In today’s briefing:
- NIFTY Bank Index: Big Flows & The Upcoming Methodology Change
- SK Telecom (017670 KS): Increasing Foreign Room & Passive Buying
- JX Advanced Metals (5016 JP): Passive Buying in the Next 6 Weeks
- NIFTY MIDCAP150 Index Rebalance Preview: 11 Potential Changes in September
- Gold Miners ETF (GDX US): Big Outperformance Driven by Benchmark Change; Valuation Gap Opens Up
- LG Chem: Flurry of Asset Sales Raises the Probability of A Partial Sale of LG Energy Solution
- US Inflation Skips Several Months
- Stealthy Long-Short Flow Playing Out Via Local KOSPI 200 Covered Call ETFs
- China A50 ETFs Rebalance Preview: Three Changes in September
- Kangji Medical (9997 HK): Consortium’s Light Preconditional Scheme Offer
NIFTY Bank Index: Big Flows & The Upcoming Methodology Change
- In May, SEBI recommended changes to the minimum number of constituents for non-benchmark indices and the capping for those indices. The recommendations have to be implemented by 3 November.
- There is a high probability that NSE Indices implements the changes for the NSE Nifty Bank Index (NSEBANK INDEX) at the September rebalance. Nothing has been announced yet though.
- If implemented in September, Yes Bank and Union Bank Of India could be added to the index. Estimated one-way turnover is 22.35% and the round-trip trade is INR 149bn (US$1.7bn).
SK Telecom (017670 KS): Increasing Foreign Room & Passive Buying
- Foreign room in SK Telecom (017670 KS) is over 21% now and increasing as foreign investors sell stock.
- Further foreign selling could take foreign room past 25% and that will result in passive inflows for the stock. Timing is dependent on when the 25% threshold is crossed.
- SK Telecom has underperformed its peers over the last 3 months and that has shrunk its valuation premium. Watch for a further increase in foreign room for an entry point.
JX Advanced Metals (5016 JP): Passive Buying in the Next 6 Weeks
- JX Advanced Metals (5016 JP) listed in March and did not get Fast Entry to global indices since a large part of the IPO was allotted to domestic retail investors.
- JX Advanced Metals (5016 JP) will be added to one global index this month and could be added to the other global index in September.
- The stock is trading higher following the better than forecast results announced last week. The index inclusions could take the stock higher in the short-term.
NIFTY MIDCAP150 Index Rebalance Preview: 11 Potential Changes in September
- With the review period now complete, there could be 11 changes for the NIFTY Midcap 150 Index at the September rebalance.
- Estimated one-way turnover is 7.7% resulting in a round-trip trade of INR 17.6bn (US$201m). With over US$43bn tracking the index actively, the impact on the stocks will be much larger.
- The outright forecast adds have outperformed the forecast deletes over the last 4 months and there has been a jump in the last week.
Gold Miners ETF (GDX US): Big Outperformance Driven by Benchmark Change; Valuation Gap Opens Up
- The VanEck Gold Miners ETF/USA (GDX US) will change benchmark from the NYSE Arca Gold Miners Index to the MarketVector Global Gold Miners Index at the close on 19 September.
- We forecast 8 adds and 25 deletes for the ETF. Estimated one-way turnover is 15.77% resulting in a round-trip trade of US$6.18bn.
- The forecast adds have outperformed the forecast deletes since the announcement of the benchmark switch and over shorter time frames too. The valuation gap has opened up.
LG Chem: Flurry of Asset Sales Raises the Probability of A Partial Sale of LG Energy Solution
- In the past three months, LG Chem has announced two asset sales worth 1.6 trillion won including dermal filler and water filter businesses.
- Due to worsening balance sheet and need to raise additional capital, there is an increasing probability of LG Chem selling a partial stake in LGES in the next 6-12 months.
- Our NAV valuation of LG Chem suggests implied NAV per share of 414,325 won, which is 49% higher than current levels.
US Inflation Skips Several Months
- July’s US inflation print reversed all of the increase built in from tariffs over the past several months, despite matching expectations prevailing into the release.
- Core goods inflation eased slightly, suggesting ongoing corporate success in avoiding the tariff shock. But service inflation is stuck too high to be consistent with the target.
- Anti-avoidance measures and belated pass-through will drive further rises. We doubt they will be as severe as many fear, yet still not create much space to cut rates.
Stealthy Long-Short Flow Playing Out Via Local KOSPI 200 Covered Call ETFs
- Covered call ETFs ramped up KOSPI 200 weekly call selling, pushing premiums unusually low despite modest overall volume—likely a key driver behind the premium compression.
- KOSPI 100 outperformed KOSPI 200 small-mid caps by 3.7%p last month, probably boosted by call-selling ETFs’ delta-hedge buying concentrated in large caps.
- Watch for hedge buy flows ramping up before big events. Timing short-term longs in large caps and shorts in smaller KOSPI 200 names around these windows can yield solid alpha.
China A50 ETFs Rebalance Preview: Three Changes in September
- Nearing the end of the review period for the September rebalance, there could be three changes for the iShares A50 China (2823 HK)/ CSOP China A50 (HKD) (2822 HK).
- WuXi AppTec, Zhongji Innolight and BeiGene could replace China United Network, NARI Technology and China National Nuclear Power in the ETF at the close on 19 September.
- Passives will need to trade 0.1-0.7x ADV in the forecast changes. The forecast adds have massively outperformed the forecast deletes over the last 4 months.
Kangji Medical (9997 HK): Consortium’s Light Preconditional Scheme Offer
- Hangzhou Kangji Medical Instrument Co., Ltd. (9997 HK) disclosed a preconditional privatisation from a consortium at HK$9.25, a 9.9% premium to last close and a 21.7% premium to the undisturbed price.
- The precondition relates to SAMR approval. The key condition will be approval by at least 75% disinterested shareholders (<10% of all disinterested shareholders’ rejection). The offer is final.
- The scheme vote risk is medium-to-high due to an unattractive offer, a blocking stake below the substantial disclosure threshold, unfavourable AGM voting patterns, and emerging retail opposition.
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