'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>STRESS TESTS</strong> - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.</p><p><strong>ALTMAN Z-SCORES</strong> - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> which is now as distressed as when Carlos Ghosn first arrived.  </p><p><strong>QUASI-FINANCIAL FIRMS</strong> - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries - <strong> <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a></strong>,<strong> <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a></strong>, <strong><a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a></strong>, <strong><a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a></strong> and <strong><a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a></strong>- have been excluded from this analysis. </p>

Source: Japan AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)- have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" rel="noopener" data-smartkarma-citation="entities:26970:1">Meituan Dianping (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:127:1">Geely Auto (175 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" rel="noopener" data-smartkarma-citation="entities:28434:1">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:27044:1">Haidilao (6862 HK)</a> and <a href="https://www.smartkarma.com/entities/budweiser-brewing-co-apac-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:28077:1">Budweiser Brewing Company APAC (1876 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:26:1">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" rel="noopener" data-smartkarma-citation="entities:1119:1">ICBC (H) (1398 HK)</a>, <a href="https://www.smartkarma.com/entities/vitasoy-intl-holdings-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:2807:1">Vitasoy Intl Holdings (345 HK)</a> and <a href="https://www.smartkarma.com/entities/sun-hung-kai-properties-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:111:1">Sun Hung Kai Properties (16 HK)</a>. Shorts jumped on Consumer Discretionary and Health Care names while they covered positions in Communication Services, Financials and Information Technology. Short interest tripled on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" rel="noopener" data-smartkarma-citation="entities:26970:1">Meituan Dianping (3690 HK)</a> during the week while shorts on <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:127:1">Geely Auto (175 HK)</a> almost doubled.</p></div><div><p>Japan saw an increase in shorts on <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" rel="noopener" data-smartkarma-citation="entities:14271:1">East Japan Railway Co (9020 JP)</a>, <a href="https://www.smartkarma.com/entities/mitsubishi-electric-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:11171:1">Mitsubishi Electric (6503 JP)</a> and <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial Group (8316 JP)</a> and a reduction in shorts on <a href="https://www.smartkarma.com/entities/alps-alpine-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:12001:1">Alps Alpine (6770 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:1:1">Canon Inc (7751 JP)</a> and <a href="https://www.smartkarma.com/entities/ihi-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:4819:1">IHI Corp (7013 JP)</a>. Sectorally, shorts increased in Industrials, Communication Services and Consumer Staples while shorts reduced in Real Estate, Information Technology and Materials.</p></div><div>
<p>Shorts in Korea decreased led by Information Technology, Health Care, Communication Services and Materials.</p>
<p>Shorts in Taiwan were covered in almost all sectors led by Consumer Discretionary, Financials, Materials and Industrials.</p>
</div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Meituan Dianping (3690 HK), Geely Auto (175 HK), Alibaba Group (9988 HK), Haidilao (6862 HK) and Budweiser Brewing Company APAC (1876 HK) while there was short covering on Tencent Holdings (700 HK), ICBC (H) (1398 HK), Vitasoy Intl Holdings (345 HK) and Sun Hung Kai Properties (16 HK). Shorts jumped on Consumer Discretionary and Health Care names while they covered positions in Communication Services, Financials and Information Technology. Short interest tripled on Meituan Dianping (3690 HK) during the week while shorts on Geely Auto (175 HK) almost doubled.Japan saw an increase in shorts on East Japan Railway Co (9020 JP), Mitsubishi Electric (6503 JP) and Sumitomo Mitsui Financial Group (8316 JP) and a reduction in shorts on Alps Alpine (6770 JP), Canon Inc (7751 JP) and IHI Corp (7013 JP). Sectorally, shorts increased in Industrials, Communication Services and Consumer Staples while shorts reduced in Real Estate, Information Technology and Materials.
Shorts in Korea decreased led by Information Technology, Health Care, Communication Services and Materials.
Shorts in Taiwan were covered in almost all sectors led by Consumer Discretionary, Financials, Materials and Industrials.


