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

<ul>
<li>Last week we noted that the bullish reversals had begun, with the MSCI ACWI (ACWI-US), STOXX Europe 50, and SPX the first few to reverse topside their 4-month downtrends.</li>
<li>As we discuss below, bullish reversals are proliferating globally, something that continues to support our belief that global equities are bottoming.</li>
<li>Global growth Sectors continue to gain momentum and have emerged as leadership -- overweight growth. Sectors covered today include Technology, Consumer Discretionary, and Industrials -- add exposure</li>
</ul>


Last week we noted that the bullish reversals had begun, with the MSCI ACWI (ACWI-US), STOXX Europe 50, and SPX the first few to reverse topside their 4-month downtrends.
As we discuss below, bullish reversals are proliferating globally, something that continues to support our belief that global equities are bottoming.
Global growth Sectors continue to gain momentum and have emerged as leadership -- overweight growth. Sectors covered today include Technology, Consumer Discretionary, and Industrials -- add exposure


Bullish Reversals Proliferate; Stick With Growth; Buy Ideas in Tech, Discretionary, & Industrials

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>In <a href="https://www.smartkarma.com/insights/jpx-nikkei-400-2022-rebal-final-predictions" target="_blank" data-smartkarma-citation="insights:72159" rel="noopener">JPX-Nikkei 400 2022 Rebal: Final Predictions</a>, I discussed Quiddity's final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.</li>
<li>In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.</li>
<li>Since then, the LONG High Conviction ADDs - SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.</li>
</ul>


In JPX-Nikkei 400 2022 Rebal: Final Predictions, I discussed Quiddity's final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.
In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.
Since then, the LONG High Conviction ADDs - SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.


JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

<ul>
<li>JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.</li>
<li>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.</li>
<li>Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-May 2022.</li>
</ul>


JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-May 2022.


JPX-Nikkei 400 Rebalance 2022: Leaderboard End-May 2022

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

FY2020 was clearly a year when department store executives would have been better to live in an induced coma. Big city stores suffered especially because inbound tourists, their main growth driver of the past few years, disappeared and local shoppers stayed away, although some stores did manage to harness support from Japan’s expanding wealth market to offset the rout a little bit. The good news is that executives pushing for change in the last five years in the face of perennial intransigence are increasingly taking charge and the result should be a leaner, smaller and more clearly defined format that is more overtly upscale.

FY2020 was clearly a year when department store executives would have been better to live in an induced coma. Big city stores suffered especially because inbound tourists, their main growth driver of the past few years, disappeared and local shoppers stayed away, although some stores did manage to harness support from Japan’s expanding wealth market to offset the rout a little bit. The good news is that executives pushing for change in the last five years in the face of perennial intransigence are increasingly taking charge and the result should be a leaner, smaller and more clearly defined format that is more overtly upscale.

Japan's Department Stores: Radical Contraction Still to Come if Sector Is to Survive

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

<a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan Railway Co (9021 JP)</a>  is one of the first three listed JR companies (along with <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway Co (9020 JP)</a> and <a href="https://www.smartkarma.com/entities/central-japan-railway-co" target="_blank" data-smartkarma-citation="entities:13520:1" rel="noopener">Central Japan Railway Co (9022 JP)</a>) and was always the smallest, in size and investor interest, until <a href="https://www.smartkarma.com/entities/kyushu-railway-company" target="_blank" data-smartkarma-citation="entities:23609:1" rel="noopener">Kyushu Railway Company (9142 JP)</a> came along. JR West has "always" traded at a lower EV/EBITDA, EV/EBIT, and PER than a basket of its peers. For a long time that was due to lower ROAs and higher debt/EBITDA. Now ROAs have basically matched the basket of peers and so pre and post-covid, ROEs looked OK. Covid hit hard. Inbound tourism fell, business travel fell, commuting use fell, costs didn't. Gross margins which had been 22-27% for most of the last 20 years fell below zero. Revenues fell by 40%. Four Zero Percent. That is huge for a transport utility.  This is the same story for all the rails, but more for some than others.   The stock is down 50% from late 2019 highs. The question is whether that is enough. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/967/original/Screenshot+2021-09-05+at+10.36.27+AM.png?1630809405" class="editor-image img-responsive" data-smartkarma-image-id="227967"></figure></section>Last week on 1 September, the company <a href="https://www.westjr.co.jp/global/en/ir/news/2022/pdf/en_20210901.pdf" target="_blank" rel="noopener">announced</a> an offering of 51+mm shares including greenshoe, split 40/60 international/domestic. That is about 40 days volume and after the stock fell 15%, is worth about ¥260bn. The company has a large number of retail shareholders, and a very heavy passive and cross-holding ownership. It has a relatively low active institutional ownership - domestic or foreign. With the dividend down 40+% it still yields ~2% because of where the stock has fallen. Even better for some potential holders, the kabunushi yutai yield is 5+%, and up to 9% if one optimises (and rides the shinkansen, stays in hotels, and eats at restaurants in hotels). That may make it a selling point to some, but institutional investors don't get that benefit, so that aspect alone may not get all of the deal sold.There is an interesting story of Historical Cheapness vs Supply vs Benefits along with large passive ownership and decent-to-large passive demand for the offering. More below the fold.

