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Most Read: SK IE Technology, Kunlun Energy, China Resources Mixc Lifestyle Services, Ping An Insurance (H), Kia Motors Corp and more

In today’s briefing:

  • Index Rebalance & ETF Flow Recap: MSCI, KOSPI200, KOSDAQ150, Sensex, SIMSCI, PCOMP, CSI300
  • Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas
  • MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap
  • Ping An Insurance – Totally Unnecessary
  • Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

Index Rebalance & ETF Flow Recap: MSCI, KOSPI200, KOSDAQ150, Sensex, SIMSCI, PCOMP, CSI300

By Brian Freitas

In this weeks recap, we look at:

Redemptions in iShares MSCI South Korea Index Fund (ETF) (EWY US) continue ahead of the resumption of short selling in Korea.

Event this week

Close of

Index

Detail

4 May
FTSE

Decrease in Vedanta Ltd (VEDL IN)  investability weighting


Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas

By Osbert Tang, CFA

The most important subsidiary and key source of earnings of Kunlun Energy (135 HK) – unlisted Kunlun Gas – reported a fantastic 42.9% YoY growth in earnings for 1Q21. Even relative to 1Q19, the net profit figure is still 30.8% higher. While gross margin contracted YoY, likely due to higher procurement costs, the exciting volume growth has offset the impact of cost inflation, in our view.

Kunlun Gas’ 1Q21 net profit already equals to 37.5% of its total in last year, indicating a very positive start for FY21. Moreover, it has a very comfortable gearing of 19.5% and good operating cash flow, meaning that there is no need for it to seek funding from parent Kunlun Energy. Hence, Kunlun Energy can pursue more value-enhancing acquisitions through its cash on hand. All in all, the result implies great start for Kunlun Energy in 1Q21 – Kunlun Gas accounted for 72% of Kunlun Energy’s net profit from continuing operations in last year. 


MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap

By Brian Freitas

The MSCI May Semi Annual Index Review (SAIR) will use the price cutoff data from any of the trading days from 19-30 April to determine the list of stocks to be included into/ excluded from its indices.

MSCI is scheduled to announce the results of the May 2021 SAIR at 11pm Central European Time (CET) on 11 May (12 May Asia time) with the changes implemented after the close of trading on 28 May.

Post the end of the review period, we see 85 potential inclusions and 84 potential exclusions from the MSCI Standard indices across Asian developed and emerging markets – the actual number will be lower and will depend on the market cap cut-off date chosen by MSCI.

The largest net inflow from the changes will be to China, India and Korea while there could be significant outflows from Japan.

The ‘light’ rebalancing scenario will not need to be used in the rebalance, nor do we see any stocks that would be caught under the ‘extreme price moves’ scenario.

Stocks with the highest probability of inclusion in the MSCI Standard index and the largest buying impact from passive funds are Perennial Energy Holdings Ltd (2798 HK)Lucky Cement (LUCK PA), Adani Transmission Ltd (ADANIT IN)Powerlong Real Estate Holdings (1238 HK),  China Resources Mixc Lifestyle Services (1209 HK), Tower Bersama Infrastructure (TBIG IJ), Domino’s Pizza Enterprises Ltd (DMP AU), Reece Ltd (REH AU)Sany Heavy Equipment Intl (631 HK), Chindata Group Holdings-Adr (CD US), Venus MedTech (2500 HK), Sunac Services Holdings (1516 HK) and I-Mab (IMAB US).

Stocks with a slightly lower probability of inclusion but high impact are Chow Tai Fook Jewellery (1929 HK), Carabao Group (CBG TB) and SITC International (1308 HK).

Stocks with the highest probability of deletion from the MSCI Standard index and the largest selling impact from passive funds are Kasikornbank PCL (KBANK/F TB)Aboitiz Power (AP PM), Oil & Gas Development (OGDC PA)Genting Plantations (GENP MK), Megaworld Corp (MEG PM)Samsung Card Co (029780 KS)Ottogi Corporation (007310 KS)Suzuken Co Ltd (9987 JP)PCCW Ltd (8 HK), Perusahaan Gas Negara Perser (PGAS IJ), TPG Telecom Ltd (TPG AU) and Air Water Inc (4088 JP).

Stocks with a slightly lower probability of inclusion but high impact are Keihan Holdings Co., Ltd. (9045 JP), A2 Milk Co Ltd (ATM NZ) and Marui Group (8252 JP)


Ping An Insurance – Totally Unnecessary

By Thomas J. Monaco

*Pointless Shenzhen Deal: Ping An Insurance (2318.HK) [Ping An] has announced that it has agreed to invest CNY 37-51 bn in a restructured Founder Group, an unlisted mainland Chinese-controlled conglomerate. Under the proposal, Ping An will have own between 51.1%-70% of a newly formed entity called New Founder Group; and

*Enough On Its Plate: In our view, Ping An has far too much on its plate to worry about than purchasing another company’s mess. There are weak fundamentals at Ping An Life, poor profit metrics at Ping An Property & Casualty; and weak fundamentals at Ping An Bank. There are just so many IPOs and secondaries that Ping An can do with its FinTech investments to offset the insurer’s poor performance.


Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

By Sanghyun Park

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.

Closely correlated & co-integrated sector pairs in Korea
NameTickerNameTicker180-day correlation
Shinhan Financial Group Co., Ltd.055550KB Financial Group Inc1055600.96105
LG Uplus Corp032640SK Telecom Co Ltd0176700.89928
Kia Corp000270Hyundai Motor Co0053800.86689
Celltrion HealthCare Co Ltd091990Celltrion, Inc.0682700.85053
BGF Retail Co Ltd282330GS Retail Co Ltd0070700.77600
Hyundai Department Store Co Ltd069960Shinsegae Inc0041700.93278
Source: KRX

In the light of the short-selling resumption next week, these sector pairs will likely draw attention.

Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.

  1. Shinhan Financial and KB Financial: +2.16σ
  2. Kia Corp and Hyundai Motor: -2.04σ
  3. Hyundai Department Store and Shinsegae: -1.81σ
Sigma (σ) on a 20-day moving averageTodayT-1T-2T-3T-4T-5
Shinhan Financial Group Co., Ltd./KB Financial Group Inc2.162.541.791.110.18-0.23
LG Uplus Corp/SK Telecom Co Ltd-0.25-0.10-1.61-1.64-1.42-2.09
Kia Corp/Hyundai Motor Co-2.04-2.00-1.170.000.10-1.08
Celltrion HealthCare Co Ltd/Celltrion, Inc.-0.31-0.74-1.01-0.06-0.190.51
BGF Retail Co Ltd/GS Retail Co Ltd0.24-2.10-2.56-2.32-0.020.47
Hyundai Department Store Co Ltd/Shinsegae Inc-1.81-2.31-2.53-1.73-1.32-0.04
Source: KRX

Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.


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