'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/994/original/Tokyo_Stock_Exchange_logo.png?1601590198" class="editor-image img-responsive" data-smartkarma-image-id="162994"></figure>FAILOVER FAILURE - Thursday's unprecedented failure of the Tokyo Stock Exchange's arrowhead trading system developed in co-ordination with <a href="https://www.smartkarma.com/entities/fujitsu-ltd" target="_blank" data-smartkarma-citation="entities:16968:1" rel="noopener">Fujitsu (6702 JP)</a> is highly embarrassing for the newly-minted administration of Prime Minster Suga who has placed particular emphasis on improving Japan's digital capabilities. Trading will resume this morning as normal at 9 am Japan Time.PASSING THE BUCK - In the DETAIL section below, we shall provide a summary of the explanations that were offered by the senior management of <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a> (JPX) at a 98 minute-long press conference that was held last night. JPX places the 'blame' for this incident squarely on Fujitsu. However, as JPX admitted, Fujitsu is 'just a vendor' and responsibility for the smooth function of the exchange's systems is the responsibility of JPX. We would also note that this is not the first time that the exchange's protocols have failed to failover and that the arrowhead system was upgraded as recently as November 5 2019. At that time the JPX press release stated:-<blockquote>The new version of “arrowhead” uses the existing system as a base for an upgraded technology that offers users the familiar, high speed, high-reliability experience, while delivering even greater convenience. The trading system and transaction services have been improved in order to respond to changes in the business environment and better meet the needs of users, providing stronger overall market functionality.</blockquote><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/995/original/File%202020-10-01%2016%2020%2047.jpeg?1601591437" class="editor-image img-responsive" data-smartkarma-image-id="162995"></figure><div class="content-caption">Source: Nikkei</div>

FAILOVER FAILURE - Thursday's unprecedented failure of the Tokyo Stock Exchange's arrowhead trading system developed in co-ordination with Fujitsu (6702 JP) is highly embarrassing for the newly-minted administration of Prime Minster Suga who has placed particular emphasis on improving Japan's digital capabilities. Trading will resume this morning as normal at 9 am Japan Time.PASSING THE BUCK - In the DETAIL section below, we shall provide a summary of the explanations that were offered by the senior management of Japan Exchange Group (8697 JP) (JPX) at a 98 minute-long press conference that was held last night. JPX places the 'blame' for this incident squarely on Fujitsu. However, as JPX admitted, Fujitsu is 'just a vendor' and responsibility for the smooth function of the exchange's systems is the responsibility of JPX. We would also note that this is not the first time that the exchange's protocols have failed to failover and that the arrowhead system was upgraded as recently as November 5 2019. At that time the JPX press release stated:-The new version of “arrowhead” uses the existing system as a base for an upgraded technology that offers users the familiar, high speed, high-reliability experience, while delivering even greater convenience. The trading system and transaction services have been improved in order to respond to changes in the business environment and better meet the needs of users, providing stronger overall market functionality.Source: Nikkei

