Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>At its Monetary Policy Meeting that concluded on 19 March, the Bank of Japan (BOJ) announced that they would purchase ETFs and J-REIT as necessary with upper limits of about 12 trillion yen and about 180 billion yen respectively. While the upper limits were originally set as a temporary measure in response to the impact of COVID-19, the Bank will maintain them even after COVID-19 subsides.</p><p>The big change was the announcement that the BOJ would only purchase ETFs tracking the <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a>. This means no more flows to the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> and JPX Nikkei 400 ETFs.</p><p>From the increase in ETF AUM over calendar year 2020, we estimate that around 88% of the BOJ buying went into <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> ETFs, with smaller amounts going into the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> and JPX Nikkei 400 ETFs.</p><p>While the impact of BOJ only buying <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> linked ETFs is not material for single stocks in ADV terms, there could be a bigger impact on the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> constituents if other NKY ETF holders redeem their units and sell the underlying shares.</p><p>The NT ratio (NKY/TPX) had started to move lower over the last 15 trading days due to the shift from growth to value stocks. The BOJ announcement could take the ratio lower in the short term on a change in sentiment and short term flows due to repositioning of portfolios.</p><p><a href="https://www.smartkarma.com/entities/nissan-chemical-industries" target="_blank" data-smartkarma-citation="entities:4102:1" rel="noopener">Nissan Chemical Industries (4021 JP)</a>, <a href="https://www.smartkarma.com/entities/comsys-holdings-corp" target="_blank" data-smartkarma-citation="entities:20548:1" rel="noopener">Comsys Holdings (1721 JP)</a>, <a href="https://www.smartkarma.com/entities/konami-holdings-corp" target="_blank" data-smartkarma-citation="entities:13236:1" rel="noopener">Konami Holdings (9766 JP)</a>, <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1" rel="noopener">Kikkoman Corp (2801 JP)</a> and <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> will be among the most negatively affected stocks, but the impact is quite small.</p><p><a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> stocks (that will have passive BOJ inflows of at least US$5m) that will have the largest impact in terms of ADV to trade are <a href="https://www.smartkarma.com/entities/hankyu-hanshin-holdings-inc" target="_blank" data-smartkarma-citation="entities:13058:1" rel="noopener">Hankyu Hanshin Holdings (9042 JP)</a>, <a href="https://www.smartkarma.com/entities/kintetsu-group-holdings-co-l" target="_blank" data-smartkarma-citation="entities:18507:1" rel="noopener">Kintetsu Group Holdings Co L (9041 JP)</a>, <a href="https://www.smartkarma.com/entities/hisamitsu-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:17008:1" rel="noopener">Hisamitsu Pharmaceutical Co (4530 JP)</a>, <a href="https://www.smartkarma.com/entities/bank-of-kyoto-ltd" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank Of Kyoto (8369 JP)</a> and <a href="https://www.smartkarma.com/entities/hakuhodo-dy-holdings-inc" target="_blank" data-smartkarma-citation="entities:8736:1" rel="noopener">Hakuhodo Dy Holdings (2433 JP)</a>. </p>

At its Monetary Policy Meeting that concluded on 19 March, the Bank of Japan (BOJ) announced that they would purchase ETFs and J-REIT as necessary with upper limits of about 12 trillion yen and about 180 billion yen respectively. While the upper limits were originally set as a temporary measure in response to the impact of COVID-19, the Bank will maintain them even after COVID-19 subsides.The big change was the announcement that the BOJ would only purchase ETFs tracking the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX). This means no more flows to the Nikkei 225 (NKY INDEX) and JPX Nikkei 400 ETFs.From the increase in ETF AUM over calendar year 2020, we estimate that around 88% of the BOJ buying went into Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) ETFs, with smaller amounts going into the Nikkei 225 (NKY INDEX) and JPX Nikkei 400 ETFs.While the impact of BOJ only buying Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) linked ETFs is not material for single stocks in ADV terms, there could be a bigger impact on the Nikkei 225 (NKY INDEX) constituents if other NKY ETF holders redeem their units and sell the underlying shares.The NT ratio (NKY/TPX) had started to move lower over the last 15 trading days due to the shift from growth to value stocks. The BOJ announcement could take the ratio lower in the short term on a change in sentiment and short term flows due to repositioning of portfolios.Nissan Chemical Industries (4021 JP), Comsys Holdings (1721 JP), Konami Holdings (9766 JP), Kikkoman Corp (2801 JP) and Fast Retailing (9983 JP) will be among the most negatively affected stocks, but the impact is quite small.Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) stocks (that will have passive BOJ inflows of at least US$5m) that will have the largest impact in terms of ADV to trade are Hankyu Hanshin Holdings (9042 JP), Kintetsu Group Holdings Co L (9041 JP), Hisamitsu Pharmaceutical Co (4530 JP), Bank Of Kyoto (8369 JP) and Hakuhodo Dy Holdings (2433 JP). 

