Event-Driven and Index Rebalance

Weekly Top Ten Event-Driven and Index Rebalance – Jun 30, 2024

This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.

Receive this weekly newsletter keeping 45k+ investors in the loop

1. China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What

By Arun George, Global Equity Research Ltd

  • On no news, China Traditional Chinese Medicine (570 HK) shares declined 12% today. We spoke to several readers to gauge the likely reasons for the fall.
  • The speculation is that the fall could be due to forced liquidation, Sinopharm’s new Chairman pulling the offer, the consortium unravelling, SAMR issues and Ping An blocking the deal. 
  • There is clearly news behind today’s fall, but none of the above rumours seem credible. The risk/reward is attractive as the upside (25% spread) outweighs the downside (18% to undisturbed).

2. TCM (570 HK): Where’s The Floor?

By David Blennerhassett, Quiddity Advisors

  • Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type.  The stock is now ~35% below terms
  • Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both. 
  • Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.

3. MMG (1208 HK) Rights Trading Dynamics

By Travis Lundy, Quiddity Advisors

  • The MMG (1208 HK) rights, designed to raise US$1.15bn to pay off loans to the parent for the purchase of a large copper asset, start trading 24 June 2024. 
  • There is some risk up for grabs, and it is likely to trade according to standard Hong Kong Rights Trading Dynamics. Shorts are down somewhat, but covering should be expected. 
  • There is path-dependency to the Rights Trading, and while they trade for 7 trading days through Tuesday next, one should expect the volume to trade this week. 

4. Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)

By Travis Lundy, Quiddity Advisors

  • The original trade was discussed at end-April in Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket then updated here and here
  • That has done OK. The LIQUID basket has delta neutral performance of +8.4% over 2mos; LIQUID+LESSLIQUID +7.2%; If one did a mixed basket (3x L+LL + 1x Illiquids) it’s +8.6%.
  • Now it is time to reverse the trade, buying the basket you were short, and running it against index for the next 6-8 weeks.

5. Swire Properties (1972 HK): Potential Passive Selling & Trade Ideas

By Brian Freitas, Periscope Analytics

6. T-Gaia (3738 JP) – Possible Premium Takeout Story

By Travis Lundy, Quiddity Advisors

  • I kind of hate this, but I also can’t ignore it. Apparently, an expensive media service Reporting on Deals or about the Market for Mergers, had an article today.
  • Bloomberg carried a small blurb saying there was “speculation on a tender offer…. according to traders”. The stock is untraded, limit up.  
  • The most informative comment comes from Japanese stock market portal ‘kabutan‘ which suggests “overseas media” thinks Sumitomo Corp will sell its shares. I look at the possibilities below.

7. Brilliance China (1114 HK): Reversing Out of Passive Portfolios

By Brian Freitas, Periscope Analytics

  • Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
  • The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
  • The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.

8. Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure

By Travis Lundy, Quiddity Advisors

  • Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
  • By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
  • The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.

9. Chronic Insider Trading in the Korean Tender Offer Market & Time Positions for Short-Term Targets

By Sanghyun Park, Clepsydra Capital

  • There is a high likelihood of information leaking through the lead securities firm when the tender offer prospectus is provided to branches about three days before the disclosure.
  • With the FSS’s stricter stance, tender offer candidates may act swiftly before new regulations, prompting attention to potential surges in tender offers.
  • Our approach is clear: identify short-term tender offer candidates, monitor trading volumes for spikes, and use the three-day pre-disclosure surge to time our positions effectively.

10. Midea Real Estate (3990 HK): An In-Specie Distribution to Unlock Value

By Arun George, Global Equity Research Ltd

  • On 25 June, Midea Real Estate Holding (3990 HK) disclosed an in-specie distribution of its PD&S business through a scrip or cash (HK$5.90 per share, 57.33% premium to undisturbed price).
  • The key condition will be approval of the distribution by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection).
  • Midea RE will remain listed with an asset-light retained business, which is estimated to be worth HK$1.93. The Group’s estimated value is HK$7.83, a 17.6% upside to the last close.