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.

Equity Bottom-Up

The <a href="https://asia.nikkei.com/Business/Nissan-s-Ghosn-crisis/Nissan-to-slash-global-production-by-15" target="_blank">Nikkei reported</a> this morning that <a href="https://www.smartkarma.com/entities/72" target="_blank" data-smartkarma-citation="entities:72:1">Nissan Motor (7201 JP)</a> will cut global production by 15% for the coming FY03/20. Domestic production will remain at about 900k units but overseas production will drop 20% to 3.7m units.This appears to be the next step in a comprehensive overhaul of the company that the post-Ghosn management is pushing through. The article notes that sales incentives in the US will be cut while in China, the currently struggling market for smaller sedans will be deemphasised.The concern is the dividend, however, as the last time Nissan cut production so drastically, it was the financial crisis and the dividend was cut entirely. We do not expect such a serious result this time around but with Nissan looking like it has fully shifted towards a stance of strengthening its core operations we believe funds will be rerouted from shareholder returns to investment in the short-term.

The Nikkei reported this morning that Nissan Motor (7201 JP) will cut global production by 15% for the coming FY03/20. Domestic production will remain at about 900k units but overseas production will drop 20% to 3.7m units.This appears to be the next step in a comprehensive overhaul of the company that the post-Ghosn management is pushing through. The article notes that sales incentives in the US will be cut while in China, the currently struggling market for smaller sedans will be deemphasised.The concern is the dividend, however, as the last time Nissan cut production so drastically, it was the financial crisis and the dividend was cut entirely. We do not expect such a serious result this time around but with Nissan looking like it has fully shifted towards a stance of strengthening its core operations we believe funds will be rerouted from shareholder returns to investment in the short-term.

Nissan: Production Cut May Presage Dividend Cut Opening Up Downside

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

February SAAR sequentially weakened to 16.6m units from 16.7m units in January 2019, and declined on YoY basis from 17.0m units in February 2018.  Media reports have attributed bad weather, government shutdown and consumer uncertainty about this year's tax refunds as some key reasons for the drop in SAAR.  While the jury is out, we believe these claims should be tested against March actuals in a month's time.  In the meantime, here are some of our initial observations regarding the February numbers:<ul>
<li>Average YTD incentive spending fell 4.8% YoY, which we believe can at least partially explain the drop in February SAAR.  Anecdotal evidence suggests that the industry has been moving away from zero percent financing in favor of cash deals in a rising interest rate environment.  Overall, there will be fewer new product launches in 2019 compared with 2018 in the industry so it remains to be seen how the incentive spendings go for the remainder of the year.  As for now there may be further needs to de-stock in the coming months.</li>
<li>Days supply rose sharply for light trucks while days supply for cars declined in February.  However, on a 3 month moving average basis days supply for both are rising, with higher light truck days supply.  </li>
<li>Light trucks in the industry mix climbed marginally to 69.4% in February from 68.1% in January but it was still down from December's  71.6%.  While it is too early to tell, we would begin to monitor whether the light truck mix has peaked.</li>
<li>Based on LMC Automotive's observations during the first 14 selling days of February, retail SAAR should have been about 75% of the total, suggesting that retail sales weakened while fleet sales sequentially strengthened in February.  On a YoY basis, fleet sales seems to have been flat while retail sales were down.</li>
<li>On the macro front there were some strong economic data points that could have led to a stronger SAAR: the 4.1% unemployment rate, and real disposable income rising by 2.3% sequentially from January.  However, the sequential improvement in consumer confidence based on the Univ. of Michigan Consumer Sentiment Index (CSI) still showed that sentiment remained at depressed levels from a year ago.   Mixed signals from the housing market, however, could be creating headwinds as we discussed in January (see <a href="https://www.smartkarma.com/insights/us-autos-looking-back-on-2018-and-musing-on-2019" target="_blank" data-smartkarma-citation="insights:27115">US Autos: Looking Back on 2018 and Musing on 2019</a>).  </li>
<li>In terms of brand performance in February, nearly every brand increased sales sequentially but generally lost volumes in YoY terms.  BMW, Hyundai-Kia, JLR, Mitsubishi, Porsche and Subaru managed to gain on YoY basis.  Tesla seems to have had a similar pattern based on third party estimates (Tesla does not release monthly sales figures).  On a cumulative YTD basis FCA, Ford, Honda, Hyundai-Kia, JLR, Mitsubishi, Porsche, Subaru and Tesla (again based on third party estimates) managed to achieve share gains against the backdrop of a 2.4% YoY industry decline.</li>
</ul>Based on our observations of the February figures, we maintain our cautious view on U.S. light vehicle demand in 2019.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/782/original/Screen%20Shot%202019-03-03%20at%208.46.31%20PM.png?1551613614" class="editor-image img-responsive" data-smartkarma-image-id="80782"></figure><div class="content-caption">Source: Autodata</div>