🇯🇵 JAPAN • Fujitsu Fails to Failover > JPX Tries to Pass the Buck

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/974/original/File%202020-10-01%2015%2010%2035.jpeg?1601583635" class="editor-image img-responsive" data-smartkarma-image-id="162974"></figure><div class="content-caption">Source: NHK</div>FAILOVERFAILURE - The failure of the Fail Over system in <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange (8697 JP)</a> / <a href="https://www.smartkarma.com/entities/fujitsu-ltd" target="_blank" data-smartkarma-citation="entities:16968:1" rel="noopener">Fujitsu (6702 JP)</a> 'arrowhead' trading system on Thursday morning resulted in an unprecedented full-day market suspension. The details and implication will be covered in a separate Insight; however, the embarrassment to Japan's financial system is extreme. The Chief Cabinet Secretary was particularly blunt:-<blockquote>
 Currently, the Financial Services Agency is instructing the Japan Exchange Group and the Tokyo Stock Exchange to investigate the cause and take measures for recovery, and we are working diligently to recover. I know that the inability to trade on the exchange, which is an important infrastructure of the market, limits the opportunities for trading for investors, and I think it is very regrettable.   
<h3>Katō Katsunobu, Naikaku-kanbō-chōkan</h3>
October 1st, 2020
</blockquote><hr>• BEST &amp; WORST •The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear manufacturer <a href="https://www.smartkarma.com/entities/nagaileben-co-ltd" target="_blank" data-smartkarma-citation="entities:3165:1" rel="noopener">Nagaileben (7447 JP)</a> and waste management company <a href="https://www.smartkarma.com/entities/daiseki-co-ltd" target="_blank" data-smartkarma-citation="entities:2330:1" rel="noopener">Daiseki (9793 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/977/original/2020-10-02_06-08-02.png?1601586653" class="editor-image img-responsive" data-smartkarma-image-id="162977"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/976/original/2020-10-02_06-10-05.png?1601586638" class="editor-image img-responsive" data-smartkarma-image-id="162976"></figure><div class="content-caption">Source for all charts &amp; tables unless otherwise stated: Japan Analytics</div><div>DAILY STATS</div><hr><div>12 Quarterly Results</div><div><ul style="list-style-type: disc;">
<li>Results Score: 67% Positive / 10% Neutral / 33% Negative</li>
<li>Average Results Score Change: +3.1 points</li>
<li>Average % Change in Revenue: 3.0% Quarter YoY / +1.9% Rolling TTM YoY </li>
<li>Average Operating Profit Margin Change: 0.5ppt</li>
<li>Percentage Making Quarterly Losses: 0%</li>
</ul></div><hr><div>7 Annual • 5 Interim Forecasts/Revisions</div><ul style="list-style-type: disc;">
<li>Annual Forecast/Revision Score: 57% Positive / 0% Neutral / 43% Negative</li>
<li>Interim Forecast/Revision Score Change: 60% Positive / 20% Neutral / 20% Negative</li>
<li>Average Forecast/Revision Score Change: +4.0 points</li>
</ul><div class="content-highlight">Although the sample size is small the 'stats' above are the best since we started this daily series. </div>

Source: NHKFAILOVERFAILURE - The failure of the Fail Over system in Japan Exchange (8697 JP) / Fujitsu (6702 JP) 'arrowhead' trading system on Thursday morning resulted in an unprecedented full-day market suspension. The details and implication will be covered in a separate Insight; however, the embarrassment to Japan's financial system is extreme. The Chief Cabinet Secretary was particularly blunt:-
 Currently, the Financial Services Agency is instructing the Japan Exchange Group and the Tokyo Stock Exchange to investigate the cause and take measures for recovery, and we are working diligently to recover. I know that the inability to trade on the exchange, which is an important infrastructure of the market, limits the opportunities for trading for investors, and I think it is very regrettable.   
Katō Katsunobu, Naikaku-kanbō-chōkan
October 1st, 2020
• BEST &amp; WORST •The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear manufacturer Nagaileben (7447 JP) and waste management company Daiseki (9793 JP).Source for all charts &amp; tables unless otherwise stated: Japan AnalyticsDAILY STATS12 Quarterly Results
Results Score: 67% Positive / 10% Neutral / 33% Negative
Average Results Score Change: +3.1 points
Average % Change in Revenue: 3.0% Quarter YoY / +1.9% Rolling TTM YoY 
Average Operating Profit Margin Change: 0.5ppt
Percentage Making Quarterly Losses: 0%
7 Annual • 5 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 57% Positive / 0% Neutral / 43% Negative
Interim Forecast/Revision Score Change: 60% Positive / 20% Neutral / 20% Negative
Average Forecast/Revision Score Change: +4.0 points
Although the sample size is small the 'stats' above are the best since we started this daily series. 

🇯🇵 JAPAN • Results & Revisions 10/​​​​01 - Fail Over Fail, Nagaileben, Daiseki, Kewpie

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

<ul>
<li>
Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and </li>
<li>
Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. </li>
</ul>



Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and 

Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. 


Hong Kong Exchanges & Clearing – Addition By Subtraction

*Monthly Stats Decent:Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased 11% MOM (SGX Mainboard volumes increased 13% MOM), whist velocity was higher than previous months averages at 56%. That said, market volumes have begun to normalize after a strong rally post the COVID-19 valuation trough; *Taiwan A Standout: While MSCI Taiwan contracts declined 19% MOM, volumes on the new FTSE Taiwan Index did exhibit an increase of 3.3x - from 82 thousand contracts during July to 352 contracts this month. SGX accounted for 99.5% of the notional traded offshore on the MSCI Taiwan. To put this in perspective, the FTSE Taiwan contracts traded were 20% of the total Taiwan contracts traded versus just 5% in July; and   * Deals Wave of Future: SGX is hopeful to achieve synergies from newly acquired subsidiaries, such as its additional 80% stake in BidFX,a cloud-based on-line F/X trading platform. SGX is going to have to be a bit more creative to generate revenue with the Hong Kong Exchanges &amp; Clearing (388.HK) likely to be directly competing with the A50 – on of SGX’s bread and butter products.

