Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Dai Ichi Life Insurance / Equity Bottom-Up

Seemingly perpetually undervalued major Japanese life insurer <a href="https://www.smartkarma.com/entities/dai-ichi-life-insurance" target="_blank" data-smartkarma-citation="entities:1109:1" rel="noopener">Dai Ichi Life Insurance (8750 JP)</a> after the close today <a href="https://www.dai-ichi-life-hd.com/en/newsroom/newsrelease/2020/pdf/index_029.pdf" target="_blank" rel="noopener">announced</a> a new Mid Term Management Plan for the years 2021-2023, called "Re-Connect 2023."The last medium-term plan had goals of delivering ¥250bn of Adjusted Profit in FY2020 (a goal it beat in FY2019 but will miss this year), ¥230bn of new business value in FY2020 - a number it hasn't come close to in the mid-term plan and will miss this year, a medium-long-term goal of average Embedded Value growth of 8.0%, a goal it has missed entirely with FY18 and FY19 coming in at -0.6% and -2.8%, and a solvency ratio of 170-200%. Last year was 195% and this year should be quite well above 200%. Of more immediate importance, the Company also <a href="https://www.dai-ichi-life-hd.com/en/newsroom/newsrelease/2020/pdf/index_028.pdf" target="_blank" rel="noopener">announced</a> an VERY BIG BUYBACK of "up to 170,000,000 shares" (15.25% of shares out) spending "up to ¥200 billion."The headline is big. The actuality is smaller, but it is DEFINITELY worth a slightly deeper dive below.It may even have an effect on <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a> because of the <a href="https://www.smartkarma.com/insights/huge-japan-post-insurance-buyback-mooted-decks-cleared-time-to-buy" target="_blank" data-smartkarma-citation="insights:46429" rel="noopener">Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy</a> situation from last December (further discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a>).

Seemingly perpetually undervalued major Japanese life insurer Dai Ichi Life Insurance (8750 JP) after the close today announced a new Mid Term Management Plan for the years 2021-2023, called "Re-Connect 2023."The last medium-term plan had goals of delivering ¥250bn of Adjusted Profit in FY2020 (a goal it beat in FY2019 but will miss this year), ¥230bn of new business value in FY2020 - a number it hasn't come close to in the mid-term plan and will miss this year, a medium-long-term goal of average Embedded Value growth of 8.0%, a goal it has missed entirely with FY18 and FY19 coming in at -0.6% and -2.8%, and a solvency ratio of 170-200%. Last year was 195% and this year should be quite well above 200%. Of more immediate importance, the Company also announced an VERY BIG BUYBACK of "up to 170,000,000 shares" (15.25% of shares out) spending "up to ¥200 billion."The headline is big. The actuality is smaller, but it is DEFINITELY worth a slightly deeper dive below.It may even have an effect on Japan Post Insurance (7181 JP) because of the Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy situation from last December (further discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher).  

Dai-Ichi Life (8750)'s New Mid-Term Plan and Very Big Buyback

Quantitative Analysis

In late November, I updated my "JAPAN FLOW:  Foreign Investor Flows Still Matter" series with <a href="https://www.smartkarma.com/insights/japan-flow-foreign-investor-flows-still-matter-redux-reduxed-playing-catchup" target="_blank" data-smartkarma-citation="insights:45711" rel="noopener">JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup</a>.The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically based on a relatively simple indicator. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/938/original/Screenshot+2021-02-21+at+6.33.43+PM.png?1613903639" class="editor-image img-responsive" data-smartkarma-image-id="189938"></figure></section>This chart shows 26-week cumulative net buying vs the indicator, which moves faster, but if you break down that average into a shorter-term average, it moves "faster" in response to moves in the light blue line. My conclusion in late November was that foreigners were "behind the curve" and needed to play catchup. That was despite the fact that they had purchased ¥1.5trln of stocks in the previous four weeks. Since end-November, they have net purchased more than ¥1.7 trillion worth of Japanese equities through 12 February (the data through 19 Feb is not available until 26 February). The inputs to the indicator currently suggest it could go either way from here, but as shown in the chart above (the light blue line) it is an oscillator. And generally speaking, when oscillators reach the outer limits of their ranges, they tend to revert. And the dark blue line has a ¥1.4trln "tailwind" over the next 7 weeks. <div class="content-highlight">But foreign investment flows into Japan are basically a WANT function. They buy more if they want to do so. I often find it instructive to look at flows in terms of WANT vs NEED. NEED is more compelling, and there are some compelling "NEED flows" in the next 6 weeks.</div>More below the fold.

