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

Our outlook remains unchanged as the weight of the evidence continues to suggest a mixed, but overall constructive market. Cyclical value Sectors continue to be our favorite areas to overweight (i.e., Energy, Materials, Manufacturing, and Transportation), while defensive Sectors also continue to be worth a look (i.e., Staples, Health Care, and Real Estate).

Our outlook remains unchanged as the weight of the evidence continues to suggest a mixed, but overall constructive market. Cyclical value Sectors continue to be our favorite areas to overweight (i.e., Energy, Materials, Manufacturing, and Transportation), while defensive Sectors also continue to be worth a look (i.e., Staples, Health Care, and Real Estate). 

Global Equity Strategy: Value Remains Leadership But Defensives Improving

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In summer of 2016, I warned on Smartkarma that the BOJ was going to have to shift its ETF buy basket away from Nikkei 225. It did so in late 2016. I warned again in early 2018 that it was going to get worse, and suggested a revision to the Nikkei 225 Average methodology in <a href="https://www.smartkarma.com/insights/the-boj-s-ongoing-etf-impact-is-a-nikkei-225-reshuffle-in-the-cards" target="_blank" data-smartkarma-citation="insights:17331" rel="noopener">The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards?</a> (followed by <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980" rel="noopener">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a>) whereby there would be a deemed minimum shares outstanding quantity so that Deemed Minimum Shares Out / Shares out multiplied by Existing Deemed Par Value would become NEW Deemed Par Value.
This would mean that some names would see lower weights, but on the whole, the Nikkei 225 basket would be much more liquid. 
Nothing was done. The BOJ again lowered its use of Nikkei 225 ETFs, then recently finally stopped using the average altogether. 
The Nikkei 225 had been made largely irrelevant by the Nikkei's refusal to adapt to the times.
<h2>The NEW News</h2>
Today after the close, the Nikkei Index Team announced the first proposed revision to the methodology of the Nikkei 225 Average in twenty years, and a consultation over the next five weeks. Because the concept of Par Value is no longer used in Japan in the Companies Act, it would get rid of the "Presumed Par Value" or "Deemed Par Value" for members and potential members of the Average, and replace it with a Price Adjustment Factor ("PAF") which is an inverse multiplier of the Deemed Par Value. 
In short.... it would do nothing to the index and its constituents as they stand today.
And new additions would be assigned a PAF which would presumably be related to their previously understood Deemed Par Value. But in any case, new constituents would be capped at 1% weightings so would see their Price Adjustment Factor.... adjusted. 
There are other changes proposed which change the rebalancing possibilities, and there is a note that the Average would only include members of TSE Prime (such that existing TSE1 and Nikkei 225 members which chose not to become members of TSE Prime would find themselves booted from the Nikkei 225. 
This is highly disappointing. A 20-year review could have been so much more interesting and the Nikkei could have rescued itself from effective oblivion. Alas, this misses the mark, by a wide margin. 
But details are details so we look at them below.

In summer of 2016, I warned on Smartkarma that the BOJ was going to have to shift its ETF buy basket away from Nikkei 225. It did so in late 2016. I warned again in early 2018 that it was going to get worse, and suggested a revision to the Nikkei 225 Average methodology in The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards? (followed by JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225) whereby there would be a deemed minimum shares outstanding quantity so that Deemed Minimum Shares Out / Shares out multiplied by Existing Deemed Par Value would become NEW Deemed Par Value.
This would mean that some names would see lower weights, but on the whole, the Nikkei 225 basket would be much more liquid. 
Nothing was done. The BOJ again lowered its use of Nikkei 225 ETFs, then recently finally stopped using the average altogether. 
The Nikkei 225 had been made largely irrelevant by the Nikkei's refusal to adapt to the times.
The NEW News
Today after the close, the Nikkei Index Team announced the first proposed revision to the methodology of the Nikkei 225 Average in twenty years, and a consultation over the next five weeks. Because the concept of Par Value is no longer used in Japan in the Companies Act, it would get rid of the "Presumed Par Value" or "Deemed Par Value" for members and potential members of the Average, and replace it with a Price Adjustment Factor ("PAF") which is an inverse multiplier of the Deemed Par Value. 
In short.... it would do nothing to the index and its constituents as they stand today.
And new additions would be assigned a PAF which would presumably be related to their previously understood Deemed Par Value. But in any case, new constituents would be capped at 1% weightings so would see their Price Adjustment Factor.... adjusted. 
There are other changes proposed which change the rebalancing possibilities, and there is a note that the Average would only include members of TSE Prime (such that existing TSE1 and Nikkei 225 members which chose not to become members of TSE Prime would find themselves booted from the Nikkei 225. 
This is highly disappointing. A 20-year review could have been so much more interesting and the Nikkei could have rescued itself from effective oblivion. Alas, this misses the mark, by a wide margin. 
But details are details so we look at them below. 

After 20yrs, Nikkei 225 Proposes Minor Impact Rule Changes (Nintendo Disappointment?)

