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>The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).</li>
<li>Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.</li>
<li>We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.</li>
</ul>


The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).
Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.
We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.


Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

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

<ul>
<li>IHI likely to benefit from rising defense spending as events in Ukraine serve as a wake up call to a Japan already worried about North Korea and China.</li>
<li>Japan's top maker of jet engines and solid-fuel rockets. Also geared to the recovery of commercial air traffic and auto production, and to carbon neutral technologies. </li>
<li>Sales and profit recovery underway. 60% upside to 15x FY Mar-24 EPS estimate. </li>
</ul>


IHI likely to benefit from rising defense spending as events in Ukraine serve as a wake up call to a Japan already worried about North Korea and China.
Japan's top maker of jet engines and solid-fuel rockets. Also geared to the recovery of commercial air traffic and auto production, and to carbon neutral technologies. 
Sales and profit recovery underway. 60% upside to 15x FY Mar-24 EPS estimate. 


IHI (7013 JP): Ukraine Puts the Spotlight on Japanese Defense Contractors

<p>We highlight several positive developments that have occurred since last week’s <em>Int’l Compass </em>report, all of which continue to support our overall constructive outlook. Last week we noted Europe’s STOXX 500 was on the cusp of a breakout above 4040; we got the breakout. WTI and Brent crude oil also broke above key multi-year resistance at $67 and $70, respectively. The MSCI ACWI, ACWI ex-US, and EAFE indexes each hit new all-time highs and remain in uptrends. The MSCI Emerging Markets index (EEM-US) bullishly inflected above short-term resistance at $55.35 and RS is reversing the downtrend. These are all bullish signals for global equities, and our constructive outlook remains appropriate.</p>

We highlight several positive developments that have occurred since last week’s Int’l Compass report, all of which continue to support our overall constructive outlook. Last week we noted Europe’s STOXX 500 was on the cusp of a breakout above 4040; we got the breakout. WTI and Brent crude oil also broke above key multi-year resistance at $67 and $70, respectively. The MSCI ACWI, ACWI ex-US, and EAFE indexes each hit new all-time highs and remain in uptrends. The MSCI Emerging Markets index (EEM-US) bullishly inflected above short-term resistance at $55.35 and RS is reversing the downtrend. These are all bullish signals for global equities, and our constructive outlook remains appropriate.

Major Breakouts For WTI and Brent Crude Oil. Actionable Themes: Energy, Manufacturing, Autos/Parts

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

<p>On 13th May, Small-cap Electronic and communications technology firm <a href="https://www.smartkarma.com/entities/meisei-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:18137:1" rel="noopener">Meisei Electric (6709 JP)</a> announced they had agreed to merge with their parent <a href="https://www.smartkarma.com/entities/ihi-corp" target="_blank" data-smartkarma-citation="entities:4819:1" rel="noopener">IHI Corp (7013 JP)</a> which will result in Meisei getting delisted from the Second Section of the Tokyo Stock Exchange. </p><p>Meisei shareholders will receive 0.42 IHI shares per Meisei share. The Meisei Shareholder meeting for approving the Deal is expected to be on 23rd June 2021 and the Merger is expected to become effective on 1st August 2021. </p><p>Below a discussion of the details and the 'consequences'.</p>

On 13th May, Small-cap Electronic and communications technology firm Meisei Electric (6709 JP) announced they had agreed to merge with their parent IHI Corp (7013 JP) which will result in Meisei getting delisted from the Second Section of the Tokyo Stock Exchange. Meisei shareholders will receive 0.42 IHI shares per Meisei share. The Meisei Shareholder meeting for approving the Deal is expected to be on 23rd June 2021 and the Merger is expected to become effective on 1st August 2021. Below a discussion of the details and the 'consequences'.

Meisei (6709 JP) - IHI (7013 JP): Small Merger with Minor Additional Consequences

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

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

Japan

IHI Corporation manufactures heavy machinery. The Company produces aircraft jet engines, rocket propulsion systems, and ships for military and commercial use. Ishikawajima-Harima also constructs petroleum refineries and nuclear power plants.

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IHI Corp (7013 JP)

Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China $MCHI, and...

Vermilion Research

IHI (7013 JP): Ukraine Puts the Spotlight on Japanese Defense Contractors

Geared to anticipated growth ofJapanese defense spending through fighter jet engines and missile defense. Other businesses rebounding from COVID. P...

Scott Foster

Major Breakouts For WTI and Brent Crude Oil. Actionable Themes: Energy, Manufacturing, Autos/Parts

Today we highlight several positive developments that have occurred since last week’s Int’l Compass report, all of which continue to support our...

Vermilion Research

Meisei (6709 JP) - IHI (7013 JP): Small Merger with Minor Additional Consequences

IHI is absorbing Meisei Electric 9 years after taking a majority. This looks reasonable, it is very short-dated. It is a rate-of-return deal with...

Janaghan Jeyakumar, CFA

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

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