February SAAR sequentially weakened to 16.6m units from 16.7m units in January 2019, and declined on YoY basis from 17.0m units in February 2018.  Media reports have attributed bad weather, government shutdown and consumer uncertainty about this year's tax refunds as some key reasons for the drop in SAAR.  While the jury is out, we believe these claims should be tested against March actuals in a month's time.  In the meantime, here are some of our initial observations regarding the February numbers:
Average YTD incentive spending fell 4.8% YoY, which we believe can at least partially explain the drop in February SAAR.  Anecdotal evidence suggests that the industry has been moving away from zero percent financing in favor of cash deals in a rising interest rate environment.  Overall, there will be fewer new product launches in 2019 compared with 2018 in the industry so it remains to be seen how the incentive spendings go for the remainder of the year.  As for now there may be further needs to de-stock in the coming months.
Days supply rose sharply for light trucks while days supply for cars declined in February.  However, on a 3 month moving average basis days supply for both are rising, with higher light truck days supply.  
Light trucks in the industry mix climbed marginally to 69.4% in February from 68.1% in January but it was still down from December's  71.6%.  While it is too early to tell, we would begin to monitor whether the light truck mix has peaked.
Based on LMC Automotive's observations during the first 14 selling days of February, retail SAAR should have been about 75% of the total, suggesting that retail sales weakened while fleet sales sequentially strengthened in February.  On a YoY basis, fleet sales seems to have been flat while retail sales were down.
On the macro front there were some strong economic data points that could have led to a stronger SAAR: the 4.1% unemployment rate, and real disposable income rising by 2.3% sequentially from January.  However, the sequential improvement in consumer confidence based on the Univ. of Michigan Consumer Sentiment Index (CSI) still showed that sentiment remained at depressed levels from a year ago.   Mixed signals from the housing market, however, could be creating headwinds as we discussed in January (see US Autos: Looking Back on 2018 and Musing on 2019).  
In terms of brand performance in February, nearly every brand increased sales sequentially but generally lost volumes in YoY terms.  BMW, Hyundai-Kia, JLR, Mitsubishi, Porsche and Subaru managed to gain on YoY basis.  Tesla seems to have had a similar pattern based on third party estimates (Tesla does not release monthly sales figures).  On a cumulative YTD basis FCA, Ford, Honda, Hyundai-Kia, JLR, Mitsubishi, Porsche, Subaru and Tesla (again based on third party estimates) managed to achieve share gains against the backdrop of a 2.4% YoY industry decline.
Based on our observations of the February figures, we maintain our cautious view on U.S. light vehicle demand in 2019.Source: Autodata

February U.S. Auto Demand: Lower Incentives for Lower SAAR?

