Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

Nomura Next F Jpx Nikkei 400 / Event-Driven

On August 7th after the close, the Japan Exchange Group announced the results of its annual review of JPX Nikkei 400 Index Components, resulting in 43 Inclusions and 42 names to be removed.&nbsp;The 42 Exclusions made up a combined weight of 2.7% of the index and as of the close, the 43&nbsp;Inclusions made up a combined expected weight of 5.1%. Toshiba (6502 JP) will be&nbsp;removed from the index because of its recent accounting scandal. TEPCO (9501 JP) was due to enter the index because of its 3-year average ROE and gain in the rankings but when domestic brokers published their expected index change lists in July, domestically there was a critical outcry regarding TEPCO's potential inclusion because of its recent past (and perhaps because of the fact that its E has been crushed and R artificially inflated by government injections and policies).Based on the particular makeup of the universe and relatively strict adherence to the rules and rankings, it is relatively easy to calculate - with a high degree of probability - what the changes in the index will be&nbsp;and last year's review showed that people had OVER-pre-positioned. This year, an arithmetically-weighted basket of the Inclusion Names outperformed its counterpart of Exclusion Names by 5% in the two months to Friday (counting TEPCO and Toshiba the outperformance would have been even higher).CONCLUSIONS<ul><li>As broad rebalances go, this is not terribly large.&nbsp;Based on calculations below, it would be reasonable to expect the total amount tracking the index to be about 3.2-4.0trln yen - not a huge amount. Based on that there would be approximately 240bn yen to buy and 240bn yen to sell (roughlly half exclusion half funding) at current prices.&nbsp;</li><li>The maximum impact in either direction is about 6 days of ADV but the sum total to trade on those two names is about $20mm.&nbsp;</li><li>As with most broad rebalances which are easily predictable, the best way to trade this is perhaps&nbsp;to fade the announcement. It has already moved several percent so there will be unwinds.&nbsp;&nbsp;</li><li>This is STILL a ridiculous index, designed to turn over 10% of its components a year, to over-weight 'new economy' businesses (the more expensive the higher the weight), to penalize those who ultimately become highly successful (market weight cap) and to sell low buy high in doing so (Sony got kicked out a couple of years ago; who will bet against it being put back in within 2yrs at 2-3x the price it got kicked out at?)</li><li>More detail - with tables and rankings - below the fold.</li></ul>

On August 7th after the close, the Japan Exchange Group announced the results of its annual review of JPX Nikkei 400 Index Components, resulting in 43 Inclusions and 42 names to be removed.&nbsp;The 42 Exclusions made up a combined weight of 2.7% of the index and as of the close, the 43&nbsp;Inclusions made up a combined expected weight of 5.1%. Toshiba (6502 JP) will be&nbsp;removed from the index because of its recent accounting scandal. TEPCO (9501 JP) was due to enter the index because of its 3-year average ROE and gain in the rankings but when domestic brokers published their expected index change lists in July, domestically there was a critical outcry regarding TEPCO's potential inclusion because of its recent past (and perhaps because of the fact that its E has been crushed and R artificially inflated by government injections and policies).Based on the particular makeup of the universe and relatively strict adherence to the rules and rankings, it is relatively easy to calculate - with a high degree of probability - what the changes in the index will be&nbsp;and last year's review showed that people had OVER-pre-positioned. This year, an arithmetically-weighted basket of the Inclusion Names outperformed its counterpart of Exclusion Names by 5% in the two months to Friday (counting TEPCO and Toshiba the outperformance would have been even higher).CONCLUSIONSAs broad rebalances go, this is not terribly large.&nbsp;Based on calculations below, it would be reasonable to expect the total amount tracking the index to be about 3.2-4.0trln yen - not a huge amount. Based on that there would be approximately 240bn yen to buy and 240bn yen to sell (roughlly half exclusion half funding) at current prices.&nbsp;The maximum impact in either direction is about 6 days of ADV but the sum total to trade on those two names is about $20mm.&nbsp;As with most broad rebalances which are easily predictable, the best way to trade this is perhaps&nbsp;to fade the announcement. It has already moved several percent so there will be unwinds.&nbsp;&nbsp;This is STILL a ridiculous index, designed to turn over 10% of its components a year, to over-weight 'new economy' businesses (the more expensive the higher the weight), to penalize those who ultimately become highly successful (market weight cap) and to sell low buy high in doing so (Sony got kicked out a couple of years ago; who will bet against it being put back in within 2yrs at 2-3x the price it got kicked out at?)More detail - with tables and rankings - below the fold.

AUG 2015 JPX NIKKEI 400 - Rebalance Announced -  How Much Tracks?  What Are Flows?

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Equity Bottom-Up

<ul>
<li>With less than 60 employees, Tobila Systems is the absolute dominator in the space that can make a significant impact on Japan's society;</li>
<li>The valuation starts to look attractive while the fundamentals remain sound;</li>
<li>Partly benefiting from being the first entrant to this niche with a robust flywheel business model, the company now “monopolizes” both the supply side and the distribution side.</li>
</ul>


With less than 60 employees, Tobila Systems is the absolute dominator in the space that can make a significant impact on Japan's society;
The valuation starts to look attractive while the fundamentals remain sound;
Partly benefiting from being the first entrant to this niche with a robust flywheel business model, the company now “monopolizes” both the supply side and the distribution side.


Tobila Systems: The Monopoly that You Probably Never Heard Of (Even as Its Customer)

Japan

KDDI CORPORATION provides mobile communication services and sells mobile devices.  The Company also is a broadband provider.

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KDDI Corp (9433 JP)

AUG 2015 JPX NIKKEI 400 - Rebalance Announced - How Much Tracks? What Are Flows?

On August 7th after the close, the Japan Exchange Group announced the results of its annual review of JPX Nikkei 400 Index Components, resulting in...

Travis Lundy

Tobila Systems: The Monopoly that You Probably Never Heard Of (Even as Its Customer)

Emotional Mr. Market seems to be offering investors a precious opportunity to accumulate “partial ownerships” in this high-quality business at...

Steven Chen

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