In today’s briefing:
- What if China ADRs Are Delisted from US Exchanges?
- Tsuruha (3391), Welcia (3141), and Aeon (8267) Do a Deal, Short-Changing Tsuruha Minorities
- Midea Group (300 HK): Cornerstone Lock-Up Expiry and Upcoming Index Flows
- Makino Milling Machine (6135 JP): Proposes Countermeasures
- The Skew in the Tsuruha-Welcia-Aeon Combination
- UK: Green Shoots For Unemployment Wilt
- CES China Semiconductor Chips Index Rebalance Preview: Multiple Adds for Some Stocks Increase Flow
- The End-April TOPIX Rebalance – US$2.1bn a Side
- Fast Retailing (9983 JP): More Capping-Led Selling in September (And Maybe More in March)
- Know Your Rare Earth Elements As China Restricts Exports
What if China ADRs Are Delisted from US Exchanges?
- We see 281 Chinese companies listed on U.S Stock Exchanges with a total market cap of US$869bn. 32 of these companies are listed on the HKEX (388 HK).
- If the rumours of Chinese stocks being delisted from U.S. Exchanges gathers steam, we could see a wave of secondary listings in Hong Kong.
- PDD Holdings, Full Truck Alliance, Vipshop Holdings, TAL Education and ZEEKR are the largest China ADRs with no HK listing and could come under pressure.
Tsuruha (3391), Welcia (3141), and Aeon (8267) Do a Deal, Short-Changing Tsuruha Minorities
- On Friday, Tsuruha Holdings (3391 JP), Welcia Holdings (3141 JP), and Aeon Co Ltd (8267 JP) announced the Tsuruha/Welcia merger and Partial Tender to get Aeon to 50+% of NEWCO.
- The scrip ratio short-changes Tsuruha shareholders. The subsequent partial offer to raise Aeon’s stake above 50% is low too. 9.7% shareholder Orbis is already out with a complaint.
- But… all is not lost. There are some interesting angles here to complain.
Midea Group (300 HK): Cornerstone Lock-Up Expiry and Upcoming Index Flows
- Midea Group listed in September 2024 by selling 650.85m shares (including the overallotment option) and raising HK$35.7bn (US$4.6bn). A large part of the offering was allocated to cornerstone investors.
- Given the large company market cap and a free float that met the inclusion threshold, Midea Group (300 HK) was added to global indices via Fast Entry.
- The lock-up expiry on cornerstone investors will increase the float for the stock in the global indices and Hang Seng TECH Index (HSTECH INDEX) over the next two months.
Makino Milling Machine (6135 JP): Proposes Countermeasures
- The Makino Milling Machine Co (6135 JP) Board has proposed introducing countermeasures to nudge Nidec Corp (6594 JP) to delay the start of the tender to 9 May.
- The countermeasure was likely needed to facilitate a competing offer rather than force Nidec to provide the required information and delay the start (Nidec is still evaluating the request).
- Nidec’s offer at current terms has a low chance of success, necessitating revised terms. The Board claims that there is a sufficient probability of a competing proposal.
The Skew in the Tsuruha-Welcia-Aeon Combination
- Tsuruha Holdings (3391 JP), Welcia Holdings (3141 JP), and Aeon Co Ltd (8267 JP) announced their deal whereby Tsuruha merges with Welcia in December, and Aeon gains control of MERGECO.
- Orbis Investments – owner of 9.7% of shares out – complained. I think with good reason. Tsuruha is trading a little expensive to the ratio, but there’s 7.5mos to go.
- Interestingly, there’s real skew on this trade. It’s not overly complicated, and it is worthwhile thinking about it.
UK: Green Shoots For Unemployment Wilt
- Signs that statistical effects might lower the unemployment rate in the Spring have weakened, with stability at 4.4% now more likely amid stagnant underlying trends.
- Levels remain healthy and redundancies are low despite falling vacancies, suggesting resilience survives rather than thrives. Rapid wage growth is more problematic.
- Dovish hopes that excesses will break soon, aided by destructive US trade policy, keep the BoE on track to cut in May. Sterling strength also adds disinflationary space.
CES China Semiconductor Chips Index Rebalance Preview: Multiple Adds for Some Stocks Increase Flow
- There could be three changes for the CES China Semiconductor Chips Index at the close of trading on 13 June.
- Based on the assets tracking the index, passive trackers will need to trade between 0.1-0.4x ADV in the stocks.
- Bestechnic Shanghai (688608 CH) and Suzhou Kematek (301611 CH) will also have net inflows from passive trackers of other indices at the same time, adding to the flow.
The End-April TOPIX Rebalance – US$2.1bn a Side
- This year there are 10 Free Float Weight Changes for April. There are 20 Liquidity Factor Changes, 2 Inclusions, and 3 M&A-related downweights. There are 90+ Share Count Change Downweights.
- This is a bigger Big April Basket than normally comes around. And there are some big flows. All trades are 28 April at the close.
- Total flow is ~US$2.1bn a side. 64 trades of >2 days of ADV, and of those, 27 with >US$10mm to trade (7 of US$50mm+). Top 20 in USD average 5dADV.
Fast Retailing (9983 JP): More Capping-Led Selling in September (And Maybe More in March)
- Fast Retailing (9983 JP)‘s weight in the Nikkei 225 (NKY INDEX) has increased to 10.81% which will lead to another reduction in the CPAF in September.
- Even after the reduction in CPAF and an increase in BayCurrent Consulting‘s PAF in September, there is a possibility of Fast Retailing being capped again in March 2026.
- The continued passive selling sets up interesting trading opportunities after periods of Fast Retailing (9983 JP) outperformance versus the other index constituents.
Know Your Rare Earth Elements As China Restricts Exports
- China recently escalated restrictions on the export of rare earths. Not just to the US as the two global players go toe-to-toe on tariffs; but to all countries.
- China’s latest round of restrictions target critical materials used in defense, electronics, and EVs.
- Apart from China, the world’s largest refining – not just the largest miner – who else refines rare earth elements, specifically heavy rare earths?
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