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

PT Surya Citra Media Tbk / Equity Bottom-Up

A meeting <a href="https://www.smartkarma.com/entities/14739" target="_blank" data-smartkarma-citation="entities:14739:1">Surya Citra Media Pt Tbk (SCMA IJ)</a> in Jakarta found management in a relatively ebullient mood. The share price performance has been slightly perplexing the fact that its digital strategy is close to coming to fruition, with upcoming acquisitions representing a positive catalyst.The company will move forward on acquiring controlling stakes in digital streaming player <a href="http://www.vidio.com" target="_blank">www.vidio.com</a>, internet company <a href="http://www.kapanlagi.com" target="_blank">www.kapanlagi.com</a>, and out of home media advertising player EYE Indonesia.Total revenues from the digital and non-TV space will grow from less than 5% of SCMA's total revenue to nearly 20% of the total, making it the biggest player in both free-to-air and a major player in digital adverting in Indonesia.Vidio.com is especially interesting given how fragmented that market is currently. Iy=t already has 22m active users viewing its sport and local content but is looking to bring in a major global player to help finance original content and bring in more international content. Internet companies represent the biggest and fastest growing advertising customers outside FMCG. They are increasingly paying above market rates for up to two-hour exclusive slots on prime time, where they air their own programming which allows them to engage with the audience. The recent <a href="https://www.smartkarma.com/entities/2253" target="_blank" data-smartkarma-citation="entities:2253:1">Kraft Heinz Co (KHC US)</a> debacle may signal the end of zero-based budgeting, which may mean global players such as <a href="https://www.smartkarma.com/entities/231" target="_blank" data-smartkarma-citation="entities:231:1">Unilever Indonesia (UNVR IJ)</a> start to spend more on advertising. in the meantime, local FMCG players remain more aggressive on advertising their products on TV. <a href="https://www.smartkarma.com/entities/14739" target="_blank" data-smartkarma-citation="entities:14739:1">Surya Citra Media Pt Tbk (SCMA IJ)</a> remains the best quality proxy to the advertising market in Indonesia. The upcoming acquisitions in the digital space represent strong potential catalysts for the stock, which have not yet been factored into valuations. Its core business continues to register stable and rising growth, especially from local FMCG players, with the re-entry of the tobacco companies potentially representing another boon for this year, given there has been no excise tax increase. According to Capital IQ consensus, the company is trading on 15.3x FY19E PER and 13.8x FY20E PER, with forecasts EPS growth of +8.5% and +10.5% for FY19E and FY20E respectively.  The company is forecast to achieve an ROE of 33% in 2019, with a dividend yield of 4.2%.

A meeting Surya Citra Media Pt Tbk (SCMA IJ) in Jakarta found management in a relatively ebullient mood. The share price performance has been slightly perplexing the fact that its digital strategy is close to coming to fruition, with upcoming acquisitions representing a positive catalyst.The company will move forward on acquiring controlling stakes in digital streaming player www.vidio.com, internet company www.kapanlagi.com, and out of home media advertising player EYE Indonesia.Total revenues from the digital and non-TV space will grow from less than 5% of SCMA's total revenue to nearly 20% of the total, making it the biggest player in both free-to-air and a major player in digital adverting in Indonesia.Vidio.com is especially interesting given how fragmented that market is currently. Iy=t already has 22m active users viewing its sport and local content but is looking to bring in a major global player to help finance original content and bring in more international content. Internet companies represent the biggest and fastest growing advertising customers outside FMCG. They are increasingly paying above market rates for up to two-hour exclusive slots on prime time, where they air their own programming which allows them to engage with the audience. The recent Kraft Heinz Co (KHC US) debacle may signal the end of zero-based budgeting, which may mean global players such as Unilever Indonesia (UNVR IJ) start to spend more on advertising. in the meantime, local FMCG players remain more aggressive on advertising their products on TV. Surya Citra Media Pt Tbk (SCMA IJ) remains the best quality proxy to the advertising market in Indonesia. The upcoming acquisitions in the digital space represent strong potential catalysts for the stock, which have not yet been factored into valuations. Its core business continues to register stable and rising growth, especially from local FMCG players, with the re-entry of the tobacco companies potentially representing another boon for this year, given there has been no excise tax increase. According to Capital IQ consensus, the company is trading on 15.3x FY19E PER and 13.8x FY20E PER, with forecasts EPS growth of +8.5% and +10.5% for FY19E and FY20E respectively.  The company is forecast to achieve an ROE of 33% in 2019, with a dividend yield of 4.2%. 

