In today’s briefing:
- The Final ACT Comedy of Errors Opens the Way for Real Value to Emerge at Seven & I
- Kawasaki Heavy (7012 JP): Cheaper than Peers with Index Inclusion Kicker
- A/H Premium Tracker (To 18 July 2025): “Beautiful Skew” Continues Some More
- NIFTY NEXT50 Index Rebalance Preview: Potential Changes & Close Names
- STAR50/STAR100 Index Rebalance Preview: Outright Changes & Migrations
- 3SBio (1530 HK): Global Index Inclusion as Stock Soars
- Insignia Financial (IFL AU) Accepts CC Capital’s Reduced Terms
- UK Fiscal Slippage Rules
- Wuxi XDC Cayman (2268 HK): Soaring Pharma Stocks & Global Index Inclusion
- HD Merger: Overblown Policy Risk Creates a Convergence Play Opportunity
The Final ACT Comedy of Errors Opens the Way for Real Value to Emerge at Seven & I
- ACT’s bid for Seven & I has been withdrawn and Seven will be better off long-term because of it – although we detail here how competitors are catching up fast.
- Once York HD has been split off, the company can at last focus on its crucial local CVS operation: Japan makes up 25% of revenues but almost 50% of profits.
- The potential is real and we are bullish on the long-term value but we would have been more bullish if the former CEO Ryuichi Isaka was still on board.
Kawasaki Heavy (7012 JP): Cheaper than Peers with Index Inclusion Kicker
- Kawasaki Heavy Industries (7012 JP) stock price has moved higher over the last few months, and the increased market cap should result in global index inclusion in August.
- Kawasaki Heavy Industries (7012 JP) has underperformed its larger peers, and the stock is trading cheaper than the average of its peers on most metrics.
- There will be positioning in the stock that has been built up over the last month and a relative value trade could offer better risk reward here.
A/H Premium Tracker (To 18 July 2025): “Beautiful Skew” Continues Some More
- AH premia flat again among liquid names but “beautiful skew” of wide premia converging more than narrow premia continues bigly. It still pays well to be long wide H discounts.
- Weeks ago I said, “It has paid to be long the H on those H/A pairs with the biggest H discounts. I would continue to ride that trend.” Ride on.
- 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.
NIFTY NEXT50 Index Rebalance Preview: Potential Changes & Close Names
- With the review period nearing completion, there could be 4 changes (including 1 migration) for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September.
- There is one stock close to inclusion zone and one stock close to deletion zone and price movements over the rest of the month will determine the final changes.
- Estimated one-way turnover is 7.8% resulting in a one-way trade of INR 30.06bn (US$350m). Six of the eight potential changes will have over 2x ADV to trade from passive trackers.
STAR50/STAR100 Index Rebalance Preview: Outright Changes & Migrations
- Nearing the end of the review period, we forecast 1 change for the SSE STAR50 (STAR50 INDEX) and 5 changes for the STAR100 Index in September.
- We estimate turnover of 1% for the SSE STAR50 (STAR50 INDEX) and 3.6% for the STAR100 Index. The estimated round-trip trade is CNY 5bn (US$700m).
- Near term performance for the SSE STAR50 (STAR50 INDEX) changes has been great, while the performance of the outright STAR100 Index changes has been far from satisfactory.
3SBio (1530 HK): Global Index Inclusion as Stock Soars
- 3SBio Inc (1530 HK)‘s stock price has soared over the last couple of months, and the higher market cap should result in global index inclusion in August.
- 3SBio Inc (1530 HK) has gone from middle/bottom of the pack to best performer among its peer group over the last two months.
- There will be a lot of positioning in the stock, but we see a similar trend across stocks in the industry.
Insignia Financial (IFL AU) Accepts CC Capital’s Reduced Terms
- Insignia Financial (IFL AU), a wealth manager and previously known as IOOF, has entered into a Scheme with CC Capital at $A$4.80/share.
- That’s 56.9% premium to undisturbed (11th December 2024), 20% above Bain’s initial indicative tilt last year, but 4% below CC Capital (% Bain’s) A$5.00/share indictive Offer on the 7th March.
- Apart from the Scheme vote, CC Capital’s Offer requires a raft a regulatory approvals. The SID indicates 1H26 completion.
UK Fiscal Slippage Rules
- The UK’s de facto fiscal rule is slippage, with a £50bn to £100bn increase in borrowing between initial official forecasts and outcomes. 2025-26 made another slippery start.
- Politicians spend any space in the OBR forecasts, skewing surprises to higher spending. Yet tax hikes keep failing to raise the hoped revenue, motivating further increases.
- Investors should not be fooled by forecasts for consolidation when the failed strategy driving the fiscal slippage rule survives. Issuance may stay near £300bn in 2029-30.
Wuxi XDC Cayman (2268 HK): Soaring Pharma Stocks & Global Index Inclusion
- WuXi XDC Cayman (2268 HK)‘s stock price has recovered from the tariff fear induced selloff and the higher market cap should result in global index inclusion in August.
- WuXi XDC Cayman (2268 HK) has gone from bottom of the pack to middle over the last 9 months and there could be further relative upside.
- There is positioning in the stock but it appears to be lower than positioning in its peers. Long/short trades could offer better risk/return.
HD Merger: Overblown Policy Risk Creates a Convergence Play Opportunity
- NAV sets the floor under the proposed bill. That’d cut the swap ratio from 1:0.162 to 1:0.128 — meaning Infracore holders get fewer CE shares than under market pricing.
- Unlike the Doosan deal, this one’s unlikely to get walked back. With wide spreads and HD setting a 10% SO cap, the dislocation looks tradable despite appraisal right overhang.
- Top holders/NPS hold ~50%, local instos 20%, foreigners 15% and retail the rest. Sentiment’s cautious but not hostile; appraisal risk looks manageable, making this spread a potential convergence play.
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