Asia Short Interest Weekly - Massive Short Increase on Meituan, Geely

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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/889/original/2020-04-01_12-59-11.png?1585713567" class="editor-image img-responsive" data-smartkarma-image-id="125889"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>DIVIDENDS AT RISK</strong> - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC (5 HK) </a>and <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/899/original/2020-04-01_13-47-18.png?1585716458" class="editor-image img-responsive" data-smartkarma-image-id="125899"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>30% HAIRCUT</strong> - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/905/original/2020-04-07_13-29-26.png?1586233784" class="editor-image img-responsive" data-smartkarma-image-id="126905"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>WHO'S CUTTING NEXT?</strong> - Some serial dividend 'cutters', like <a href="https://www.smartkarma.com/entities/nipro-corp" target="_blank" data-smartkarma-citation="entities:18346:1" rel="noopener">Nipro (8086 JP)</a> above, have already announced a cut for the fiscal year just ended. In the<strong> DETAIL</strong> section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.</p>

Source • Japan AnalyticsDIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following HSBC (5 HK) and Standard Chartered (STAN LN) moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.Source • Japan Analytics30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.Source • Japan AnalyticsWHO'S CUTTING NEXT? - Some serial dividend 'cutters', like Nipro (8086 JP) above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

<p>Canon Electronics has fallen 40% in the COVID-19 downdraft to the lowest level in nearly four years. At 12x management's EPS guidance for FY Dec-20 and 0.6x sales, the shares look attractive at first glance. But guidance is probably too optimistic and SPACE ONE, the company's satellite launch venture, is likely to be a drain on earnings for at least another two years.</p><p>In FY Dec-19, operating profit dropped 15.0% on a 1.8% decline in sales due to weak demand for parts for digital and cell phone cameras, scanners and printers, and the cost of preparing SPACE ONE to start launching satellites in 2021. This year, in a weaker economy, management is guiding for flat sales and a 39% decline in operating profit.</p><p>In view of the economic impact of COVID-19, sales and profit guidance look optimistic. A significant decline in sales is likely and profits could drop by half, with losses possible in 1H.</p><p>If the economy stabilizes by the end of the year and then recovers, we would expect sales and profits to regain previous levels by 2022. This would bring the projected P/E ratio down to 10x or less. On a five-year view, the success of SPACE ONE could bring it down to 7.5x. But the timing of recovery is unclear and SPACE ONE is behind its American and Chinese competitors.</p><p>Canon Electronics has a strong balance sheet, which should see it through the downturn. If repeated, last year's ¥80 dividend per share would provide a 5.8% yield, but if profits collapse, it might not be. There is no indicated dividend for this year.  </p><p>Canon Electronics is a speculative investment in economic recovery and the potential of a rocket launch business that has yet to get off the ground. Short-term risk is high.</p>

Canon Electronics has fallen 40% in the COVID-19 downdraft to the lowest level in nearly four years. At 12x management's EPS guidance for FY Dec-20 and 0.6x sales, the shares look attractive at first glance. But guidance is probably too optimistic and SPACE ONE, the company's satellite launch venture, is likely to be a drain on earnings for at least another two years.In FY Dec-19, operating profit dropped 15.0% on a 1.8% decline in sales due to weak demand for parts for digital and cell phone cameras, scanners and printers, and the cost of preparing SPACE ONE to start launching satellites in 2021. This year, in a weaker economy, management is guiding for flat sales and a 39% decline in operating profit.In view of the economic impact of COVID-19, sales and profit guidance look optimistic. A significant decline in sales is likely and profits could drop by half, with losses possible in 1H.If the economy stabilizes by the end of the year and then recovers, we would expect sales and profits to regain previous levels by 2022. This would bring the projected P/E ratio down to 10x or less. On a five-year view, the success of SPACE ONE could bring it down to 7.5x. But the timing of recovery is unclear and SPACE ONE is behind its American and Chinese competitors.Canon Electronics has a strong balance sheet, which should see it through the downturn. If repeated, last year's ¥80 dividend per share would provide a 5.8% yield, but if profits collapse, it might not be. There is no indicated dividend for this year.  Canon Electronics is a speculative investment in economic recovery and the potential of a rocket launch business that has yet to get off the ground. Short-term risk is high.

Canon Electronics (7739 JP): Downside Risk to Earnings and the Dividend

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/035/original/2020-03-15_07-07-04.png?1584223644" class="editor-image img-responsive" data-smartkarma-image-id="123035"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>RELATIVE VALUE</strong> - Since the recent peak of December 17th, the TOPIX Index has fallen by 28% in 56 trading days. The<strong> -0.57% daily average rate of decline</strong> over the last three months has only been exceeded on 32 of the 10,142 days since March 1979, eight of which occurred in 1990, with the balance in 2008. From the January 23rd 2018 peak of 1,911, the index has fallen by 34% and is within 3% of our target (expressed in terms of Total Market Value ex REITs) outlined in our <a href="https://www.smartkarma.com/insights/japan-market-update-opportunity-knocks" target="_blank" data-smartkarma-citation="insights:37049" rel="noopener">Opportunity Knocks?</a> Insight published on 1st March. The market is also within 5% of the TOPIX low of 1,196 of 12th February 2016, which we expect will provide some short-term support. Although Japan and many other developed world economies are now in recession, markets do not fall in a straight line forever. <strong>Japanese equities now offer attractive relative value and should outperform over the coming months.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/034/original/2020-03-15_06-53-01.png?1584222882" class="editor-image img-responsive" data-smartkarma-image-id="123034"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/036/original/2020-03-15_07-18-49.png?1584224347" class="editor-image img-responsive" data-smartkarma-image-id="123036"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/037/original/2020-03-15_07-23-55.png?1584224666" class="editor-image img-responsive" data-smartkarma-image-id="123037"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>IT'S DIFFERENT THIS TIME</strong> - Most bear markets in Japan have coincided with periods of Yen strength, including the 29% 2015/16 decline when the currency strengthened by 19%. Repeating the rate of decline analysis above, in US dollar terms there have only been <strong>four days in the last twenty-eight years</strong> with worse 56-day rates of decline - all in October 2008. <strong>All four days provided fearless investors with excellent medium-term gains.</strong> Although this increase in market volatility may be less welcome for international investors in Japanese equities, the impact of the <em>Covid-19 recession</em> on the Japanese economy will be more muted. Also, the 48% collapse in the oil price year-to-date will help offset the negative impact of the October 2019 increase in the consumption tax and the decline in export sales in Europe. Lastly, we would suggest that the much-derided net cash that Japanese corporates 'hoard' for rainy days such as these, should delay the need for increases in credit lines. Our recent series of Insights on<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Who’s Swimming Naked?</a> cover those companies to which this does not apply. <strong>Overall</strong>, <strong>for Japan at least, it is different this time.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/039/original/File%202020-03-15%203%2024%2020.jpeg?1584225464" class="editor-image img-responsive" data-smartkarma-image-id="123039"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/040/original/File%202020-03-15%203%2026%2031.jpeg?1584225508" class="editor-image img-responsive" data-smartkarma-image-id="123040"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/041/original/File%202020-03-15%207%2044%2021.jpeg?1584225894" class="editor-image img-responsive" data-smartkarma-image-id="123041"></figure><p></p><div class="content-caption">Source • Max Roser, Hannah Ritchie and Esteban Ortiz-Ospina (2020) - "Coronavirus Disease (COVID-19) – Research and Statistics". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/coronavirus' [Online Resource]</div><p><strong>CONTAINING COVID</strong> - According to <a href="https://ourworldindata.org/coronavirus" target="_blank" rel="noopener">data</a> from the peerless <strong>Global Change Data Lab</strong> at Oxford University, Japan has, (except for the unfortunate passengers and crew on the Diamond Princess cruise ship), managed to contain Covid-19 better than any other large nation. While, there is some scepticism that this outcome could be a result of under-testing to avoid cancellation of the Olympic Games; nevertheless, the recorded cases fatality rate in a country with an above-average age profile is surprisingly low.  Currently, the daily increase in active Covid-19 cases in Japan is less than one hundred and was only seventeen on March 15th. The cumulative number of confirmed Covid-19 fatalities is 24, of which two occurred yesterday. The confirmed number of cases per 100,000 population is 0.65, which compares with 19.5 in South Korea, 16.5 in Italy and 12 in Iran. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/038/original/2020-03-15_07-34-05.png?1584225268" class="editor-image img-responsive" data-smartkarma-image-id="123038"></figure><div class="content-caption">Source • oann.com</div><p><strong>KEEP CALM AND CARRY ON -</strong> Last night's press conference by Prime Minister Abe was in stark contrast to the sombre tone to those of Prime Minister Johnson of the United Kingdom and the tragicomic ramblings of the US President. Having received the legislative powers to declare a state of emergency, Abe declined at this stage to invoke any social restrictions beyond the already-announced school closures. As in the UK, sporting authorities are cancelling events or holding them <em>sine populo</em>. Japan's long obsession with cleanliness, the culture of bowing as a greeting and readiness to conform have served to 'flatten the curve'. The increased focus on such practices has also resulted in a very low incidence of seasonal influenza this year. Japan also has significantly lower levels of air pollution compared to China, Iran and northern Italy, a  factor that has become a factor in fatality rates, especially amongst the elderly. Although internal travel and restaurant patronage have sharply declined in Japan, shops are open and are well-stocked (except for now-rationed paper products) and 'free movement' with slightly-greater-than-normal social distancing is the norm. Whatever the motivations may be regarding the Olympics and Abe's legacy, Japan is unwilling to force the economy into the economic depression that would be the result of prolonged lockdown. </p><p><strong>A COVID-19 WORLD</strong> - This 'keep-calm-carry-on' model of a Covid-19-prevalent world (as is also seen in Singapore and Taiwan) will eventually have to be applied globally. These countries rapid transition to the new 'Covid-19 world' should result in better short-term outcomes for these economies.  The UK is currently being criticised for attempting to follow a version of this model, and may eventually have to go against the advice of its epidemiologists. Fortunately, for now, the general public are giving the UK government the benefit of the doubt. There will be a sharp divergence in the medium-term economic outlooks for countries taking these two 'paths' with those that are over-reacting paying a heavy price. While this does not bode well for the Eurozone, East Asia, including Japan, should emerge in better shape in this new 'viral' world.      </p><div class="content-highlight"><p>In the <strong>DETAIL</strong> section below, we shall review a number of our favourite market indicators, recent sector performance and make some recommendations as to how to harness this<strong> once-in-a-decade</strong> opportunity to buy high-quality Japanese companies at attractive prices.</p></div>