BOJ Buying to Focus on TOPIX ETFs: Big Headline, Smaller Impact

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

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.

<p>Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" rel="noopener">Mio Kato</a> has suggested three potential candidates based on Carlyle’s previous investments in Japan - <a href="https://www.smartkarma.com/entities/a-d-company-ltd" target="_blank" rel="noopener">A&amp;D (7745 JP)</a>, <a href="https://www.smartkarma.com/entities/fujio-food-system-co-ltd" target="_blank" data-smartkarma-citation="entities:12242:1" rel="noopener">Fujio Food System (2752 JP)</a>, and <a href="https://www.smartkarma.com/entities/fuji-oil-holdings-inc" target="_blank" data-smartkarma-citation="entities:4035:1" rel="noopener">Fuji Oil (2607 JP)</a>. In this Insight, we review Fuji Oil, a food materials company, in which <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu (8001 JP)</a> has a 38.5% stake (an increase from 33.2% in March 2020).</p>

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. Mio Kato has suggested three potential candidates based on Carlyle’s previous investments in Japan - A&amp;D (7745 JP), Fujio Food System (2752 JP), and Fuji Oil (2607 JP). In this Insight, we review Fuji Oil, a food materials company, in which Itochu (8001 JP) has a 38.5% stake (an increase from 33.2% in March 2020).

Fuji Oil In Itochu's Industry Consolidation Plans?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>There are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive investors in Japan.</p><p>Some of the places active investors will see this are:</p><ul>
<li>Stories intermittently published about the BOJ's presence in Japanese ETFs (especially the fact that it owns 80+% of the outstanding ETF market),</li>
<li>Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up <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> by 30+% from May to July, then helped it slide 13% in a week,</li>
<li>The mooted return of <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> to the TSE First Section, </li>
<li>The relatively recent policy of increased stewardship regarding the passive management portion of the GPIF (the Government Pension Investment Fund) - an investing heavyweight in Japan,</li>
<li>The changes to the TSE's market structure, which appear to be coming sooner than people think,</li>
<li>The changes to the TSE's First Section inclusion rules, which will change the nature of TOPIX inclusion trades - a milestone which is approaching VERY quickly.</li>
</ul><p>When I do analysis of index events or shareholder pressure or ownership on a standalone basis, I fairly regularly get skeptical comments and questions <em>"How do you estimate those numbers?? Those numbers look big to me!"</em></p><div><p>As I said in 2018 in the first version of this piece, my reply is that the data is out there if you are diligent enough to look.</p></div><div><p>And when you do, it tells you a fair bit about the nature of what <em>else</em> is out there.</p></div>

