In today’s briefing:
- HSCI Index Rebalance and Stock Connect: Changes at the Margins
- KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
- OZ Minerals (OZL AU): BHP Ups Offer by 13%; This Should Get Done
- FTX Fallout – A Quick Update
- HSI Index Rebalance: Baby Steps; Double Inclusion for Haier Smart Home
- Has The US Fed Already Paused Its QT and ‘Pivoted’?
- HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls
- Oriental Watch Mgmt Call: Big Dividend Yet Again, 50% of Mkt Cap in Cash with >15% Yield Post Rally
- Fairfax India Holdings: Major Value Unlock Via BIAL IPO
- Index Rebalance & ETF Flow Recap: HSCI, S&P/ASX, HSI, HSCEI, KOSPI2, KOSDAQ150, Wharf, Meituan
HSCI Index Rebalance and Stock Connect: Changes at the Margins
- We see 3 potential adds for the HSCI in December. We also see 26 potential adds and 16 potential deletes for the index in March.
- Following the March rebalance, we see 22 potential inclusions to Stock Connect while we expect 37 stocks to be removed from the link.
- Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.
KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
- There are 11 inclusions and 11 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 8 December.
- We had forecast most of the changes (10 adds and 9 deletes), so there are a few surprises. The inclusion of SillaJen Inc (215600 KS) is the biggest one.
- The adds to the index become short sell eligible from the open of trading on 9 December while the deletions will not be short sell eligible from the same time.
OZ Minerals (OZL AU): BHP Ups Offer by 13%; This Should Get Done
- BHP Group has made a revised conditional, non-binding and indicative proposal to acquire all shares in OZ Minerals Ltd (OZL AU) at A$28.25/share, 13% higher than its earlier offer.
- The OZ Minerals Board has agreed to give BHP Group Ltd (BHP AU) exclusive due diligence access for 4 weeks and intends to unanimously recommend the revised proposal.
- Barring a competing proposal, this is BHP Group‘s best and final price – expect the stock to trade close to A$28/share today.
FTX Fallout – A Quick Update
- FTX filed for bankruptcy on 11/11 after halting client withdrawals in the previous week, despite SBF (the ex-CEO) tweeting 2 days prior that it had $1 bn of excess cash.
- With over 130 affiliates included in the filing and no first day documents in the Delaware Court, the bankruptcy filing seems disorderly. The fallout is far-reaching in the industry.
- As we await the top 50 creditor list and more details, we have compiled a hit list of some of the major affected players in the industry.
HSI Index Rebalance: Baby Steps; Double Inclusion for Haier Smart Home
- The inclusion of Tingyi Holding (322 HK), China Resources Mixc Lifestyle Services (1209 HK) and Haier Smart Home Co Ltd (6690 HK) gets us to 76 index constituents.
- Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover of 2.01% and will result in a one-way trade of HK$3,845m.
- Shorts on Haier Smart Home Co Ltd (6690 HK) and Tingyi Holding (322 HK) are around 5% of float and covering could take the stocks higher.
Has The US Fed Already Paused Its QT and ‘Pivoted’?
- US Fed has injected a positive US$167bn into markets so far in Q4, 2022. This partly reverses the US$1.1 trillion they withdrew in year up to September
- Based on US Fed projections of a further US$1.5-2 trillion of QT liquidity withdrawals, the S&P500 could skid lower to 3200 (i.e. minus 20% from here)
- QT has stalled, showing the operational difficulty of withdrawing cash. This may also reflect underlying concerns about US Treasury market liquidity. A pause/ pivot is coming, but its not now
HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls
- There are 4 adds and 4 deletes for the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance. The only surprises are some non-adds and non-deletes.
- Using prices from the close on 18 November, estimated one-way turnover is 4.64% and will result in a one-way trade of HK$2,612m at the close on 2 December.
- Short interest is larger on the deletes than the adds. However, at 17 days of ADV to cover and 11.7% of float, short interest on Zhongsheng Group is huge.
Oriental Watch Mgmt Call: Big Dividend Yet Again, 50% of Mkt Cap in Cash with >15% Yield Post Rally
- Oriental Watch (398 HK) paid a 31-cent dividend in its H1FY23 result on the 16th, equating to an annualized dividend yield of 15% on the current share price.
- The outlook for the rest of the year is much brighter, given the recovery in China and the inability of the Chinese to travel. October numbers were strong.
- The stock trades at a 6.7x PE, with more than 50% of the market capitalization in cash. In slightly better market conditions, this could be a 6 HKD stock.
Fairfax India Holdings: Major Value Unlock Via BIAL IPO
- Fairfax India Holdings (FIH/U CN), a holdco with investment activities exclusively in India, is edging closer to IPOing 49%-held Bangalore International Airport (BIAL).
- Reportedly FIH is seeking a value upward of C$3.7bn for BIAL, a 45% premium over the current fair value holding.
- Currently trading at a P/B of 0.6x compared to its five-year average of 0.8x, and the two-year average pre-Covid of 1.06x.
Index Rebalance & ETF Flow Recap: HSCI, S&P/ASX, HSI, HSCEI, KOSPI2, KOSDAQ150, Wharf, Meituan
- Plenty of index change announcements in the last week – Kospi 200 Index, KOSDAQ 150 Index, Hang Seng Index, HSCEI, HSTECH, S&P BSE SENSEX Index and FTSE AW/AC Index.
- There are a bunch of indices that have the end of their review periods in the coming week while announcements for China indices are expected post market close on Friday.
- There were outflows from ETFs for most Asian markets over the week with China and Hong Kong ETFs taking the biggest hits.
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