN, 4 OUT, 3% One-Way Flow
- The HSCEI sees 4 names out, 4 names in. The ADDs are PetroChina (857 HK), Zhongsheng Group (881 HK), Li Auto (2015 HK), Haier Smart Home Co Ltd (6690 HK).
- The DELETEs are Alibaba Health Information Technology (241 HK), China Gas Holdings (384 HK), Innovent Biologics Inc (1801 HK), and Bilibili (9626 HK).
- One way volume is just under 4.7% with all the name changes, FAF changes, and capping flows.
Sapporo Holdings: Activist Investor, 3D Investment Partners Is Just A Few Steps From Turning Hostile
- Following a couple of investor-activism campaigns against Toshiba Corp (6502 JP) and Fuji Soft Inc (9749 JP), Singapore-based Japan-focused activist investor, 3D-Investment-Partners seems to be turning its attention towards Sapporo.
- Earlier this month, 3D Investment Partners requested Sapporo’s outside directors to postpone the announcement of the new Medium Term Plan until they hear out opinions and new ideas from shareholders.
- We believe that there’s a chance that 3D Investment Partners could turn hostile as Sapporo Holdings (2501 JP) seems to be completely ignoring the activist investor’s requests and proposals.
Merger Arb Mondays (21 Nov) – Halcyon, Lifestyle, OZ Minerals, Perpetual/Pendal, Nearmap, Nitro
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Genex Power Ltd (GNX AU), Golden Energy & Resources (GER SP), 111 Inc (YI US), Perpetual Ltd (PPT AU).
- Lowest spreads – Tyro Payments (TYR AU), Warrego Energy (WGO AU), Jinke Smart Services (9666 HK), Nitro Software Ltd (NTO AU), Uzabase Inc (3966 JP), PTB Group Ltd (PTB AU).
Link Admin’s In-Specie Distribution of PEXA: Active Selling Followed by Passive Buying
- Link Administration (LNK AU) is selling 10% of its shareholding in PEXA Group (PXA) and plans to proceed with an in-specie distribution of the remainder to Link shareholders in January.
- The increased float will make PEXA Group (PXA AU) the highest ranked non-index constituent and that should result in inclusion to the S&P/ASX 200 (AS51 INDEX) in March.
- There could be selling on PEXA Group (PXA AU) from Link Administration (LNK AU) shareholders following the distribution. Then the passive flows will kick in and support the stock.
Hang Seng Tech Rebalance Dec 2022 – No Name Changes, Decent Flow
- The Hang Seng Tech Index Review was announced on Friday after the close. There are no name changes but there is decent flow. 3% one-way turnover.
- There are five capping changes and one very large share count change making things interesting.
- All told, this is less impactful than it was last time, and less impactful than the other index rebalances announced.
Despature Family/Somfy: Lowball Simplified Takeout, Timetable
- Majority shareholders Despatures (73.9%) plan to use the abundant cash holdings of Somfy to finance a simplified cash offer at €143/share (16.8x EV/23e EBIT, 21.1x P/23e E, 20.6% premium).
- In case of squeeze-out, Somfy intends to distribute afterwards an extraordinary dividend up to €620m (source: draft memo). The market believes the offer is low (gross spread is +0.98%).
- I believe there are grounds for an offer sweetening (base-case valuation throws €150.98/share) and the risk-reward seems favorable considering a very motivated (and opportunistic) buyer. Long.
Lowering Tick Sizes for KOSPI & KOSDAQ Starting Next January
- KRX will lower the tick sizes for KOSPI and KOSDAQ starting next January to reduce actual transaction costs and increase market liquidity by attracting more high-frequency traders.
- KRX’s acceptance of the market’s long-standing demand at this point can be seen as primarily driven by the purpose of resolving the problem of reduced market liquidity.
- We need to design a setup that takes a tighter holding period of event and flow trading in the Korean local market from next year.
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