*Monthly Stats Decent:Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased 11% MOM (SGX Mainboard volumes increased 13% MOM), whist velocity was higher than previous months averages at 56%. That said, market volumes have begun to normalize after a strong rally post the COVID-19 valuation trough; *Taiwan A Standout: While MSCI Taiwan contracts declined 19% MOM, volumes on the new FTSE Taiwan Index did exhibit an increase of 3.3x - from 82 thousand contracts during July to 352 contracts this month. SGX accounted for 99.5% of the notional traded offshore on the MSCI Taiwan. To put this in perspective, the FTSE Taiwan contracts traded were 20% of the total Taiwan contracts traded versus just 5% in July; and   * Deals Wave of Future: SGX is hopeful to achieve synergies from newly acquired subsidiaries, such as its additional 80% stake in BidFX,a cloud-based on-line F/X trading platform. SGX is going to have to be a bit more creative to generate revenue with the Hong Kong Exchanges &amp; Clearing (388.HK) likely to be directly competing with the A50 – on of SGX’s bread and butter products. 

Singapore Exchange – Taiwan A Standout In August

*SFC Approves ETF Listings: Hong Kong’s Securities and Futures Commission (SFC) actually accelerated the authorization two ETFs to be listed on the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] under the "ETF Connect Scheme" in order to facilitate the cross-listing of ETFs between Hong Kong and mainland China. This should serve as a prelude for further cooperation between both markets; and
*Further to Run: The recent share price run appears to have a bit further to go, as the the entire suite of US-listed mainland Chinese ADRs is hoped to be ambitiously shifted to HKEx along with a consequent increase in market velocity. In addition to the ADR story, HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx.

*SFC Approves ETF Listings: Hong Kong’s Securities and Futures Commission (SFC) actually accelerated the authorization two ETFs to be listed on the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] under the "ETF Connect Scheme" in order to facilitate the cross-listing of ETFs between Hong Kong and mainland China. This should serve as a prelude for further cooperation between both markets; and
*Further to Run: The recent share price run appears to have a bit further to go, as the the entire suite of US-listed mainland Chinese ADRs is hoped to be ambitiously shifted to HKEx along with a consequent increase in market velocity. In addition to the ADR story, HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx.

Hong Kong Exchanges & Clearing – SFC Approval

Japan

Japan Exchange Group Inc is the holding company created through the merger of Tokyo Stock Exchange Group, Inc and Osaka Securities Exchange Co., Ltd. The group provides and operates a marketplace for the trading of equities, futures, and options. The Group manages the trading, as well as administers listed stocks and registered members.

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Japan Exchange Group (8697 JP)

🇯🇵 JAPAN • Fujitsu Fails to Failover > JPX Tries to Pass the Buck

FAILOVER FAILURE - Thu

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 10/01 - Fail Over Fail, Nagaileben, Daiseki, Kewpie

FAIL OVER -

Campbell Gunn

Hong Kong Exchanges & Clearing – Addition By Subtraction

Early Retirement: Hong Kong Exchanges & Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his...

Thomas J. Monaco

Singapore Exchange – Taiwan A Standout In August

*Monthly Stats Decent: Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – SFC Approval

*SFC Approves ETF Listings: Hong Kong’s Securities and Futures Commission (SFC) actually accelerated the authorization two ETFs to be listed on the...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

🇯🇵 JAPAN • Fujitsu Fails to Failover > JPX Tries to Pass the Buck

FAILOVER FAILURE - Thu

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 10/​​​​01 - Fail Over Fail, Nagaileben, Daiseki, Kewpie

FAIL OVER -

Campbell Gunn

Hong Kong Exchanges & Clearing – Addition By Subtraction

Early Retirement: Hong Kong Exchanges & Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his...

Thomas J. Monaco

Singapore Exchange – Taiwan A Standout In August

*Monthly Stats Decent: Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – SFC Approval

*SFC Approves ETF Listings: Hong Kong’s Securities and Futures Commission (SFC) actually accelerated the authorization two ETFs to be listed on the...

Thomas J. Monaco

🇯🇵 JAPAN • Results & Revisions 10/01 - Fail Over Fail, Nagaileben, Daiseki, Kewpie