'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/686/original/2019-02-02_09-34-42.png?1549067763" class="editor-image img-responsive" data-smartkarma-image-id="77686"></figure><div class="content-caption">Source: Japan Analytics</div><div style="text-align: left;" class="content-caption">
<strong>Note:</strong> The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.</div><p><strong>DRIP, DRIP, DRIP</strong> - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. <strong>If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.</strong></p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/701/original/2019-02-02_14-11-25.png?1549084295" class="editor-image img-responsive" data-smartkarma-image-id="77701"></figure><p>Source: Japan Analytics</p>
</div><p><strong>PAST THE PEAK</strong> - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point.<strong> We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'. </strong> <strong>Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/746/original/2019-02-03_07-23-31.png?1549146223" class="editor-image img-responsive" data-smartkarma-image-id="77746"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>THE FIRST CUT</strong> - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. <strong>Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/722/original/2019-02-02_18-25-46.png?1549099572" class="editor-image img-responsive" data-smartkarma-image-id="77722"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTERREGNUM</strong> - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'.<strong> In due course, we expect the preponderance of negative momentum to tip the scales.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/724/original/2019-02-02_18-41-12.png?1549100508" class="editor-image img-responsive" data-smartkarma-image-id="77724"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>TORAKU @110</strong> - The <em>Toraku</em> advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018.<strong> This signal is 'amber' and could be 'red' by the end of next week. </strong></p><div class="content-highlight">
<p><strong>OUTLOOK &amp; RECOMMENDATIONS</strong></p>
<ul>
<li><strong>We continue to recommend an underweight position in Japan in global portfolios.</strong></li>
<li><strong>The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit. <em> </em></strong></li>
<li><strong>Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.</strong></li>
<li><strong>In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.</strong></li>
</ul>
</div><p>In the <strong>DETAIL</strong> section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on <a href="https://www.smartkarma.com/entities/3700" target="_blank" data-smartkarma-citation="entities:3700:1">Anritsu (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Alpine (6770 JP)</a>, <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a>, <a href="https://www.smartkarma.com/entities/454" target="_blank" data-smartkarma-citation="entities:454:1">Lixil (5938 JP)</a> (yes, again), <a href="https://www.smartkarma.com/entities/752" target="_blank" data-smartkarma-citation="entities:752:1">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a> , and <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent (4751 JP)</a>.</p>

Source: Japan Analytics
Note: The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.DRIP, DRIP, DRIP - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.
Source: Japan Analytics
PAST THE PEAK - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point. We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'.  Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. Source: Japan AnalyticsTHE FIRST CUT - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  Source: Japan AnalyticsINTERREGNUM - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'. In due course, we expect the preponderance of negative momentum to tip the scales.Source: Japan AnalyticsTORAKU @110 - The Toraku advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018. This signal is 'amber' and could be 'red' by the end of next week. 
OUTLOOK &amp; RECOMMENDATIONS

We continue to recommend an underweight position in Japan in global portfolios.
The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit.  
Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.
In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.

In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Anritsu (6754 JP), Alps Alpine (6770 JP), SanBio (4592 JP), Lixil (5938 JP) (yes, again), Fanuc (6954 JP), Mizuho Financial Group (8411 JP) , and Cyberagent (4751 JP).

Japan Fortnightly Update: Drip, Drip, Drip...

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares were issued to shareholders of a foreign company where the Japanese company had acquired the foreign company through a Scheme of Arrangement under foreign jurisdiction. </p><p>The two companies were <a href="https://www.smartkarma.com/entities/13749" target="_blank" data-smartkarma-citation="entities:13749:1">LIFULL (2120 JP)</a> and <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a>.</p><p>The announcements for <a href="https://www.jpx.co.jp/english/news/1044/b5b4pj000002mamy-att/e_tuuti.pdf" target="_blank">TOPIX</a> and <a href="https://www.jpx.co.jp/english/news/1044/b5b4pj000002maqs-att/new_E.pdf" target="_blank">JPX Nikkei 400</a> were made then, and despite the events being entirely similar in construct, but different in month of Scheme Effective Date, they were put in the same month for Mitula and the first tranche of the Takeda inclusion, which was split between two months because of its large impact. </p><p>The large IPO last month of <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank Corp (9434 JP)</a> means there is another large inclusion going effective as of the open of trading on 31 January. </p><p>Wednesday is going to be a big day.</p><p>If everyone trades their required index amount on the day, it should be a trillion yen plus of flows.</p>