West Japan Railway Co (9021 JP)  is one of the first three listed JR companies (along with East Japan Railway Co (9020 JP) and Central Japan Railway Co (9022 JP)) and was always the smallest, in size and investor interest, until Kyushu Railway Company (9142 JP) came along. JR West has "always" traded at a lower EV/EBITDA, EV/EBIT, and PER than a basket of its peers. For a long time that was due to lower ROAs and higher debt/EBITDA. Now ROAs have basically matched the basket of peers and so pre and post-covid, ROEs looked OK. Covid hit hard. Inbound tourism fell, business travel fell, commuting use fell, costs didn't. Gross margins which had been 22-27% for most of the last 20 years fell below zero. Revenues fell by 40%. Four Zero Percent. That is huge for a transport utility.  This is the same story for all the rails, but more for some than others.   The stock is down 50% from late 2019 highs. The question is whether that is enough. Last week on 1 September, the company announced an offering of 51+mm shares including greenshoe, split 40/60 international/domestic. That is about 40 days volume and after the stock fell 15%, is worth about ¥260bn. The company has a large number of retail shareholders, and a very heavy passive and cross-holding ownership. It has a relatively low active institutional ownership - domestic or foreign. With the dividend down 40+% it still yields ~2% because of where the stock has fallen. Even better for some potential holders, the kabunushi yutai yield is 5+%, and up to 9% if one optimises (and rides the shinkansen, stays in hotels, and eats at restaurants in hotels). That may make it a selling point to some, but institutional investors don't get that benefit, so that aspect alone may not get all of the deal sold.There is an interesting story of Historical Cheapness vs Supply vs Benefits along with large passive ownership and decent-to-large passive demand for the offering. More below the fold. 

JR West (9021 JP) Offering - Supply Vs Yutai+Passive Demand

Japan

Hankyu Hanshin Holdings, Inc. is a passenger rail company serving the Kansai area.  The Company also provides passenger bus transportation and logistics services.  In addition, Hankyu Hanshin Holdings operates housing and urban development, athletic facilities, theaters, travel agents, hotels, and other leisure-related services.

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Hankyu Hanshin Holdings (9042 JP)

Bullish Reversals Proliferate; Stick With Growth; Buy Ideas in Tech, Discretionary, & Industrials

Bullish reversals begun last week in $ACWI, $SPX, and $STOXX Europe 50, with each reversing topside their 4-month downtrends. Now, bullish...

Vermilion Research

JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

The official index changes could be announced on 5th August 2022. Expect some positive and negative surprises. Inclusion/Exclusion events could...

Janaghan Jeyakumar, CFA

JPX-Nikkei 400 Rebalance 2022: Leaderboard End-May 2022

A look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-May 2022.

Janaghan Jeyakumar, CFA

Japan's Department Stores: Radical Contraction Still to Come if Sector Is to Survive

Japan's department stores are in trouble and were well before the pandemic but their outlook is much worse now. Major changes are required, not...

Michael Causton

JR West (9021 JP) Offering - Supply Vs Yutai+Passive Demand

JR West surprised the market with an equity offering last Wednesday. It is JPY 260bn or so at current price and represents more than 20% EPS...

Travis Lundy

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