Source • Japan AnalyticsRELATIVE VALUE - Since the recent peak of December 17th, the TOPIX Index has fallen by 28% in 56 trading days. The -0.57% daily average rate of decline over the last three months has only been exceeded on 32 of the 10,142 days since March 1979, eight of which occurred in 1990, with the balance in 2008. From the January 23rd 2018 peak of 1,911, the index has fallen by 34% and is within 3% of our target (expressed in terms of Total Market Value ex REITs) outlined in our Opportunity Knocks? Insight published on 1st March. The market is also within 5% of the TOPIX low of 1,196 of 12th February 2016, which we expect will provide some short-term support. Although Japan and many other developed world economies are now in recession, markets do not fall in a straight line forever. Japanese equities now offer attractive relative value and should outperform over the coming months.Source • Japan AnalyticsIT'S DIFFERENT THIS TIME - Most bear markets in Japan have coincided with periods of Yen strength, including the 29% 2015/16 decline when the currency strengthened by 19%. Repeating the rate of decline analysis above, in US dollar terms there have only been four days in the last twenty-eight years with worse 56-day rates of decline - all in October 2008. All four days provided fearless investors with excellent medium-term gains. Although this increase in market volatility may be less welcome for international investors in Japanese equities, the impact of the Covid-19 recession on the Japanese economy will be more muted. Also, the 48% collapse in the oil price year-to-date will help offset the negative impact of the October 2019 increase in the consumption tax and the decline in export sales in Europe. Lastly, we would suggest that the much-derided net cash that Japanese corporates 'hoard' for rainy days such as these, should delay the need for increases in credit lines. Our recent series of Insights on Who’s Swimming Naked? cover those companies to which this does not apply. Overall, for Japan at least, it is different this time.Source • Max Roser, Hannah Ritchie and Esteban Ortiz-Ospina (2020) - "Coronavirus Disease (COVID-19) – Research and Statistics". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/coronavirus' [Online Resource]CONTAINING COVID - According to data from the peerless Global Change Data Lab at Oxford University, Japan has, (except for the unfortunate passengers and crew on the Diamond Princess cruise ship), managed to contain Covid-19 better than any other large nation. While, there is some scepticism that this outcome could be a result of under-testing to avoid cancellation of the Olympic Games; nevertheless, the recorded cases fatality rate in a country with an above-average age profile is surprisingly low.  Currently, the daily increase in active Covid-19 cases in Japan is less than one hundred and was only seventeen on March 15th. The cumulative number of confirmed Covid-19 fatalities is 24, of which two occurred yesterday. The confirmed number of cases per 100,000 population is 0.65, which compares with 19.5 in South Korea, 16.5 in Italy and 12 in Iran. Source • oann.comKEEP CALM AND CARRY ON - Last night's press conference by Prime Minister Abe was in stark contrast to the sombre tone to those of Prime Minister Johnson of the United Kingdom and the tragicomic ramblings of the US President. Having received the legislative powers to declare a state of emergency, Abe declined at this stage to invoke any social restrictions beyond the already-announced school closures. As in the UK, sporting authorities are cancelling events or holding them sine populo. Japan's long obsession with cleanliness, the culture of bowing as a greeting and readiness to conform have served to 'flatten the curve'. The increased focus on such practices has also resulted in a very low incidence of seasonal influenza this year. Japan also has significantly lower levels of air pollution compared to China, Iran and northern Italy, a  factor that has become a factor in fatality rates, especially amongst the elderly. Although internal travel and restaurant patronage have sharply declined in Japan, shops are open and are well-stocked (except for now-rationed paper products) and 'free movement' with slightly-greater-than-normal social distancing is the norm. Whatever the motivations may be regarding the Olympics and Abe's legacy, Japan is unwilling to force the economy into the economic depression that would be the result of prolonged lockdown. A COVID-19 WORLD - This 'keep-calm-carry-on' model of a Covid-19-prevalent world (as is also seen in Singapore and Taiwan) will eventually have to be applied globally. These countries rapid transition to the new 'Covid-19 world' should result in better short-term outcomes for these economies.  The UK is currently being criticised for attempting to follow a version of this model, and may eventually have to go against the advice of its epidemiologists. Fortunately, for now, the general public are giving the UK government the benefit of the doubt. There will be a sharp divergence in the medium-term economic outlooks for countries taking these two 'paths' with those that are over-reacting paying a heavy price. While this does not bode well for the Eurozone, East Asia, including Japan, should emerge in better shape in this new 'viral' world.      In the DETAIL section below, we shall review a number of our favourite market indicators, recent sector performance and make some recommendations as to how to harness this once-in-a-decade opportunity to buy high-quality Japanese companies at attractive prices.

🇯🇵 JAPAN MARKET UPDATE • Relative Value: Short-Term Buy On Japanese Equities

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)

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