In late November, I updated my "JAPAN FLOW:  Foreign Investor Flows Still Matter" series with JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup.The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically based on a relatively simple indicator. This chart shows 26-week cumulative net buying vs the indicator, which moves faster, but if you break down that average into a shorter-term average, it moves "faster" in response to moves in the light blue line. My conclusion in late November was that foreigners were "behind the curve" and needed to play catchup. That was despite the fact that they had purchased ¥1.5trln of stocks in the previous four weeks. Since end-November, they have net purchased more than ¥1.7 trillion worth of Japanese equities through 12 February (the data through 19 Feb is not available until 26 February). The inputs to the indicator currently suggest it could go either way from here, but as shown in the chart above (the light blue line) it is an oscillator. And generally speaking, when oscillators reach the outer limits of their ranges, they tend to revert. And the dark blue line has a ¥1.4trln "tailwind" over the next 7 weeks. But foreign investment flows into Japan are basically a WANT function. They buy more if they want to do so. I often find it instructive to look at flows in terms of WANT vs NEED. NEED is more compelling, and there are some compelling "NEED flows" in the next 6 weeks.More below the fold.

JAPAN FLOW:  Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

Event-Driven

With one day to go until the annual, but this time/year delayed, TOPIX FFW Rebalance, which should see up to $32bn in two-way flow, it appears as if those who put on an anticipatory trade prior to the actual announcement on 8 January have started to exit. This is as I had warned in <a href="https://www.smartkarma.com/insights/the-delayed-topix-ffw-rebalance-32bn-to-trade" target="_blank" data-smartkarma-citation="insights:46902" rel="noopener">The Delayed TOPIX FFW Rebalance: $32bn To Trade</a>. More below the fold.

With one day to go until the annual, but this time/year delayed, TOPIX FFW Rebalance, which should see up to $32bn in two-way flow, it appears as if those who put on an anticipatory trade prior to the actual announcement on 8 January have started to exit. This is as I had warned in The Delayed TOPIX FFW Rebalance: $32bn To Trade. More below the fold. 

TOPIX FFW Rebal: Proceeding But Not Ahead of Plan

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

MSCI Emerging Markets Index / Technical Analysis

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

Global Commodity-Related Equity Sectors In Secular Bull

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

Japan

Japan Post Insurance Co. Ltd. operates life insurance business. The Company offers whole life insurance, education endowment, ordinary endowment, medical insurance, and special endowment insurance. Japan Post Insurance provides services for individuals and businesses throughout Japan.

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Japan Post Insurance (7181 JP)

Dai-Ichi Life (8750)'s New Mid-Term Plan and Very Big Buyback

Dai-Ichi Life has for years been one of the Very Cheap Life Insurers globally. It seems they have gotten tired of this. The new mid-term plan...

Travis Lundy

JAPAN FLOW: Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

JAPAN FLOW: There are fundamentals, and there are flows. Japan is driven by both. Japan earnings revisions are finally on their way up. Flows have...

Travis Lundy

TOPIX FFW Rebal: Proceeding But Not Ahead of Plan

TOPIX FFW Rebalance is 28 January at the close. $32 billion in two-way flows with some big names to trade. The Top 50 Buys have seen, on average,...

Travis Lundy

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Dai-Ichi Life (8750)'s New Mid-Term Plan and Very Big Buyback

Dai-Ichi Life has for years been one of the Very Cheap Life Insurers globally. It seems they have gotten tired of this. The new mid-term plan...

Travis Lundy

JAPAN FLOW: Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

JAPAN FLOW: There are fundamentals, and there are flows. Japan is driven by both. Japan earnings revisions are finally on their way up. Flows have...

Travis Lundy

TOPIX FFW Rebal: Proceeding But Not Ahead of Plan

TOPIX FFW Rebalance is 28 January at the close. $32 billion in two-way flows with some big names to trade. The Top 50 Buys have seen, on average,...

Travis Lundy

Global Commodity-Related Equity Sectors In Secular Bull

We believe commodities are in the early stages of a new secular bull market. Global Materials & Energy remain our favorite Sector overweights - add...

Vermilion Research

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy