Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

<p>In this morning's news: <em>"Merger talks between Western Digital and Kioxia stall"</em> (<em>Reuters</em>, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.</p><p>On October 19, the <em>Nikkei</em> reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia's NAND flash memory production in 2025.</p><p>The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.</p><p>But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. </p><p>LightStream's Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see <a href="https://www.smartkarma.com/insights/toshiba-possibility-of-a-kioxia-western-digital-deal" target="_blank" data-smartkarma-citation="insights:56685" rel="noopener">Toshiba – Possibility of a Kioxia-Western Digital Deal</a> )</p>

In this morning's news: "Merger talks between Western Digital and Kioxia stall" (Reuters, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.On October 19, the Nikkei reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia's NAND flash memory production in 2025.The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. LightStream's Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see Toshiba – Possibility of a Kioxia-Western Digital Deal )

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<p>Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled <a href="https://www.ft.com/content/a97cf336-518d-45dd-8092-ec0363c18725" target="_blank" rel="noopener"><em>Takeaways from 30 years of Covering the Japanese Market</em></a> in the Financial Times on 26 November (Thanksgiving) which is well worth a read.</p><p>He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. </p><section class="figure"><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/956/original/Screenshot%202020-11-29%20at%203.07.23%20PM.png?1606633655" class="editor-image img-responsive" data-smartkarma-image-id="174956"></figure></section><p>This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.</p></section><p>Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/969/original/Screenshot%202020-11-29%20at%203.40.57%20PM.png?1606635676" class="editor-image img-responsive" data-smartkarma-image-id="174969"></figure></section><p>It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.</p>
<p>There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. </p>
<p>Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. </p>
<p>Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.</p>
<p>Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.</p>
<p>This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.</p>
<p>The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.</p>
<p>Read on for the nitty gritty (as usual, we start with Conclusions First).</p></section>

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled Takeaways from 30 years of Covering the Japanese Market in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).

JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/136/350/original/2020-05-28_06-43-04.png?1590615802" class="editor-image img-responsive" data-smartkarma-image-id="136350"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>ALL GOOD</strong> - Japan has had a 'good' COVID-19 relative to many countries. With a little help from the Bank of Japan, Japanese equities are only 11% below the December peak, despite a ten-year low in corporate earnings and the prospect of much worse in that regard in the coming months. Companies have retained staff, and consumer confidence has fallen less than in other developed economies. Production lines were not shut down, resulting in a GFC-like spike in the inventory ratio. The stable Yen will make it harder for exporters to the developing world to clear the stockpiles. Accordingly, the alphabetic 'shape' of Japan's post-COVID recovery will between "V" and "L" and will be more prolonged.</p><p><strong>SLIM TAILS</strong> - We are now in the slim tail of the earnings 'season' with only seven larger caps reporting yesterday of which just two made forecasts for the current year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/136/353/original/2020-05-28_07-10-35.png?1590617452" class="editor-image img-responsive" data-smartkarma-image-id="136353"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>INTERNAL DEFICIENCIES -</strong> Another 42 companies will announce results today. The largest of these by market cap will be <a href="https://www.smartkarma.com/entities/otsuka-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:12292:1" rel="noopener">Otsuka (4578 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a> (finally), and <a href="https://www.smartkarma.com/entities/toray-industries-inc" target="_blank" data-smartkarma-citation="entities:625:1" rel="noopener">Toray (3402 JP)</a>.  Of the companies with a market capitalisation of over ¥1 trillion, only <a href="https://www.smartkarma.com/entities/olympus-corp" target="_blank" data-smartkarma-citation="entities:356:1" rel="noopener">Olympus (7733 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, and <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi (6501 JP)</a> remain after which this series of Insights will be brought to close. That these three companies required an extra month to prepare their accounts suggests severe deficiencies in the internal reporting structures of these companies.</p>

Source • Japan AnalyticsALL GOOD - Japan has had a 'good' COVID-19 relative to many countries. With a little help from the Bank of Japan, Japanese equities are only 11% below the December peak, despite a ten-year low in corporate earnings and the prospect of much worse in that regard in the coming months. Companies have retained staff, and consumer confidence has fallen less than in other developed economies. Production lines were not shut down, resulting in a GFC-like spike in the inventory ratio. The stable Yen will make it harder for exporters to the developing world to clear the stockpiles. Accordingly, the alphabetic 'shape' of Japan's post-COVID recovery will between "V" and "L" and will be more prolonged.SLIM TAILS - We are now in the slim tail of the earnings 'season' with only seven larger caps reporting yesterday of which just two made forecasts for the current year.Source • Japan AnalyticsINTERNAL DEFICIENCIES - Another 42 companies will announce results today. The largest of these by market cap will be Otsuka (4578 JP), Nissan (7201 JP) (finally), and Toray (3402 JP).  Of the companies with a market capitalisation of over ¥1 trillion, only Olympus (7733 JP), Toshiba (6502 JP), and Hitachi (6501 JP) remain after which this series of Insights will be brought to close. That these three companies required an extra month to prepare their accounts suggests severe deficiencies in the internal reporting structures of these companies.

🇯🇵 JAPAN • Results & Revisions 27th May - Recruit, DNP & Dentsu

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/136/061/original/2020-05-27_06-45-23.png?1590529581" class="editor-image img-responsive" data-smartkarma-image-id="136061"></figure><div class="content-caption">Source • Japan Analytics</div><p>In the<strong> DETAIL</strong> section below, we shall review Tuesday's announcements:-</p><ul>
<li><p>The balance between positive/neutral/negative of the 44 results announcements was 18:5:21.</p></li>
<li>For the 21 revisions/initial forecasts, the split was 5:0:16, and the average Forecast/Revision Score was -12.1. Only 36% of companies reporting full-year results chose to make current year forecasts. </li>
<li>42 companies will announce results today. The largest of these by market cap will be <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit (6098 JP)</a>, <a href="https://www.smartkarma.com/entities/dai-nippon-printing-co-ltd" target="_blank" data-smartkarma-citation="entities:19388:1" rel="noopener">Dai Nippon Printing (7912 JP)</a>, and <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu (4324 JP)</a>. </li>
</ul>

Source • Japan AnalyticsIn the DETAIL section below, we shall review Tuesday's announcements:-
The balance between positive/neutral/negative of the 44 results announcements was 18:5:21.
For the 21 revisions/initial forecasts, the split was 5:0:16, and the average Forecast/Revision Score was -12.1. Only 36% of companies reporting full-year results chose to make current year forecasts. 
42 companies will announce results today. The largest of these by market cap will be Recruit (6098 JP), Dai Nippon Printing (7912 JP), and Dentsu (4324 JP). 


🇯🇵 JAPAN • Results & Revisions 26th May - Konica Minolta, Yamaha, DyDo, JAT

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

<p>The whitelist lifting means that Japan is now able to export restrict about 1,200 materials/products to Korea. It is expected that Japan will unveil more details of the next measures on Aug 8. Until then, it's only a guessing game. Even after Aug 8, it is very possible that we won't have any clearer visual on the situation. Probably, this is what the Japanese government wants: creating uncertainties one after another. Nonetheless, we are not short of local speculations about which specific products or materials to be export restricted in the next round. Here are the 4 strong candidates being speculated by local media and industry experts.</p><ol>
<li>Silicon wafer</li>
<li>Shadow mask (FMM: fine metal mask)</li>
<li>Image sensor</li>
<li>Li-ion battery separator</li>
</ol>

The whitelist lifting means that Japan is now able to export restrict about 1,200 materials/products to Korea. It is expected that Japan will unveil more details of the next measures on Aug 8. Until then, it's only a guessing game. Even after Aug 8, it is very possible that we won't have any clearer visual on the situation. Probably, this is what the Japanese government wants: creating uncertainties one after another. Nonetheless, we are not short of local speculations about which specific products or materials to be export restricted in the next round. Here are the 4 strong candidates being speculated by local media and industry experts.
Silicon wafer
Shadow mask (FMM: fine metal mask)
Image sensor
Li-ion battery separator


Japan's Second Round of Export Restrictions Against Korea: 4 Candidate Products

Japan

DAI NIPPON PRINTING CO., LTD. offers printing services for commercial and industrial use.  The printing items include information media such as books, periodicals, and text books, wrapping paper and containers, stationeries, and advertising medium.  The Company provides design and production services as well.  Dai Nippon Printing also produces soft drinks including Coca Cola.

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Dai Nippon Printing (7912 JP)

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

Merger talks between Kioxia and Western Digital have reportedly stalled. This should be the focus of investor attention, not the recent Nikkei...

Scott Foster

JAPAN FLOW: Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

The Japanese market has unusual flow cyclicality. Foreigners take price. They have been net sellers. They buy when USD-denom TOPIX outperforms....

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 27th May - Recruit, DNP & Dentsu

ALL GOOD - Japan has had a 'good' COVID-19 relative to many countries. With a little help from the Bank of Japan, Japanese equities are only 11%...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 26th May - Konica Minolta, Yamaha, DyDo, JAT

In the DETAIL section below, we shall review Tuesday's announcements:- The balance between positive/neutral/negative of the 44 results...

Campbell Gunn

Japan's Second Round of Export Restrictions Against Korea: 4 Candidate Products

The whitelist lifting means that Japan is now able to export restrict about 1,200 materials/products to Korea. It is expected that Japan will...

Sanghyun Park

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