Surya Citra Media (SCMA IJ) - Digital Revolution in the Spring - On the Ground in J-Town

'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

- PEER GROUP SCORE MATRIX -
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/840/original/2019-02-22_18-26-15.png?1550827634" class="editor-image img-responsive" data-smartkarma-image-id="79840"></figure>
<div class="content-caption">Source: Japan Analytics</div>
INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the cap-weighted Results &amp; Revision Scores for the 328 Peer Groups that comprise our 30 Sectors providing greater depth to our analysis of current business trends.  Peer Group definitions reflect both standard SIC/GICS classifications as well as local market conventions. The number of constituents and market capitalisation for each Peer Group varies widely. 
RRS/RPS SCORE MATRIX - Combining our Results &amp; Revision Scores (RRS) with each Peer Group's Relative Price Score (RPS) allows a classification of our Peer Group universe into four quadrants -
<ul>
<li>'Contrarian Buy'  &gt; Low RRS &amp; Low RPS </li>
<li>'Contrarian Sell' &gt; High RRS &amp; High RPS</li>
<li>
Peak Growth' &gt; High RRS &amp; Low RPS</li>
<li>'Ex-Growth/Turnaround' &gt; Low RRS &amp; High RPS</li>
</ul>
THE 'QUADRANTS' - In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the Peer Groups suggesting opportunities exist only for those willing or brave enough to take a contrarian view.  For 'Peak Growth' Peer Groups, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies. The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.    
<div class="content-highlight">
In the DETAIL section below, we list the top and bottom twenty Peer Groups ranked by Results &amp; Revision Score and the top and bottom twenty most-changed over the last three months as well the most optimistic and most pessimistic.  In our ranked tables we have listed only those Peer Groups with an aggregate capitalisation of over ¥50b. 
</div>

- PEER GROUP SCORE MATRIX -

Source: Japan Analytics
INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the cap-weighted Results &amp; Revision Scores for the 328 Peer Groups that comprise our 30 Sectors providing greater depth to our analysis of current business trends.  Peer Group definitions reflect both standard SIC/GICS classifications as well as local market conventions. The number of constituents and market capitalisation for each Peer Group varies widely. 
RRS/RPS SCORE MATRIX - Combining our Results &amp; Revision Scores (RRS) with each Peer Group's Relative Price Score (RPS) allows a classification of our Peer Group universe into four quadrants -

'Contrarian Buy'  &gt; Low RRS &amp; Low RPS 
'Contrarian Sell' &gt; High RRS &amp; High RPS

Peak Growth' &gt; High RRS &amp; Low RPS
'Ex-Growth/Turnaround' &gt; Low RRS &amp; High RPS

THE 'QUADRANTS' - In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the Peer Groups suggesting opportunities exist only for those willing or brave enough to take a contrarian view.  For 'Peak Growth' Peer Groups, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies. The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.    

In the DETAIL section below, we list the top and bottom twenty Peer Groups ranked by Results &amp; Revision Score and the top and bottom twenty most-changed over the last three months as well the most optimistic and most pessimistic.  In our ranked tables we have listed only those Peer Groups with an aggregate capitalisation of over ¥50b. 


