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.

Event-Driven

<ul>
<li>We update on our TOPIX-Nikkei Skew Trade again as we head into the end of the year with markets remaining choppy.</li>
<li>Given likely drops in liquidity but continued choppiness in markets we feel that liquidity risk will be important over the next 2-3 weeks. </li>
<li>Given that, we quite like the risk-reward skew on offer here.</li>
</ul>


We update on our TOPIX-Nikkei Skew Trade again as we head into the end of the year with markets remaining choppy.
Given likely drops in liquidity but continued choppiness in markets we feel that liquidity risk will be important over the next 2-3 weeks. 
Given that, we quite like the risk-reward skew on offer here.


We Like the TOPIX-Nikkei Skew Trade Into End of Year Liquidity Drops

<ul>
<li>At the beginning of the month, we suggested that setting up trades based on TOPIX outperforming Nikkei looked interesting. </li>
<li>This skew trade has a slight inherent short bias as Nikkei is more growth skewed but it has nevertheless generated a positive return. </li>
<li>That is despite Nikkei rising 3.8% since we published our initial note.</li>
</ul>


At the beginning of the month, we suggested that setting up trades based on TOPIX outperforming Nikkei looked interesting. 
This skew trade has a slight inherent short bias as Nikkei is more growth skewed but it has nevertheless generated a positive return. 
That is despite Nikkei rising 3.8% since we published our initial note.


Checking in on the Topix-Nikkei Skew Trade

<ul>
<li>Early last year as COVID was breaking and the BOJ doubled its ETF purchases shifting to TOPIX ETFs from Nikkei ETFs we brought up this trade. </li>
<li>With a long weekend adding to the mix conditions were abnormal but our suggested trades generated 10-12% pure alpha within four trading days. </li>
<li>This trade is starting to look interesting to us again though returns are likely to be less explosive but more persistent this time.</li>
</ul>


Early last year as COVID was breaking and the BOJ doubled its ETF purchases shifting to TOPIX ETFs from Nikkei ETFs we brought up this trade. 
With a long weekend adding to the mix conditions were abnormal but our suggested trades generated 10-12% pure alpha within four trading days. 
This trade is starting to look interesting to us again though returns are likely to be less explosive but more persistent this time.


Equity Bottom-Up

Keyence beat consensus with revenue beating by 5% and OP by 7.3% as all regions contributed to strong growth. The auto sector in particular showed real signs of life, up 40% YoY in the 1H. Momentum is great and we expect it to continue for some time but it also looks priced in.

Keyence beat consensus with revenue beating by 5% and OP by 7.3% as all regions contributed to strong growth. The auto sector in particular showed real signs of life, up 40% YoY in the 1H. Momentum is great and we expect it to continue for some time but it also looks priced in.

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Among active Global managers, Japan Consumer Discretionary stocks are the 3rd largest country/sector holding in the Asia region.  Average fund weights sit behind Taiwan Tech and Japan Industrials at 1.07%, with 57.1% of the 380 funds in our analysis invested in the sector with combined AUM of $9.18bn.Measured against other Asian country/sectors, changes in fund ownership have been positive and among the highest across all measures over the last 6-months.  Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, average weights, funds invested, cash flows and the balance of buyers vs sellers were all positive for Japan Consumer Discretionary stocks.  Infact, across most ownership metrics, Japan Consumer Discretionary stocks have overtaken, or at least closed to gap to China Consumer Discretionary stocks since the 'Tech Crackdown' in October of 2020.  We can see evidence of this rotation on a fund level, with Aberdeen's Global Unconstrained Fund, LBPAM's Actions Monde and BNY Mellon's Global Opportunities Fund examples of managers rotating from China Consumer Discretionary and into Japan since October 2020.Analysis taken from our Global research, covering 380 active Global strategies with combined AUM of $1.1bn

Among active Global managers, Japan Consumer Discretionary stocks are the 3rd largest country/sector holding in the Asia region.  Average fund weights sit behind Taiwan Tech and Japan Industrials at 1.07%, with 57.1% of the 380 funds in our analysis invested in the sector with combined AUM of $9.18bn.Measured against other Asian country/sectors, changes in fund ownership have been positive and among the highest across all measures over the last 6-months.  Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, average weights, funds invested, cash flows and the balance of buyers vs sellers were all positive for Japan Consumer Discretionary stocks.  Infact, across most ownership metrics, Japan Consumer Discretionary stocks have overtaken, or at least closed to gap to China Consumer Discretionary stocks since the 'Tech Crackdown' in October of 2020.  We can see evidence of this rotation on a fund level, with Aberdeen's Global Unconstrained Fund, LBPAM's Actions Monde and BNY Mellon's Global Opportunities Fund examples of managers rotating from China Consumer Discretionary and into Japan since October 2020.Analysis taken from our Global research, covering 380 active Global strategies with combined AUM of $1.1bn

Japan Consumer Discretionary:  Benefiting from China's Downfall

Japan

KEYENCE CORPORATION develops, manufactures, and sells sensors and measuring instruments used for factory automation (FA) and high technology hobby products. The Company's products include fiber optic sensors, photoelectric sensors, programmable logic controllers (PLC), laser scan micrometers, bar code readers, and radio-controlled model cars.

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Keyence Corp (6861 JP)

We Like the TOPIX-Nikkei Skew Trade Into End of Year Liquidity Drops

Given likely drops in liquidity but continued choppiness in markets we feel that liquidity risk will be important over the next 2-3 weeks. Given...

Mio Kato

Checking in on the Topix-Nikkei Skew Trade

Our TOPIX-Nikkei skew trade has a slight inherent short bias as Nikkei is more growth skewed but it has nevertheless generated a positive return...

Mio Kato

Revisiting the Topix-Nikkei Skew Trade

Early last year we suggested trading this skew which would have generated 10-12% pure alpha within four trading days. This trade is starting to...

Mio Kato

Keyence – Keeps on Keyence-Ing

Keyence beat consensus with revenue beating by 5% and OP by 7.3% as all regions contributed to strong growth. Momentum is great and we expect it to...

Mio Kato

Japan Consumer Discretionary: Benefiting from China's Downfall

Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, active Global managers have pivoted towards the Japan Consumer...

Steven Holden

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