In today’s briefing:
- CSI Hong Kong Connect Internet Index Rebalance: 10 Changes & Big Impact
- Zhejiang Sanhua Intelligent Controls (2050 HK): Big Raise Supported by Cornerstones
- Tencent To Acquire Nexon? Time and Price Lining Up for a Final Deal?
- [Quiddity Index] MV Global Defense Jun25 Rebalance Results: Flow Expectations
- HLB Merger Arb’s Unique Timing Dynamics for a Juicy 8% Swap Spread
- A/H Premium Tracker (To 13 June 2025): HUGE H-Share Outperf Across The Board, “Beautiful Skew Move”
- HEW: Geopolitics Blow Hot And Warm
- MV Australia Resources Index Rebalance: Two Adds, Float & Capping Changes
- MarketVector Vietnam Local Index Rebalance: One Add, Capping & Float Changes
- Korea Small Cap Gem #36: FnGuide [Increasing Moat for Its Index Business]
CSI Hong Kong Connect Internet Index Rebalance: 10 Changes & Big Impact
- There are 5 constituent changes for the CSI Hong Kong Connect Internet Index in June. Plus there are capping changes for some stocks.
- A lot of the adds have moved significantly in the last couple of days, so the impact over the next couple of days will be smaller.
- There could be opportunities to trade the reversion strategy. Getting borrow may not be easy on some names.
Zhejiang Sanhua Intelligent Controls (2050 HK): Big Raise Supported by Cornerstones
- Zhejiang Sanhua Intellignt Controls Co. (002050 CH)‘s global offering opens today and the raise could reach up to US$1.4bn if the offer-size adjustment option and the overallotment option are exercised.
- There is a large allocation to cornerstone investors. The discount of around 22.7% to the A-shares is attractive given the recent trend for Midea (300 HK) and CATL (3750 HK).
- The H-shares should be added to Southbound Stock Connect in July, to the HSCI in September, and to a global index in December.
Tencent To Acquire Nexon? Time and Price Lining Up for a Final Deal?
- Tencent has been interested in acquiring Nexon for more than six years. However, the timing and price were not right for such a deal to take place in the past.
- The higher probability scenario is for Kim’s family members to sell when the timing and price is right. This time around, a $15 billion could be the right price.
- Late founder Kim’s family members own a 44.4% stake in Nexon through NXC Corp and its affiliate NXMB BV. Kim’s wife and daughters own a 67.6% stake in NXC Corp.
[Quiddity Index] MV Global Defense Jun25 Rebalance Results: Flow Expectations
- The MV Global Defense Industry Index represents the performance of companies in national defense industries.
- There will be 3 ADDs for the MV Global Defense Index in June 2025.
- We expect one-way flow of US$505mn for June 2025, which translates to a turnover of 8.8%.
HLB Merger Arb’s Unique Timing Dynamics for a Juicy 8% Swap Spread
- Some local desks think the company pushed the timeline back to align with a potential FDA Class 1 approval for Rivoceranib expected by July.
- No word yet if it’s Class 1 or 2; Class 2 means November decision. Despite risks, local hedge desks are building arb plays, betting on the July FDA timing dynamics.
- No FDA decision by July means Class 2 and a sell-off, hitting HLB Co. hardest. Class 1 approval boosts both stocks, cuts cancellation risk, and sets the 8% spread floor.
A/H Premium Tracker (To 13 June 2025): HUGE H-Share Outperf Across The Board, “Beautiful Skew Move”
- AH spreads are SHARPLY narrower. The effect is dramatic across the “skew” i.e. very wide AH premia contracted more than very narrow premia. BYD is on its own.
- This smells very much like someone knows something. I expect RMB dual counters may be in the works. Caixin had an article Friday.
- The data tables below update on a daily basis in the Tools section of Smartkarma. The SOUTHBOUND Flow Monitor and AH Monitor are both there free for SK readers.
HEW: Geopolitics Blow Hot And Warm
- Israel’s attack on Iran squeezes supply in an unwelcome shock that is harder for central bankers to look through post-pandemic. Warming US-China relations had less impact.
- Avoidance measures have helped mitigate the tariff shock so far, with US CPI holding steady. The importance of recent disappointing UK demand data is easy to overstate.
- The BoE is set to hold rates, probably with two dovish dissents and no commitment to August. UK inflation should slow with airfares normalising and a vehicle tax correction.
MV Australia Resources Index Rebalance: Two Adds, Float & Capping Changes
- Capricorn Metals (CMM AU) and Genesis Minerals (GMD AU) will be added to the Vaneck Vectors Australian Re (MVR AU) in June.
- Constituent changes, float changes and capping changes result in an estimated one-way turnover of 8% and a round-trip trade of A$49m.
- There has been short covering in both adds over the last couple of years. While short interest is relatively smaller in Capricorn Metals, it is much higher in Genesis Minerals.
MarketVector Vietnam Local Index Rebalance: One Add, Capping & Float Changes
- BAF Viet Nam Agriculture JSC (BAF VN) will be added to the MarketVector Vietnam Local Index at the close on 20 June.
- Estimated one-way turnover is 9% and that results in a round-trip trade of US$74m. There are 5 stocks with more than 1x ADV to trade from passives.
- Vingroup Jsc (VIC VN) and Vinhomes (VHM VN) stock prices have soared over the last few months and capping results in selling at this rebalance.
Korea Small Cap Gem #36: FnGuide [Increasing Moat for Its Index Business]
- FnGuide has been able to capitalize on its excellent brand name in the financial industry (especially for research used in equity trading) to profitably expand into the index development business.
- Although the index business accounted for 25% of its sales in 2024, it has been the fastest growing business in the past six years.
- Valuations are reasonable and it is trading at 27% below four year historical EV/EBITDA basis. We like FnGuide as a long-term investment story.
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