🇯🇵 Japan: Winter Peer Group Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/339/original/2019-02-19_12-05-19.png?1550545549" class="editor-image img-responsive" data-smartkarma-image-id="79339"></figure><div class="content-caption">Source: Japan Analytics</div>CHILLING - A winter chill has descended over the Japanese equity market. As we covered in our Insight on market aggregate earnings <a href="https://www.smartkarma.com/insights/japan-winter-results-revisions-flash-cycle-earnings-peak-was-december-26th" target="_blank" data-smartkarma-citation="insights:28022">Japan: Winter Results &amp; Revisions Flash</a> the net income of corporate Japan peaked on 26th December, However, reported earnings are a lagging indicator, and in this instance, the 'lag' was almost one year, with the Total Market Capitalisation (excluding REITs) peaking on 23rd January 2018. Our preferred, and often leading, indicators are the All-Market Composite Results Score - a measure of the trend and momentum in quarterly corporate earnings the All-Market Composite Forecast/Revision Score - which measures the trend and rate of change in company initial forecasts and revisions. The Results Score peaked on 1st February 2018, seven trading days after the market peak and is now one year into an extended period of decline. The Forecast/Revision Score is slowing peaked out on 27th October 2017, three months ahead of the market and the Results Score - demonstrating the reliability of company forecasts, as opposed to 'consensus', as a leading indicator of future earnings. Revisions have continued to 'lead' on the way down and 0.55 points 'ahead'.   <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/351/original/2019-02-19_12-42-28.png?1550547837" class="editor-image img-responsive" data-smartkarma-image-id="79351"></figure><div class="content-caption">Source: Japan Analytics</div>TURNING NEGATIVE? - Subtracting the Forecast/Revision Score from the Results Score shows the extent of the lag in the latter. The relationship has been relatively stable of over one year; however, as we 'roll' into the next fiscal year's forecasts in May, we can expect the difference to move closer to zero as both scores turn negative. As the cycle bottoms out, the revisions will recover ahead of results, and the difference will also become negative, setting the stage for the next upswing in later 2019 or early 2020.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/362/original/2019-02-19_13-26-37.png?1550550430" class="editor-image img-responsive" data-smartkarma-image-id="79362"></figure><div class="content-caption">Source: Japan Analytics</div>On each of the three occasions since 2006 when the Results Score has fallen below '4', it has subsequently fallen below zero. In 2012, the decline was muted by the advent of the Bank of Japan (BOJ)'s policy of weakening the currency. The current score of 2.14 suggests we are continuing on a path to zero and below.  Failing a currency move through ¥115 (see below), the Results Score should turn negative by the time the full-year results are announced next May. We also expect a high degree of caution in forecasting, especially on the Auto sector which is overshadowed by the prospect of US tariffs. The announcement of the closer of <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>'s car plant in Swindon in the UK is not a good portent.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/367/original/2019-02-19_13-44-01.png?1550551486" class="editor-image img-responsive" data-smartkarma-image-id="79367"></figure><div class="content-caption">Source: Japan Analytics</div>BEAR MARKET RALLY &amp; THE YEN - Total Market Value has recovered by 13.8% since Christmas Day and is currently at the same level as when we published our Autumn review - <a href="https://www.smartkarma.com/insights/japan-autumn-results-revisions-scores-market-composite-sector-review-slomo-slowdown" target="_blank" data-smartkarma-citation="insights:25923">SloMo Slowdown</a>. With earnings and revisions heading lower, the implied expectation is for some or all of - a further central bank easing, a resolution of current trade tensions, and a weakening of the Yen. The last has been the 'get-out-of-jail' card for Japanese equities. Our chart compares the year-on-year percentage change in the US$/¥ exchange rate with a lag of six months to the Combined Results and Revision Score (with each sore being equally-weighted). The last eight turning points for the rate of change of the cross rate, have coincided with directional changes in earnings and revisions momentum. The recent weakness in the currency suggests a more stable market - at least until the late spring. <div class="content-highlight">RECOMMENDATION - Although current valuations are attractive, we believe the market is correctly anticipating further declines in earnings momentum over the next few quarters.  We would stay underweight Japanese equities by 20% (i.e. 5.5% v. 7%) with a bias towards domestic sectors, notably, Information Technology, Telecommunications, Media, Healthcare &amp; Commercial Services. We would not hedge the currency.</div>