Equity Bottom-Up

Kyokuto Kaihatsu Kogyo Co / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kyokuto-kaihatsu-kogyo-co-ltd" target="_blank" data-smartkarma-citation="entities:14390:1" rel="noopener">Kyokuto Kaihatsu Kogyo Co (7226 JP)</a> is, and has been for a a couple of decades, a value-stock player's dream. This company makes garbage trucks, dump trucks, concrete mixer trucks, sprinkler trucks, and truck parts such as lifters, etc.  They also make multi-story metal parking frames which can be sited easily on empty lots for those who want to use land but not redevelop.
The company has been cash-rich and asset-rich for ages - sometimes more so, sometimes less so - and has had hidden assets to boot. 
The stock tends to "range-trade" around a range of PBR, dipping when earnings dip and rising as people get excited about trucks. But despite being a stock which some might call a value-trap, it has done pretty well over the years. Sometimes it gets REALLY cheap. 
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/198/161/original/Screenshot+2021-03-30+at+4.49.45+PM.png?1617094425" class="editor-image img-responsive" data-smartkarma-image-id="198161"></figure>
</section>
<h3>The NEW News</h3>
On March 30, the company announced the sale of one of its "hidden assets" with the contract signed today and the close expected in the fiscal year which starts April 1. 
It is worth looking at this company just to see what else it might spit out.

Kyokuto Kaihatsu Kogyo Co (7226 JP) is, and has been for a a couple of decades, a value-stock player's dream. This company makes garbage trucks, dump trucks, concrete mixer trucks, sprinkler trucks, and truck parts such as lifters, etc.  They also make multi-story metal parking frames which can be sited easily on empty lots for those who want to use land but not redevelop.
The company has been cash-rich and asset-rich for ages - sometimes more so, sometimes less so - and has had hidden assets to boot. 
The stock tends to "range-trade" around a range of PBR, dipping when earnings dip and rising as people get excited about trucks. But despite being a stock which some might call a value-trap, it has done pretty well over the years. Sometimes it gets REALLY cheap. 



The NEW News
On March 30, the company announced the sale of one of its "hidden assets" with the contract signed today and the close expected in the fiscal year which starts April 1. 
It is worth looking at this company just to see what else it might spit out. 

Japan Value:  Kyokuto Kaihatsu (7226) To Log BIG Special Profit - Governance Activism Target

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.

Yesterday Toyota, Hino and Isuzu announced a new partnership to accelerate development of commercial vehicles utilising CASE technologies. The move is something of a surprise given that Toyota and Isuzu previously ended their capital tie-up (formed in 2006 to develop diesel engines) in 2018 without anything of real substance coming to fruition. It is, however, an indication that the Japanese auto sector will continue to consolidate around Toyota as we have been saying for some time.

Yesterday Toyota, Hino and Isuzu announced a new partnership to accelerate development of commercial vehicles utilising CASE technologies. The move is something of a surprise given that Toyota and Isuzu previously ended their capital tie-up (formed in 2006 to develop diesel engines) in 2018 without anything of real substance coming to fruition. It is, however, an indication that the Japanese auto sector will continue to consolidate around Toyota as we have been saying for some time.

Toyota – Isuzu Re-Tie-Up Drives Further Japanese Consolidation

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

As long as market dynamics remain largely positive and the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we believe a constructive outlook is warranted. To reiterate, support levels to watch include $90 on ACWI-US, $53 on ACWX-US, and $52 on EEM-US. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

Global Equity Strategy: Constructive Pullback; Overweight Value

Japan

Isuzu Motors Limited manufactures and markets trucks and automobile parts. The Company's products include pickup trucks, light/heavy duty trucks, medium and large-sized buses, recreational vehicles, and sport utility vehicles.

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Isuzu Motors (7202 JP)

Global Equity Strategy: Value Remains Leadership But Defensives Improving

Cyclical value Sectors continue to be our favorite areas to overweight, while defensive Sectors also continue to be worth a look (i.e., Staples,...

Vermilion Research

After 20yrs, Nikkei 225 Proposes Minor Impact Rule Changes (Nintendo Disappointment?)

TWENTY YEARS after its last major index methodology review, the Nikkei has proposed changes to the Nikkei 225. Existing constituents are not...

Travis Lundy

Japan Value: Kyokuto Kaihatsu (7226) To Log BIG Special Profit - Governance Activism Target

Kyokuto Kaihatsu announced yesterday it would log a large special profit on the sale of a piece of land it has owned for a long time. Laden with...

Travis Lundy

Toyota – Isuzu Re-Tie-Up Drives Further Japanese Consolidation

We believe the tie-up between Isuzu and Toyota is an indication that the Japanese auto sector will continue to consolidate around Toyota as we have...

Mio Kato

Global Equity Strategy: Constructive Pullback; Overweight Value

As long as the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US) indexes are above their respective intermediate-term support levels we...

Vermilion Research

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