In today’s briefing:
- HSCI Index Rebalance Preview and Stock Connect: A Lot of Change
- MSCI Feb 2023 QCIR Preview: Nearing the Start of the Review Period
- Index Rebalance & ETF Flow Recap: HSCEI, HSTECH, HSI, HSCI, KS200, KQ150, CSI300, SENSEX, LQ45, PSEi
- Fujitsu (6702) Subsidiary Selldowns To Come
- Cosmo Energy (5021) Vs Murakami – It’s On!
- K200 ETFs’ Swap Trading on Meritz & Fresh Buy-In JB Financial on Jan 27
- Japan Excellent (8987). It WAS Most Excellent. That’s Now Done.
- Melco Trading “Cheap” As Macau Opens Up
- China Education Group (839 HK): Solidifying Investment Thesis After Placement
- Seven & I’s Valuation Nears Breaking Point
HSCI Index Rebalance Preview and Stock Connect: A Lot of Change
- We see 44 potential adds (including plenty of new listings) and 19 potential deletes (on market cap, liquidity and suspension) for the Hang Seng Composite Index in March.
- We expect 37 stocks to be added to Southbound Stock Connect following the rebalance while 37 stocks could be deleted from the trading link and become Sell-only.
- There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.
MSCI Feb 2023 QCIR Preview: Nearing the Start of the Review Period
- We expect a number of changes to the MSCI Standard indices for the Asia Pacific region at the first Quarterly Comprehensive Index Review to be implemented on 28 February.
- As usual, most changes are expected in China with a smattering of adds and deletes for the other markets.
- On average, the adds have outperformed the deletes over the last few weeks and months and pre-positioning should continue for the next couple of weeks.
Index Rebalance & ETF Flow Recap: HSCEI, HSTECH, HSI, HSCI, KS200, KQ150, CSI300, SENSEX, LQ45, PSEi
- End December was the end of the review cutoff for a lot of indices that will rebalance within the next couple of months.
- PEXA Group (PXA AU) replaces Pendal Group (PDL AU) in the S&P/ASX 200 (AS51 INDEX) at the close on 12 January.
- There were big outflows from Hong Kong and China focused ETFs led by Hang Seng H Share Index ETF (2828 HK) and Tracker Fund of Hong Kong Ltd (2800 HK).
Fujitsu (6702) Subsidiary Selldowns To Come
- Three years ago I wrote Fujitsu Subsidiary Selldowns or Buy-Ins? My choice then was Fujitsu Frontech which was bought out 8 months later.
- A Bloomberg article today with quotes from an interview with the CEO of Fujitsu fuelled some movement today.
- The “obvious” trade is Shinko Electric Industries (6967 JP) but you have to buy the new dream.
Cosmo Energy (5021) Vs Murakami – It’s On!
- In March 2022, longtime Cosmo Energy Holdings (5021 JP) holder Mubadala sold the last 15.7% of Cosmo Energy in a block sale after having sold 5% 8 months earlier.
- A month later it was revealed noted Japanese activist Murakami-san had bought 5.1%. A week later it was 8.3%. Then he bought more. Cosmo announced a buyback in May 2022.
- By November Murakami-san had 19.8%. But behind the scenes there had been discussions and those are now coming to light. Cosmo has announced possible defence measures.
K200 ETFs’ Swap Trading on Meritz & Fresh Buy-In JB Financial on Jan 27
- KOSPI 200 ETFs will have to sell Meritz FIRE and buy Meritz FINANCIAL at the close on January 27. JB Financial, the top reserved issue, will replace FIRE.
- We should consider a Long Short for two Meritz companies just before the 27th. As a follow-up setup, we should aim for a potential widening of the swap arb spread.
- As for the Long JB Financial, I would set the entry timing one week towards the implementation at the latest and look into Kodex Banks ETF (091170) for a hedge.
Japan Excellent (8987). It WAS Most Excellent. That’s Now Done.
- 4.5 months ago I wrote about a possible “Sustained Flow Event” on Japan Excellent (8987 JP). Since then, the stock has outperformed every other Office REIT. It’s up since then.
- Outperformance within Office REITs has been a minimum of 3.5%, and a maximum of ~20.8% vs the biggest peer, with an average and median outperformance of 11.7% and 13.4% respectively.
- This idiosyncratic story has come to an end. It may be a temporary end, but I don’t see the next catalyst.
Melco Trading “Cheap” As Macau Opens Up
- After Macau’s government renewed the concession periods for the city’s six incumbent gambling concessionaires for another 10 years, the key players are up 86% on average
- Both Melco International Development (200 HK) and Melco Resorts & Entertainment (MLCO US) have gained a little over 100%.
- Melco’s NAV discount is back out to 36%. The simple ratio – Melco/MCLO – is around the lowest level since Melco began consolidating MCLO in early 2017.
China Education Group (839 HK): Solidifying Investment Thesis After Placement
- Positive response of China Education Group (839 HK)‘s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally.
- The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&A potential.
- More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.
Seven & I’s Valuation Nears Breaking Point
- Seven & I Holdings (3382 JP)‘s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.
- This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.
- Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.
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