Daily BriefsEvent-Driven

Event-Driven: China Resources Mixc Lifestyle Services, Kia Motors Corp, Mainstream Group Holdings Ltd, Hyosung TNC Co Ltd and more

In today’s briefing:

  • MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap
  • Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs
  • Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump
  • KOSPI 200 Review Period Completed: Early Phase Long Short Trade

MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap

By Brian Freitas

The MSCI May Semi Annual Index Review (SAIR) will use the price cutoff data from any of the trading days from 19-30 April to determine the list of stocks to be included into/ excluded from its indices.

MSCI is scheduled to announce the results of the May 2021 SAIR at 11pm Central European Time (CET) on 11 May (12 May Asia time) with the changes implemented after the close of trading on 28 May.

Post the end of the review period, we see 85 potential inclusions and 84 potential exclusions from the MSCI Standard indices across Asian developed and emerging markets – the actual number will be lower and will depend on the market cap cut-off date chosen by MSCI.

The largest net inflow from the changes will be to China, India and Korea while there could be significant outflows from Japan.

The ‘light’ rebalancing scenario will not need to be used in the rebalance, nor do we see any stocks that would be caught under the ‘extreme price moves’ scenario.

Stocks with the highest probability of inclusion in the MSCI Standard index and the largest buying impact from passive funds are Perennial Energy Holdings Ltd (2798 HK)Lucky Cement (LUCK PA), Adani Transmission Ltd (ADANIT IN)Powerlong Real Estate Holdings (1238 HK),  China Resources Mixc Lifestyle Services (1209 HK), Tower Bersama Infrastructure (TBIG IJ), Domino’s Pizza Enterprises Ltd (DMP AU), Reece Ltd (REH AU)Sany Heavy Equipment Intl (631 HK), Chindata Group Holdings-Adr (CD US), Venus MedTech (2500 HK), Sunac Services Holdings (1516 HK) and I-Mab (IMAB US).

Stocks with a slightly lower probability of inclusion but high impact are Chow Tai Fook Jewellery (1929 HK), Carabao Group (CBG TB) and SITC International (1308 HK).

Stocks with the highest probability of deletion from the MSCI Standard index and the largest selling impact from passive funds are Kasikornbank PCL (KBANK/F TB)Aboitiz Power (AP PM), Oil & Gas Development (OGDC PA)Genting Plantations (GENP MK), Megaworld Corp (MEG PM)Samsung Card Co (029780 KS)Ottogi Corporation (007310 KS)Suzuken Co Ltd (9987 JP)PCCW Ltd (8 HK), Perusahaan Gas Negara Perser (PGAS IJ), TPG Telecom Ltd (TPG AU) and Air Water Inc (4088 JP).

Stocks with a slightly lower probability of inclusion but high impact are Keihan Holdings Co., Ltd. (9045 JP), A2 Milk Co Ltd (ATM NZ) and Marui Group (8252 JP)


Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

By Sanghyun Park

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.

Closely correlated & co-integrated sector pairs in Korea
NameTickerNameTicker180-day correlation
Shinhan Financial Group Co., Ltd.055550KB Financial Group Inc1055600.96105
LG Uplus Corp032640SK Telecom Co Ltd0176700.89928
Kia Corp000270Hyundai Motor Co0053800.86689
Celltrion HealthCare Co Ltd091990Celltrion, Inc.0682700.85053
BGF Retail Co Ltd282330GS Retail Co Ltd0070700.77600
Hyundai Department Store Co Ltd069960Shinsegae Inc0041700.93278
Source: KRX

In the light of the short-selling resumption next week, these sector pairs will likely draw attention.

Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.

  1. Shinhan Financial and KB Financial: +2.16σ
  2. Kia Corp and Hyundai Motor: -2.04σ
  3. Hyundai Department Store and Shinsegae: -1.81σ
Sigma (σ) on a 20-day moving averageTodayT-1T-2T-3T-4T-5
Shinhan Financial Group Co., Ltd./KB Financial Group Inc2.162.541.791.110.18-0.23
LG Uplus Corp/SK Telecom Co Ltd-0.25-0.10-1.61-1.64-1.42-2.09
Kia Corp/Hyundai Motor Co-2.04-2.00-1.170.000.10-1.08
Celltrion HealthCare Co Ltd/Celltrion, Inc.-0.31-0.74-1.01-0.06-0.190.51
BGF Retail Co Ltd/GS Retail Co Ltd0.24-2.10-2.56-2.32-0.020.47
Hyundai Department Store Co Ltd/Shinsegae Inc-1.81-2.31-2.53-1.73-1.32-0.04
Source: KRX

Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.


Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump

By Janaghan Jeyakumar, CFA

A couple of months ago, on 9th March 2021, Australia-based third party fund administration services provider Mainstream Group Holdings Ltd (MAI AU) announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. 

The Offer Price was an all-time high for the stock and MAI major shareholders had agreed to vote in favour of the Transaction but there was a go-shop provision which made things interesting because MAI was a company that had achieved strong growth in Funds under Administration in the last few years especially in the US Private Equity Space.

In June 2020, MAI launched a key client’s unlisted managed fund (identified as Magellan’s Australian subsidiary Airlie Australia Share Fund (AASF) in this news article) quoted on the ASX under a new structure known as a “Quoted Fund”. The fund was previously an unquoted fund and this move permitted investors to buy and sell units through their broker on the ASX alongside the fund’s existing traditional application and redemption process administered by Mainstream. According to the company, this represented the convergence of listed and unlisted open-ended funds into a single investment vehicle, allowing fund managers to offer investors both unlisted and exchange traded entry methods in a standard fund format. MAI claimed this to be an industry first initiative – a single system that handles listed and unlisted funds together, so the data source is one repository. 

Vistra’s Offer Price of A$1.20/share translated to an EV/EBITDA (June 21E) of 14.4x and when considering the projected EBITDA CAGR of 28%+ for the following two years, the Offer Price seemed light in my opinion and the situation seemed suitable for Bumpitrage.  

Since then, I have maintained a Bullish stance on the situation and multiple competing bidders have gotten involved causing the Terms to more than double in less than 2 months. MAI shares have risen from A$1.23 to A$2.65 in that period. 

Date

Insight Title

Outcome

09-Mar-21
On 12th April, US-based financial technology company Ss&C Technologies (SSNC US) launched a competing bid at A$2.00/share (a 66.7% increase from Vistra’s A$1.20). 
15-Apr-21
MAI received a bid at A$2.20/share from an unidentified 3rd party party and SS&C bumped their bid to A$2.25/share on 27th April 2021. 
27-Apr-21
After the close on 28th April, Global Fund Administrator Apex Group Limited (Apex) launched a non-binding bid at A$2.35/share and MAI matched this bid. 
29-Apr-21

Apex bumped their bid to A$2.55/share on 30th April 2021.  

More below the fold. 

For more information about M&A rules, regulations, and practices in Australia, please refer to Quiddity Australia M&A Guide 2019 and Quiddity M&A: Australia Foreign Investment Reforms


KOSPI 200 Review Period Completed: Early Phase Long Short Trade

By Sanghyun Park

KOSPI 200 index review period, November 1 to April 30, is now completed. 

KOSPI 200 Index
TickerKRX: KOSPI200
RebalancingBiannually
Effective dateJune 11, 2021 – next trading day of 2nd Thursday of June & December
Review periodNovember 1, 2020 – April 30, 2021
Est. total mirroring funds60,000.00
Total float-adj market cap (₩B)1,249,756.40
– Average6,217.70
– Highest384,364.40
– Lowest111
– Median1,458.50
– Top 10 largest57.32%
Current422.36
52W high (January 25, 2021)437.3
52W low (May 4, 2020)250.6
Source: KRX

Screening rules are as follows:

  1. Select candidates for each sector in order by the cumulative average daily market cap (the cumulative cut-off at the 15th percentile). Include the first company that crosses the 15th percentile mark.
  2. Exclude those whose cumulative average daily trading value is below the 15th percentile. Also, exclude those new entrants whose average daily market cap ranking is above 110%.
  3. If not reach a full 200 members in the first and second screenings, then re-select the current constituents whose average daily market cap ranking is within 110%.
  4. Select additional names among the unselected current constituents by the average daily market cap regardless of classification.

Before it’s here, it’s on Smartkarma