On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares were issued to shareholders of a foreign company where the Japanese company had acquired the foreign company through a Scheme of Arrangement under foreign jurisdiction. The two companies were LIFULL (2120 JP) and Takeda Pharmaceutical (4502 JP).The announcements for TOPIX and JPX Nikkei 400 were made then, and despite the events being entirely similar in construct, but different in month of Scheme Effective Date, they were put in the same month for Mitula and the first tranche of the Takeda inclusion, which was split between two months because of its large impact. The large IPO last month of Softbank Corp (9434 JP) means there is another large inclusion going effective as of the open of trading on 31 January. Wednesday is going to be a big day.If everyone trades their required index amount on the day, it should be a trillion yen plus of flows.

31 January TOPIX & JPX Nikkei 400 Major Index Changes

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Tokyo Kiraboshi Financial Group / Equity Bottom-Up

<p>Since our bearish Insight on <a href="https://www.smartkarma.com/entities/5369" target="_blank" data-smartkarma-citation="entities:5369:1">Tokyo Kiraboshi Financial Group (7173 JP)</a> issued in November 2018, <a href="https://www.smartkarma.com/insights/tokyo-kiraboshi-fg-7173-jp-shooting-star" target="_blank" data-smartkarma-citation="insights:25657">Tokyo Kiraboshi FG (7173 JP): Shooting Star</a>, the stock’s subsequent performance has fully justified our pessimism, with the share price finishing CY2018 down 47.7% year-on-year (YoY).  Having touched a low of ¥1,504 on Christmas Day, the shares have recovered 10.1% to ¥1,656 as of Friday’s close: slightly better than the Topix Bank Index, which closed on Friday at 154.44, up 9.0% over the same period.  Trading on a forward-looking price/earnings multiple of 12.5x (using the bank’s current FY3/2019 guidance) and a price/book ratio of 0.21x, TKFG looks cheap. This is deceptive. Adjusting the group’s earnings per share (EPS) for the ¥55 billion (US$507 million) in two still-outstanding preference share issues pushes the PER to over 18x: hardly a bargain.  Meanwhile, the group’s RoA and RoE ratios are woefully low, loan growth has collapsed since end-March 2018, deposits have fallen alarmingly, and main bank subsidiary Kiraboshi Bank is struggling to keep its net return on funds deployed (NRFD) in positive territory.  A stock best avoided.</p>

Since our bearish Insight on Tokyo Kiraboshi Financial Group (7173 JP) issued in November 2018, Tokyo Kiraboshi FG (7173 JP): Shooting Star, the stock’s subsequent performance has fully justified our pessimism, with the share price finishing CY2018 down 47.7% year-on-year (YoY).  Having touched a low of ¥1,504 on Christmas Day, the shares have recovered 10.1% to ¥1,656 as of Friday’s close: slightly better than the Topix Bank Index, which closed on Friday at 154.44, up 9.0% over the same period.  Trading on a forward-looking price/earnings multiple of 12.5x (using the bank’s current FY3/2019 guidance) and a price/book ratio of 0.21x, TKFG looks cheap. This is deceptive. Adjusting the group’s earnings per share (EPS) for the ¥55 billion (US$507 million) in two still-outstanding preference share issues pushes the PER to over 18x: hardly a bargain.  Meanwhile, the group’s RoA and RoE ratios are woefully low, loan growth has collapsed since end-March 2018, deposits have fallen alarmingly, and main bank subsidiary Kiraboshi Bank is struggling to keep its net return on funds deployed (NRFD) in positive territory.  A stock best avoided.

Tokyo Kiraboshi Financial Group (7173 JP): All That Glitters Is Neither Gold Nor Star Quality

