This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Fast Retailing
- The review period for the Nikkei 225 (NKY INDEX) March rebalance ends yesterday. There could be three changes at the rebalance with sector balance in focus.
- Depending on the changes, passive trackers will need to buy between 1.3-19x ADV (7.1-24% of real float) on the inclusions and sell between 3.5-47x ADV on the deletions.
- Fast Retailing (9983 JP) avoids capping in March, passives will buy Nitori Holdings (9843 JP), and 25 stocks have over 0.5x ADV to sell as part of the funding trade.
2. Aeon (8267) Wants To Buy a Bigger Stake in Tsuruha (3391); What Does Tsuruha Want?
- Aeon Co Ltd (8267 JP) owns 13% of Tsuruha Holdings (3391 JP). Oasis owns 13% too. Oasis ran a governance campaign but lost last summer’s AGM. Aeon supported Tsuruha.
- Tsuruha shares popped in November when Tsuruha said it was looking at its strategic options. BBG reported PE firms were circling. Now Aeon wants to buy Oasis’ stake.
- That would put Aeon in a near-blocking position without consolidating. And it would mean minorities stayed minorities. The real question is whether this is what Tsuruha wants.
3. FINAL PREDICTIONS: March 2024 Nikkei 225 Rebal (Socionext, Disco, and 1 Consumer Goods Stock to ADD)
- The Nikkei 225 data for the March 2024 rebalance is a wrap. The names are the same as before but there is likely less DISCO Corp (6146 JP) to buy.
- It’s still big, but smaller than before because of the difference between performance and the change in PAF required to be below 1%. A 4:1 share split would be optimal.
- I recommend a few positioning changes from before, and the Fast Retailing trade loses one short-term option but the longer-term one stays in place.
4. Korea: Stocks with Near-Term Potential Passive Flows
- There are a few stocks in Korea that have outperformed/ underperformed their peers and could be added to or deleted from global passive portfolios next month.
- There could be buying in EcoPro Materials and Hanjin KAL while Hotel Shilla, Pearl Abyss, F&F, Hyundai Mipo Dockyard, Hanon Systems and Jyp Entertainment could be sold.
- There will be a lot of flow on the stocks and passive trackers will need to trade over 7 days of ADV in most stocks.
5. STAR50 Index Rebalance Preview: Sustaining Outperformance on Expected Impact
- The review period for the March rebalance ended 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
- We expect the index committee to continue using a 6-month minimum listing history resulting in three changes to the index.
- The potential inclusions have dropped but there has been significant outperformance versus the potential deletions. That could continue as positioning continues for the high expected impact on the stocks.
6. Timing of Double Dividends Opportunities in Korea
- The change in the dividend payment system in Korea in 2024 is likely to result in some attractive “double dividends” opportunities.
- According to the Korea Exchange, there are seven stocks that have changed their dividend record dates policy last year and also that pay quarterly dividends.
- Hyundai Motor (005380 KS) (common) provides a dividend yield of 5.8% and Hyundai Motor (005385 KS) (pref) provides a dividend yield of 9.6% at current prices.
7. NIFTY50 Index Rebalance Preview: One Change for Sure; Second One Is a Maybe
- With the review period complete, Shriram Finance (SHFL IN) should replace UPL Ltd (UPLL IN) in the NIFTY Index (NIFTY INDEX) at the March rebalance.
- We have Trent Ltd (TRENT IN) marginally ahead of Bharat Electronics (BHE IN) as lower probability replacements for Bharat Petroleum Corp (BPCL IN) in the index.
- The impact on the stocks will be large in terms of delivery volume to trade, but the stocks have moved a lot over the last few months.
8. A/H Premium Tracker (To 26 Jan 2024): AH Premia Still Near Multi-Yr Wides, SOEs May See New Action
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND flows were small positive and NORTHBOUND flows a decent buy. AH premia stopped rising. Chinese shares bounced. SOEs being bought. Tech being sold. Tencent seeing SB outflows, still.
- New article in China Securities Journal hints at new measures on SOEs. Watch this space. Wouldn’t be short SOEs vs Privates on H/A basis.
9. UOL Group (UOL SP): At Risk of Passive Selling in February
- UOL Group (UOL SP) has underperformed its Singapore peers and the drop in market cap could result in the stock being deleted from global passive portfolios in February.
- UOL Group (UOL SP) has traded higher since end October and there has been a steady increase in cumulative excess volume on the stock since then.
- UOL Group (UOL SP) trades richer than its closest peer, City Developments (CIT SP), on EV/Sales and EV/EBITDA. The recent outperformance presents a trading opportunity.
10. Benesse (9783) – Tender Offer To Launch; No Change in Terms (¥2,600/Share)
- The “MBO” for Benesse traded through terms from the 6th day post-announcement onwards. 37% total traded since announcement, 20% since that 6th day.
- The deal as announced 10 November was entirely too cheap. It was somewhat egregious if you look through the balance sheet. Plus there was a free museum on top.
- But to no avail. There is no bump. There have been no activists peeping above the parapet (yet). It isn’t impossible to block, but if nobody shows their face…