Source: Japan AnalyticsCHILLING - A winter chill has descended over the Japanese equity market. As we covered in our Insight on market aggregate earnings Japan: Winter Results &amp; Revisions Flash the net income of corporate Japan peaked on 26th December, However, reported earnings are a lagging indicator, and in this instance, the 'lag' was almost one year, with the Total Market Capitalisation (excluding REITs) peaking on 23rd January 2018. Our preferred, and often leading, indicators are the All-Market Composite Results Score - a measure of the trend and momentum in quarterly corporate earnings the All-Market Composite Forecast/Revision Score - which measures the trend and rate of change in company initial forecasts and revisions. The Results Score peaked on 1st February 2018, seven trading days after the market peak and is now one year into an extended period of decline. The Forecast/Revision Score is slowing peaked out on 27th October 2017, three months ahead of the market and the Results Score - demonstrating the reliability of company forecasts, as opposed to 'consensus', as a leading indicator of future earnings. Revisions have continued to 'lead' on the way down and 0.55 points 'ahead'.   Source: Japan AnalyticsTURNING NEGATIVE? - Subtracting the Forecast/Revision Score from the Results Score shows the extent of the lag in the latter. The relationship has been relatively stable of over one year; however, as we 'roll' into the next fiscal year's forecasts in May, we can expect the difference to move closer to zero as both scores turn negative. As the cycle bottoms out, the revisions will recover ahead of results, and the difference will also become negative, setting the stage for the next upswing in later 2019 or early 2020.  Source: Japan AnalyticsOn each of the three occasions since 2006 when the Results Score has fallen below '4', it has subsequently fallen below zero. In 2012, the decline was muted by the advent of the Bank of Japan (BOJ)'s policy of weakening the currency. The current score of 2.14 suggests we are continuing on a path to zero and below.  Failing a currency move through ¥115 (see below), the Results Score should turn negative by the time the full-year results are announced next May. We also expect a high degree of caution in forecasting, especially on the Auto sector which is overshadowed by the prospect of US tariffs. The announcement of the closer of Honda Motor (7267 JP)'s car plant in Swindon in the UK is not a good portent.  Source: Japan AnalyticsBEAR MARKET RALLY &amp; THE YEN - Total Market Value has recovered by 13.8% since Christmas Day and is currently at the same level as when we published our Autumn review - SloMo Slowdown. With earnings and revisions heading lower, the implied expectation is for some or all of - a further central bank easing, a resolution of current trade tensions, and a weakening of the Yen. The last has been the 'get-out-of-jail' card for Japanese equities. Our chart compares the year-on-year percentage change in the US$/¥ exchange rate with a lag of six months to the Combined Results and Revision Score (with each sore being equally-weighted). The last eight turning points for the rate of change of the cross rate, have coincided with directional changes in earnings and revisions momentum. The recent weakness in the currency suggests a more stable market - at least until the late spring. RECOMMENDATION - Although current valuations are attractive, we believe the market is correctly anticipating further declines in earnings momentum over the next few quarters.  We would stay underweight Japanese equities by 20% (i.e. 5.5% v. 7%) with a bias towards domestic sectors, notably, Information Technology, Telecommunications, Media, Healthcare &amp; Commercial Services. We would not hedge the currency.

🇯🇵 JAPAN: Winter Results & Revisions Scores - Market Composite & Sector Review - Chilling

Japan

Honda Motor Co., Ltd. develops, manufactures, and distributes motorcycles, automobiles, and power products such as generators and farm machinery. The Company also operates a financial credit business.  Honda Motor has manufacturing facilities in the US, Canada, the UK, France, Italy, Spain, Brazil, Mexico, India, and Thailand.

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Honda Motor Co Ltd (Adr) (HMC US)

Nissan: Production Cut May Presage Dividend Cut Opening Up Downside

The Nikkei reported this morning that Nissan Motor (7201 JP) will cut global production by 15% for the coming FY03/20. Domestic production will...

Mio Kato

February U.S. Auto Demand: Lower Incentives for Lower SAAR?

February SAAR sequentially weakened to 16.6m units from 16.7m units in January 2019, and declined on YoY basis from 17.0m units in February 2018. ...

Henry Kwon

Surya Citra Media (SCMA IJ) - Digital Revolution in the Spring - On the Ground in J-Town

A meeting Surya Citra Media Pt Tbk (SCMA IJ) in Jakarta found management in a relatively ebullient mood. The share price performance has been...

Angus Mackintosh

🇯🇵 Japan: Winter Peer Group Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth

- PEER GROUP SCORE MATRIX - INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the...

Campbell Gunn

🇯🇵 JAPAN: Winter Results & Revisions Scores - Market Composite & Sector Review - Chilling

CHILLING - A winter chill has descended over the Japanese equity market. As we covered in our Insight on market aggregate earnings Japan: Winter...

Campbell Gunn

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