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/837/original/2019-01-18_11-35-42.png?1547778954" class="editor-image img-responsive" data-smartkarma-image-id="75837"></figure>
<p>Source: Japan Analytics</p>
</div>
<p><strong>RELATIVE PRICE SCORE</strong> - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies, reviews the best and worst performing companies by RPS over the last two months and adds some specific comments on stocks on each category.</p>
<p><strong>RPS STATISTICS</strong> - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold.  Currently, of the 3,686 listed companies for which monthly data is available, 91 companies are 'Overbought', and 120 are 'Oversold' - 2.5% and 3.2%, respectively of the total. For companies with a market capitalisation of over ¥100b, there are 35 'Overbought' and 24 'Oversold' companies. </p>
<p><strong>RPS 'TOPS'</strong> - In the last two years, 445 companies have achieved an RPS of '4' or more. 80% have seen their RPS fall to below '4' within the following two months. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 63% - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last two months have been <a href="https://www.smartkarma.com/entities/8225" target="_blank" data-smartkarma-citation="entities:8225:1">Descente (8114 JP)</a>,  <a href="https://www.smartkarma.com/entities/4908" target="_blank" data-smartkarma-citation="entities:4908:1">Ariake Japan (2815 JP)</a>, <a href="https://www.smartkarma.com/entities/15862" target="_blank" data-smartkarma-citation="entities:15862:1">Fancl (4921 JP)</a>, <a href="https://www.smartkarma.com/entities/13435" target="_blank" data-smartkarma-citation="entities:13435:1">Bandai Namco (7832 JP)</a>, <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote (7532 JP)</a>, and <a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">Gmo Payment Gateway (3769 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/838/original/2019-01-18_11-36-19.png?1547778995" class="editor-image img-responsive" data-smartkarma-image-id="75838"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/839/original/2019-01-18_11-37-01.png?1547779035" class="editor-image img-responsive" data-smartkarma-image-id="75839"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/840/original/2019-01-18_11-37-37.png?1547779070" class="editor-image img-responsive" data-smartkarma-image-id="75840"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/841/original/2019-01-18_11-38-07.png?1547779100" class="editor-image img-responsive" data-smartkarma-image-id="75841"></figure>
<div class="content-caption">
<p>Source: Japan Analytics</p>
</div>
<p><strong>RPS 'BOTTOMS'</strong> - 296 companies have seen their RPS fall to '-2' or below in the last two years. 58% have seen their RPS recover to above '-2' within three to six months. For larger capitalisation companies, the numbers are 72 companies and 67%. Some recent examples of positive RPS mean reversion in the last two months have been <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772:1">LINE Corp (3938 JP)</a> - a 'contrarians only' selection in our last <a href="https://www.smartkarma.com/insights/japan-relative-price-score-update-overbought-and-oversold-companies" target="_blank" data-smartkarma-citation="insights:25849">Insight</a>, and <a href="https://www.smartkarma.com/entities/15457" target="_blank" data-smartkarma-citation="entities:15457:1">Tokyo Electric Power (9501 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/842/original/2019-01-18_11-39-56.png?1547779218" class="editor-image img-responsive" data-smartkarma-image-id="75842"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/843/original/2019-01-18_11-42-06.png?1547779350" class="editor-image img-responsive" data-smartkarma-image-id="75843"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<div class="content-highlight">
<p style="text-align: left;">In the <strong>DETAIL </strong>section below we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the largest two-month positive and negative changes in RPS.</p>
<p style="text-align: center;"><strong>NB - All data is as of January 17th close.</strong></p>
</div>



Source: Japan Analytics

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies, reviews the best and worst performing companies by RPS over the last two months and adds some specific comments on stocks on each category.
RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold.  Currently, of the 3,686 listed companies for which monthly data is available, 91 companies are 'Overbought', and 120 are 'Oversold' - 2.5% and 3.2%, respectively of the total. For companies with a market capitalisation of over ¥100b, there are 35 'Overbought' and 24 'Oversold' companies. 
RPS 'TOPS' - In the last two years, 445 companies have achieved an RPS of '4' or more. 80% have seen their RPS fall to below '4' within the following two months. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 63% - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last two months have been Descente (8114 JP),  Ariake Japan (2815 JP), Fancl (4921 JP), Bandai Namco (7832 JP), Don Quijote (7532 JP), and Gmo Payment Gateway (3769 JP).





Source: Japan Analytics

RPS 'BOTTOMS' - 296 companies have seen their RPS fall to '-2' or below in the last two years. 58% have seen their RPS recover to above '-2' within three to six months. For larger capitalisation companies, the numbers are 72 companies and 67%. Some recent examples of positive RPS mean reversion in the last two months have been LINE Corp (3938 JP) - a 'contrarians only' selection in our last Insight, and Tokyo Electric Power (9501 JP).


Source: Japan Analytics

In the DETAIL section below we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the largest two-month positive and negative changes in RPS.
NB - All data is as of January 17th close.