There are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive investors in Japan.Some of the places active investors will see this are:
Stories intermittently published about the BOJ's presence in Japanese ETFs (especially the fact that it owns 80+% of the outstanding ETF market),
Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up Japan Exchange Group (8697 JP) by 30+% from May to July, then helped it slide 13% in a week,
The mooted return of Toshiba Corp (6502 JP) to the TSE First Section, 
The relatively recent policy of increased stewardship regarding the passive management portion of the GPIF (the Government Pension Investment Fund) - an investing heavyweight in Japan,
The changes to the TSE's market structure, which appear to be coming sooner than people think,
The changes to the TSE's First Section inclusion rules, which will change the nature of TOPIX inclusion trades - a milestone which is approaching VERY quickly.
When I do analysis of index events or shareholder pressure or ownership on a standalone basis, I fairly regularly get skeptical comments and questions "How do you estimate those numbers?? Those numbers look big to me!"As I said in 2018 in the first version of this piece, my reply is that the data is out there if you are diligent enough to look.And when you do, it tells you a fair bit about the nature of what else is out there.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>•BEST &amp; WORST 3rd AUGUST •</strong></p><p style="text-align: left;">The 'best' and 'worst' from yesterday's large-cap announcements came from <a href="https://www.smartkarma.com/entities/kyorin-holdings-inc" target="_blank" data-smartkarma-citation="entities:15216:1" rel="noopener">Kyorin (4569 JP)</a> and <a href="https://www.smartkarma.com/entities/japan-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1184:1" rel="noopener">Japan Airlines (9201 JP)</a>.  More extensive coverage follows in the DETAIL section below. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/264/original/2020-08-04_06-29-14.png?1596490167" class="editor-image img-responsive" data-smartkarma-image-id="150264"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/265/original/2020-08-04_06-30-03.png?1596490220" class="editor-image img-responsive" data-smartkarma-image-id="150265"></figure><div class="content-caption">Source • Japan Analytics</div><hr><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><div><p><strong>PERCENTAGES </strong>- 66% of quarterly results,  61% of annual forecasts/revisions and 64% of interim forecasts have negative Scores and 26% of companies reporting lost money for the quarter.</p></div><hr><div><p style="text-align: center;"><strong>105 Quarterly Result</strong>s</p></div><div><ul>
<li>
<strong>Results Score</strong>: 29% Positive / 6% Neutral / 66% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -2.5 points</li>
<li>
<strong>Average % Change in Revenue:</strong> -7.4% Quarter YoY / -1.3% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -0.8 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 26%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>36 Annual • 25 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 31% Positive / 8% Neutral / 61% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 32% Positive / 4% Neutral / 64% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -7.0 points</li>
</ul></div>

•BEST &amp; WORST 3rd AUGUST •The 'best' and 'worst' from yesterday's large-cap announcements came from Kyorin (4569 JP) and Japan Airlines (9201 JP).  More extensive coverage follows in the DETAIL section below. Source • Japan AnalyticsDAILY STATSPERCENTAGES - 66% of quarterly results,  61% of annual forecasts/revisions and 64% of interim forecasts have negative Scores and 26% of companies reporting lost money for the quarter.105 Quarterly Results

Results Score: 29% Positive / 6% Neutral / 66% Negative

Average Results Score Change: -2.5 points

Average % Change in Revenue: -7.4% Quarter YoY / -1.3% Rolling TTM YoY 

Average Operating Profit Margin Change: -0.8 ppt

Percentage Making Quarterly Losses: 26%
 36 Annual • 25 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 31% Positive / 8% Neutral / 61% Negative

Interim Forecast/Revision Score Change: 32% Positive / 4% Neutral / 64% Negative

Average Forecast/Revision Score Change: -7.0 points


🇯🇵 JAPAN • Results & Revisions 3rd August - Capcom, K's, Kikkoman, USS, Eisai

<ul>
<li>Japanese consumer goods company <a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji Holdings (2269 JP)</a> issued a <a href="https://www.release.tdnet.info/inbs/ek/140120200611442767.pdf" target="_blank" rel="noopener">press release</a> on Friday (12<sup>th</sup> June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.</li>
<li>The company previously conducted a two for one stock split on 1<sup>st</sup> October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.</li>
<li>We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.</li>
</ul>


Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.
The company previously conducted a two for one stock split on 1st October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.
We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.


Meiji Holdings: Considering a Stock Split

Japan

KIKKOMAN CORPORATION produces and markets soy sauce, alcoholic beverages, and other food products.  The Company has marketing rights for Del Monte brand products outside of the United States.  Kikkoman also operates restaurants in Japan and other countries.

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Kikkoman Corp (2801 JP)

BOJ Buying to Focus on TOPIX ETFs: Big Headline, Smaller Impact

The BOJ will only buy ETFs linked to the TOPIX going forward. While this makes for a big headline, the impact on the stocks is much more muted....

Brian Freitas

Fuji Oil In Itochu's Industry Consolidation Plans?

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the...

Oshadhi Kumarasiri

JAPAN PASSIVE: Who Owns What 2020?

There are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 3rd August - Capcom, K's, Kikkoman, USS, Eisai

•BEST & WORST 3rd AUGUST •The 'best' and 'worst' from yesterday's large-cap announcements came from Kyorin (4569 JP) and Japan Airlines (9201...

Campbell Gunn

Meiji Holdings: Considering a Stock Split

Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering...

Oshadhi Kumarasiri

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