In today’s briefing:
- Korea: Short Selling Is Back in March; Trade Ideas
- Shinko Electric (6967) – Chicken and Logistics
- ENN Energy (2688 HK) Privatization: Details & Index Implications
- Nikkei 225 Index Rebalance: Positioning With a Few Days to Implementation
- Changes to Hang Seng Methodology – Early Doors but $3bn a Side Across Major Indices
- NIO HK Placement – Lots of Reasons to Avoid and Only One to Invest
- The Hidden Play in Hanwha’s Noisy Stake Reshuffling: Hanwha Corp’s Rights Issue
- Daihatsu Diesel (6023) – Is Not Directly Auto-Tariff-Related
- The Hot Chatter in the Local Market: Tax-Free Dividends – Is Samsung In?
- 4 Spin-offs with Insider Buying
Korea: Short Selling Is Back in March; Trade Ideas
- Since short selling was banned in November 2023, short interest has plunged in Korea as shorts were covered. Markets have not done much over the last 16 months though.
- Foreign investor holdings have dropped from 32.05% in July to 28.57%. The top 25 stocks bought by foreign investors outperformed the top 25 stocks sold by 128% in 16 months.
- There will be trade opportunities across indices, pref/ords, index migrations and deletions, potential market upgrades and overvalued stocks being sold.
Shinko Electric (6967) – Chicken and Logistics
- The Tender Offer closed end of last week. The bidder JICC-04 got 59.281mm shares. Most of what was left over – perhaps even more than 100%, was passive-owned.
- More than 100%? How does that work? It works because of how the logistics goes.
- And right now, the reason why the stock is trading well through terms is a matter of Chicken and Logistics.
ENN Energy (2688 HK) Privatization: Details & Index Implications
- ENN Natural Gas has made a pre-conditional proposal to privatise ENN Energy (2688 HK). For each ENN share, shareholders will receive 2.9427 ENN Natural Gas shares and HK$24.5 in cash.
- The ENN Natural Gas H-shares will be listed on the HKEX. The value received by ENN Energy shareholders depends on ENN Natural Gas stock performance and the H-share discount.
- The ENN Natural Gas (600803 CH) H-shares are likely to replace ENN Energy (2688 HK) in global indices and the Hang Seng Index (HSI INDEX).
Nikkei 225 Index Rebalance: Positioning With a Few Days to Implementation
- BayCurrent Consulting (6532 JP) replaces Mitsubishi Logistics (9301 JP) in the Nikkei 225 (NKY INDEX) at the close of trading on 31 March.
- Since announcement, BayCurrent Consulting (6532 JP) stock is up with cumulative excess volume increasing, while Mitsubishi Logistics (9301 JP) is lower on a much bigger increase in cumulative excess volume.
- Some of the forecast adds and deletes have moved as one would expect, but positioning for the September rebalance could lead to reversals over the next few weeks and months.
Changes to Hang Seng Methodology – Early Doors but $3bn a Side Across Major Indices
- Janaghan Jeyakumar, CFA put out June rebal predictions on HSCEI, HSTECH, and Hang Seng Internet & Infotech on 17-Mar-25 (and 7 mainland indices 19-21 March) and…
- …the Quiddity team put out its regular predictions of all 7 major HS indices and 11 mainland indices, but on 21-March after the close, the Hang Seng team updated methodology.
- They changed the way float is calculated for Secondary Listings in Hang Seng indices. It affects only a few names, but this adds US$2.7bn of buying to three names.
NIO HK Placement – Lots of Reasons to Avoid and Only One to Invest
- NIO (9866 HK) is looking to raise around US$450m via a primary placement in Hong Kong.
- The shares haven’t done much this year or ever since they were listed.
- In this note, we will talk about the placement and run the deal through our ECM framework.
The Hidden Play in Hanwha’s Noisy Stake Reshuffling: Hanwha Corp’s Rights Issue
- Hanwha Corp’s chances of raising 1T KRW without a capital call are slim, likely channeling Hanwha Energy’s 1.3T KRW into Hanwha Corp intead of Hanwha Aero.
- A shareholder-allotted rights issue from Hanwha Corp looks likely, and with short-selling resumption, it sets up a clean arbitrage play with low risk before the official announcement.
- Timing is key—Hanwha’s using debt for now, but likely won’t delay long. Expect Hanwha Corp’s rights issue to follow Hanwha Aero’s, probably between June and July.
Daihatsu Diesel (6023) – Is Not Directly Auto-Tariff-Related
- Daihatsu Diesel Mfg (6023 JP) is down sharply today – much more than indices – as autos/tech fall on US auto tariffs. There may be some GPIF unwinds as well.
- A reminder: Despite the name, Daihatsu Diesel is not an auto name, is growing, has a big order book, and minimal direct exposure to the US.
- The Tender settles today. The 8% overhang from Tendered-But-Unsold Shares is an opportunity, not a burden, at 7.2x ex-cash PER.
The Hot Chatter in the Local Market: Tax-Free Dividends – Is Samsung In?
- Chosun reports that some Samsung affiliates are exploring tax-free dividends at the operational level, with execs reportedly briefed on the idea.
- Surprisingly, regulators and politicians haven’t objected to tax-free dividends, which ironically align with the value-up policy. The delay in Samsung’s value-up announcements may be due to this decision.
- It’s unclear if Samsung Electronics and Life will drop tax-free dividends, but if regulators approve, they could introduce it suddenly in their value-up updates, especially with Lee Jae-yong’s cash crunch.
4 Spin-offs with Insider Buying
- One factor that I closely follow in the spin-off universe is insider buying.
- Here’s what Peter Lynch wrote about insiders and spin-offs in One Up on Wall Street: [Spin-offs] are a fertile area for amateur investors…….A month or two after the spinoff is completed, you can check to see if there is heavy insider buying among the new officers and directors.
- There are four names in my universe that have interesting insider activity.
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