Japan: Relative Price Scores - Overbought and Oversold Companies - Calling 'Tops' & 'Bottoms'

<p><strong>AND SO IT GOES</strong> - After our eight-day 4.5% 'Thanksgiving rally', the market reverted to recent type and promptly fell 6.5% to Tuesday's low, which is now likely to be surpassed on the downside this Monday. Although the market has yet to fall 20% from the January 23rd peak, the odds of Japan joining the growing list of global 'bear' markets are lengthening and, in US$-futures-terms, we are already there.  Certainly, there is now clear 'daylight' between the 50-day and the 200-day moving average. However, a much wider spread is required before a clear 'bottom' is reached. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/180/original/2018-12-15_19-56-07.png?1544871389" class="editor-image img-responsive" data-smartkarma-image-id="73180"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>BoJ STEPS UP</strong> - The Bank of Japan' market-support programme bought ETFs on six of the last ten trading days and should be active again on Monday. As the Bank is now constrained in its ability to buy JGBs by a lack of supply, the equity markets (via the ETF mechanism required to circumvent restrictions on direct equity investment) appear to offer more scope for quantitative easing, although the longer-term consequences of such a 'nationalisation' are far from positive.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/181/original/2018-12-15_19-57-34.png?1544871470" class="editor-image img-responsive" data-smartkarma-image-id="73181"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/203/original/2018-12-16_11-14-42.png?1544926491" class="editor-image img-responsive" data-smartkarma-image-id="73203"></figure>
<p>Source: Japan Analytics</p>
</div>
<p><strong>1,000 NEW LOWS</strong> - The current down cycle has already produced two days of 1000-day new 52-week lows. A 'proper' climactic 'low' requires over 1,500 on a single day or over 40% of listed stocks - an event that has occurred on only ten of the last 3,426 trading days. As can be seen above, such an event is, however, only the end of the beginning of a market recovery. For now, the question is - are we replaying 2008 or 2016? </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/184/original/2018-12-15_20-07-06.png?1544872107" class="editor-image img-responsive" data-smartkarma-image-id="73184"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>McCLELLAN SUMMATION</strong> - Our preferred long-term advance-decline ratio, the McClellan Summation will reach a new three-year low this week, but should reach 'oversold' territory of below -4,000 by the end of January. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/205/original/2018-12-16_11-41-38.png?1544928113" class="editor-image img-responsive" data-smartkarma-image-id="73205"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>MARKET-IMPLIED GROWTH FORECAST</strong> - The Market Composite PER is now below 13x. Assuming a 'normal' earnings multiple of 16.7x, Mr Market is suggesting that Japanese corporate profits are due to fall by 22% on average to the level last reached in the first quarter of 2017, further implying declines of greater than 50% for some key 'global' sectors such as <strong>Autos</strong>, <strong>Machinery</strong>, <strong>Chemicals</strong>, <strong>Electrical Equipment</strong> and <strong>Technology Hardware</strong>, which together comprise one-third of aggregate Net Income.</p>
<div class="content-highlight">
<p style="text-align: center;"><strong>OUTLOOK &amp; RECOMMENDATIONS</strong></p>
<ul>
<li><strong>We continue to recommend an underweight position in Japan in global portfolios. </strong></li>
<li><strong>The rate of the current equity market decline is well in advance of the underlying trends in the economy and corporate profits and appears to be anticipating an all-out trade war. As our title suggests and as 'pure-pop-icon' Nick Lowe <a href="https://www.youtube.com/watch?v=UCaf8woXAeM" target="_blank">sings </a>- '<em>But where it's going no one knows'. </em></strong></li>
<li><strong>In contrast to global trade trends, the domestic Japanese economy remains overheated, the rate of inflation continues to rise, and Japan is close to full employment. Under such conditions, the Bank of Japan would be expected to taper its monetary easing policy. However, global trends have prompted a delay in any such move until well into next year. In the near term, we continue to favour less-overbought domestically-orientated companies and look to accumulate better quality companies into any weakness in the coming month. For a list of recommendations, please see our recent Insight - <a href="https://www.smartkarma.com/insights/japan-the-long-and-the-short-of-it-recommended-portfolios" target="_blank" data-smartkarma-citation="insights:26731">Japan: The Long and the Short of It - Recommended Portfolios</a>.       </strong></li>
</ul>
</div>
<p>In the <strong>DETAIL</strong> section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on <a href="https://www.smartkarma.com/entities/4701" target="_blank" data-smartkarma-citation="entities:4701:1">Kobe Bussan (3038 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20665" target="_blank" data-smartkarma-citation="entities:20665:1">Inpex (1605 JP)</a> , <a href="https://www.smartkarma.com/entities/2458" target="_blank" data-smartkarma-citation="entities:2458:1">Yaskawa Electric (6506 JP)</a>, <a href="https://www.smartkarma.com/entities/7245" target="_blank" data-smartkarma-citation="entities:7245:1">Nidec (6594 JP)</a>, <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, and <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/12434" target="_blank" data-smartkarma-citation="entities:12434:1">Dentsu (4324 JP)</a>, and <a href="https://www.smartkarma.com/entities/14181" target="_blank" data-smartkarma-citation="entities:14181:1">Sohgo Security Services Co (2331 JP)</a>.       </p>

AND SO IT GOES - After our eight-day 4.5% 'Thanksgiving rally', the market reverted to recent type and promptly fell 6.5% to Tuesday's low, which is now likely to be surpassed on the downside this Monday. Although the market has yet to fall 20% from the January 23rd peak, the odds of Japan joining the growing list of global 'bear' markets are lengthening and, in US$-futures-terms, we are already there.  Certainly, there is now clear 'daylight' between the 50-day and the 200-day moving average. However, a much wider spread is required before a clear 'bottom' is reached. 

Source: Japan Analytics
BoJ STEPS UP - The Bank of Japan' market-support programme bought ETFs on six of the last ten trading days and should be active again on Monday. As the Bank is now constrained in its ability to buy JGBs by a lack of supply, the equity markets (via the ETF mechanism required to circumvent restrictions on direct equity investment) appear to offer more scope for quantitative easing, although the longer-term consequences of such a 'nationalisation' are far from positive.

Source: Japan Analytics


Source: Japan Analytics

1,000 NEW LOWS - The current down cycle has already produced two days of 1000-day new 52-week lows. A 'proper' climactic 'low' requires over 1,500 on a single day or over 40% of listed stocks - an event that has occurred on only ten of the last 3,426 trading days. As can be seen above, such an event is, however, only the end of the beginning of a market recovery. For now, the question is - are we replaying 2008 or 2016? 

Source: Japan Analytics
McCLELLAN SUMMATION - Our preferred long-term advance-decline ratio, the McClellan Summation will reach a new three-year low this week, but should reach 'oversold' territory of below -4,000 by the end of January. 

Source: Japan Analytics
MARKET-IMPLIED GROWTH FORECAST - The Market Composite PER is now below 13x. Assuming a 'normal' earnings multiple of 16.7x, Mr Market is suggesting that Japanese corporate profits are due to fall by 22% on average to the level last reached in the first quarter of 2017, further implying declines of greater than 50% for some key 'global' sectors such as Autos, Machinery, Chemicals, Electrical Equipment and Technology Hardware, which together comprise one-third of aggregate Net Income.

OUTLOOK &amp; RECOMMENDATIONS

We continue to recommend an underweight position in Japan in global portfolios. 
The rate of the current equity market decline is well in advance of the underlying trends in the economy and corporate profits and appears to be anticipating an all-out trade war. As our title suggests and as 'pure-pop-icon' Nick Lowe sings - 'But where it's going no one knows'. 
In contrast to global trade trends, the domestic Japanese economy remains overheated, the rate of inflation continues to rise, and Japan is close to full employment. Under such conditions, the Bank of Japan would be expected to taper its monetary easing policy. However, global trends have prompted a delay in any such move until well into next year. In the near term, we continue to favour less-overbought domestically-orientated companies and look to accumulate better quality companies into any weakness in the coming month. For a list of recommendations, please see our recent Insight - Japan: The Long and the Short of It - Recommended Portfolios.       


In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Kobe Bussan (3038 JP), Workman (7564 JP), Inpex (1605 JP) , Yaskawa Electric (6506 JP), Nidec (6594 JP), Keyence (6861 JP), and Nomura (8604 JP), Dentsu (4324 JP), and Sohgo Security Services Co (2331 JP).       

Japan: Fortnightly Update - And So It Goes

Japan

Nomura Holdings, Inc. is a holding company which manages financial operations for its subsidiaries.  As a group, the Company provides a variety of financial services such as dealing, brokerage, underwriting, and asset management. Nomura Securities Co., a registered member of the New York and London Stock Exchanges, has branches around the world.

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Nomura Holdings (8604 JP)

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