Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Event-Driven

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to favour TOPIX-based ETFs over Nikkei-based ETFs it made sense for TOPIX to outperform Nikkei today. However, we found the degree of outperformance to be slightly surprising as TOPIX rose 2.60% while the Nikkei barely squeaked out a +0.06% gain. Below, we examine some individual names within the two indices to try and identify pairs which could generate alpha based on this theme.

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to favour TOPIX-based ETFs over Nikkei-based ETFs it made sense for TOPIX to outperform Nikkei today. However, we found the degree of outperformance to be slightly surprising as TOPIX rose 2.60% while the Nikkei barely squeaked out a +0.06% gain. Below, we examine some individual names within the two indices to try and identify pairs which could generate alpha based on this theme.

Equity Bottom-Up

In spite of the overall risk-off environment we remain broadly positive on Japanese gaming names. The shift to digital downloads remains a tailwind and with higher margins we believe that the companies should broadly benefit. We believe any impact from consumers being more home-bound is likely to be marginal but positive. We would highlight Capcom in particular as one to watch in the sector due to the potential for some big titles to be released next year.

In spite of the overall risk-off environment we remain broadly positive on Japanese gaming names. The shift to digital downloads remains a tailwind and with higher margins we believe that the companies should broadly benefit. We believe any impact from consumers being more home-bound is likely to be marginal but positive. We would highlight Capcom in particular as one to watch in the sector due to the potential for some big titles to be released next year.

Capcom – 4 Key Titles Next Year Could Drive Guidance Above Consensus

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in our 1/24/20 and 1/30/20 Int’l Compass reports: we continue to believe this is a bull market until proven otherwise, and a “buy the dip” strategy remains warranted. In our February International Strategy, we highlight various themes which lead to our bullish outlook, and offer several attractive opportunities we are seeing in the global health care and technology sectors..

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in our 1/24/20 and 1/30/20 Int’l Compass reports: we continue to believe this is a bull market until proven otherwise, and a “buy the dip” strategy remains warranted. In our February International Strategy, we highlight various themes which lead to our bullish outlook, and offer several attractive opportunities we are seeing in the global health care and technology sectors..

Capcom released strong results yesterday with margins in particular impressing as OPM for the Digital Contents segment hitting 47%, just below the peak of 55% reached in 1Q of this year. We spoke to the company to try and determine how sustainable this could be. Our thoughts below.

Capcom released strong results yesterday with margins in particular impressing as OPM for the Digital Contents segment hitting 47%, just below the peak of 55% reached in 1Q of this year. We spoke to the company to try and determine how sustainable this could be. Our thoughts below.

Capcom – Underlying Profitability Improvement Drives Breakout to All Time Highs

Japan

CAPCOM CO., LTD. develops consumer video game software.  The Company also develops, manufactures, markets, and leases arcade game machines.  Capcom also operates amusement facilities.

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Capcom Co Ltd (9697 JP)

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei....

Mio Kato

The Topix Vs. Nikkei Skew

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to...

Mio Kato

Capcom – 4 Key Titles Next Year Could Drive Guidance Above Consensus

In spite of the overall risk-off environment we remain broadly positive on Japanese gaming names. The shift to digital downloads remains a tailwind...

Mio Kato

Global Equity Strategy: Buy the Dips

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in...

Vermilion Research

Capcom – Underlying Profitability Improvement Drives Breakout to All Time Highs

Capcom released strong results yesterday with margins in particular impressing as OPM for the Digital Contents segment hitting 47%, just below the...

Mio Kato

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