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Most Read: Softbank Corp, Heineken Holding NV, Ciputra Development and more

In today’s briefing:

  • The October 2021 TOPIX FFW Rebalance
  • Korea Preferred Shares – Trade Ideas
  • StubWorld: Heineken And The Lager Picture
  • Ciputra Development (CTRA IJ) – Primed for the Recovery
  • Is There A Bear Out There? Where Are We In The Global Investment Cycle?

The October 2021 TOPIX FFW Rebalance

By Travis Lundy

TOPIX is Japan’s most-tracked index in terms of passive-tracking AUM, at something about US$750bn give or take a couple percent as of…. today?

Most major indices globally have cutoffs in terms of member counts (Nikkei 225, S&P 500, FTSE 100, etc), or in terms of percentage representation of universe (MSCI and FTSE) and therefore membership of the most-tracked indices among them is based on whether a stock rises or falls compared to others near the borders of selection. For TOPIX, however, it is different – members are members by dint of their listing venue and market section in Japan. 

TOPIX is a free-float market cap index with a couple of minor oddities. A stock’s weight in the index is based on Stock(Price x Index Shares) / Sum(All Constituents (Price x Index Shares)). The Index Shares are calculated as Free Float Weight x Total Shares Outstanding. 

The weird part about TOPIX is that the Total Shares Outstanding can change on an ad hoc basis depending on whether a company issues new shares, sees a CB/option/warrant conversion, or cancels treasury shares. If it changes in Month X, then the Total Shares Outstanding portion of the Index Shares calculation changes at the end of Month X+1. The FFW is, however, reviewed only once a year. For companies which have their fiscal year end in the first calendar quarter, that review is conducted in calendar Q3 with the result announced on the 5th business day of October for implementation on the last day of October. For FW-ends in CYQ2, it is in December. Because most Japanese companies have their fiscal year end at the end of March, the October FFW rebalance is by far the biggest during the year. 

This year, the changes to FFW weights in the Index Shares calculation were announced today. The result will create end-October flows of approximately ¥1.5trln on a one-way basis. 

The biggest downweight in terms of “dollar amount” is Softbank Group (9984 JP) which as per my estimate in That Upcoming $3-4bn SELL on Softbank Group (9984) was 3-4 days of average daily volume to sell. Turns out it is 4.

There are, of course, 750 other changes, and because they are not perfectly matched, it means the other 1700 names in TOPIX will also see flows – in this case reverse funding flows (a net buy across those 1700 other names without a FFW change). 

Read on for more detail. 


Korea Preferred Shares – Trade Ideas

By Brian Freitas

With ex-dividend date coming up in Korea on 29 December, we take a look at the dividend yield differential between the common and preferred shares and the discount on the preferred shares.

We recommend buying preferred shares (and hedging with the common shares) with large dividend yield differentials versus the common shares and that are trading towards the bottom of their discount range versus the common. Apart from the dividend yield pickup we also expect to earn returns on the narrowing of the discount on the preferred shares.

With short selling only permitted on Korea Stock Exchange Kospi Index (KOSPI INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) constituents, shorts selling on the preferred shares is not possible since they are not eligible for index inclusion.

We see attractive risk/reward for the preferred shares on Hyundai Motor Co (005380 KS), LG Household & Health Care (051900 KS), Samsung Electro Mechanics Co, Ltd. (009150 KS), Amorepacific Group (002790 KS), S Oil Corp (010950 KS), Amorepacific Corp (090430 KS), Samsung SDI (006400 KS) and SK Innovation (096770 KS)


StubWorld: Heineken And The Lager Picture

By David Blennerhassett

In a double dose of StubWorld this week …

In arguably the simplest holding company structure out there, the ratio of the parent (Heineken Holding NV (HEIO NA)) over the Opco (Heineken NV (HEIA NA)) is currently around a nine-year low. 

Preceding my comments on Heineken are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Ciputra Development (CTRA IJ) – Primed for the Recovery

By Angus Mackintosh

Ciputra Development (CTRA IJ) is one of Indonesia’s largest property companies involved in property development for sale in townships, residential, condominiums, and offices. It remains well-positioned to tap into the recovery in the local property market, especially for affordable housing, as activity picks up as mobility restrictions lifted and vaccinations rates improve

In 1H2021 79% of revenues came from property development, and 21% from recurring income from malls, hotels, hospitals, and offices. The company is the most geographically diverse across the archipelago of Indonesian developers.

Ciputra Development (CTRA IJ) booked a strong set of 1H2021 results with revenues up by +43.4% YoY, driven by a +49.8% increase in revenues from the property development segment and +23.1% growth from recurrent income.

The company is seeing a higher portion of sales financed by mortgages, with a larger portion of end user buyers and it also continues to focus on selling more affordable properties, with 65% of total sales in 1H2021 below IDR2bn.

Ciputra Development (CTRA IJ) is well-positioned in terms of its land bank, with sufficient supply to sustain the company’s property development plans for the next 15 years and it supplements its land supply significantly through joining operating projects

The company recorded strong marketing sales up to the end of August 2021, as zero down payment and Value Added Tax policy (exemption) helped to boost the company’s performance, despite some mobility restrictions.

Ciputra Development (CTRA IJ)  remains one of our top picks to play the recovery in the residential property market in Indonesia, with the most geographically diverse exposure of the local developers. It trades at a discount to historical perspective both on PBV and PER.


Is There A Bear Out There? Where Are We In The Global Investment Cycle?

By Michael J. Howell

  • Investment cycle is in late-stage Speculation, with Turbulence next up
  • Falling Global Liquidity a major head-wind. Liquidity turns sub-par by early-2022
  • Start to consider Volatility-based investment strategies and more cash
  • Traditional economic analysis provides little help in asset allocation. Flow of funds analysis works far better

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