Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

Three days ago I wrote <a href="https://www.smartkarma.com/insights/boj-etf-buying-update" target="_blank" data-smartkarma-citation="insights:38783" rel="noopener">BOJ ETF Buying Update</a> which described the impact of the BOJ buying ETFs on the underlying constituents. This morning, the BOJ made a small clarification, or possibly amendment, to their purchasing plan. This changes the daily purchasing constituent basket slightly, favouring the Nikkei 225 vs what the market probably thought it was doing since mid-March. A quick refresher course on BOJ ETF buying constituency is below.

Three days ago I wrote BOJ ETF Buying Update which described the impact of the BOJ buying ETFs on the underlying constituents. This morning, the BOJ made a small clarification, or possibly amendment, to their purchasing plan. This changes the daily purchasing constituent basket slightly, favouring the Nikkei 225 vs what the market probably thought it was doing since mid-March. A quick refresher course on BOJ ETF buying constituency is below.

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

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.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: <a href="https://www.smartkarma.com/entities/kyocera-corp" target="_blank" data-smartkarma-citation="entities:753:1" rel="noopener">Kyocera Corp (6971 JP)</a> released underwhelming results on Monday, and <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: Kyocera Corp (6971 JP) released underwhelming results on Monday, and TDK Corp (6762 JP) revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata FY03/20 Earnings Preview: Expect A Miss

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/058/original/2020-04-28_05-09-49.png?1588018213" class="editor-image img-responsive" data-smartkarma-image-id="130058"></figure><div class="content-caption">Source • Japan Analytics</div>THE 'UNLIMTED' BANK OF JAPAN - The Bank of Japan's well-telegraphed announcement that they will be free of any constraints in their purchases of fixed income securities had limited impact on the exchange rate and bond markets. In practice, the central bank is limited by the lack of availability of JGBs and yields already being current at their target rate of zero. However, the extension of the BoJ remit to cover corporate bonds and even 'household debt' did prompt short-covering of indebted deep cyclical sectors of the equity market. There were no new purchases of ETFs yesterday.FORECAST REVISION SCORE &lt; RESULTS SCORE - Our Forecast/Revision Score has been higher than our Results Score since February as companies with December year-ends released bullish forecasts for 2020. Many of these forecasts are now being revised down or, as in the case of <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon  (7751 JP)</a>, are being withdrawn.  This Score 'crossover' has been bearish for equities over the past decade, and we would require the reverse for a medium or long-term 'buy' signal for Japanese equities. One caveat is the large number of companies forgoing making initial forecasts for FY2021. Yesterday, only seventeen of the forty-four annual results declarations were accompanied by new forecasts. In the DETAIL below, we shall review Monday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 52 results was 23:5:24; and for the 50 revisions/initial forecasts, the split was 22:2:26. Four companies, including <a href="https://www.smartkarma.com/entities/stanley-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:1330:1" rel="noopener">Stanley Electric (6923 JP)</a>  cut their dividends; two increased.

Source • Japan AnalyticsTHE 'UNLIMTED' BANK OF JAPAN - The Bank of Japan's well-telegraphed announcement that they will be free of any constraints in their purchases of fixed income securities had limited impact on the exchange rate and bond markets. In practice, the central bank is limited by the lack of availability of JGBs and yields already being current at their target rate of zero. However, the extension of the BoJ remit to cover corporate bonds and even 'household debt' did prompt short-covering of indebted deep cyclical sectors of the equity market. There were no new purchases of ETFs yesterday.FORECAST REVISION SCORE &lt; RESULTS SCORE - Our Forecast/Revision Score has been higher than our Results Score since February as companies with December year-ends released bullish forecasts for 2020. Many of these forecasts are now being revised down or, as in the case of Canon  (7751 JP), are being withdrawn.  This Score 'crossover' has been bearish for equities over the past decade, and we would require the reverse for a medium or long-term 'buy' signal for Japanese equities. One caveat is the large number of companies forgoing making initial forecasts for FY2021. Yesterday, only seventeen of the forty-four annual results declarations were accompanied by new forecasts. In the DETAIL below, we shall review Monday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 52 results was 23:5:24; and for the 50 revisions/initial forecasts, the split was 22:2:26. Four companies, including Stanley Electric (6923 JP)  cut their dividends; two increased. 

🇯🇵 JAPAN • Results & Revisions 28th April - The 'Unlimited' BoJ + Panasonic, T.Yuden, Kao, Kyocera

Macroeconomics

The BOJ lifted its daily ETF purchase rate on 2 March to a then-record ¥100bn in response to market weakness the previous week and Monday morning in Asia time. Two weeks later, true global central bank easing activity was launched. On 16 March, the BOJ announced Enhancement of Monetary Easing in Light of the Impact of the Outbreak of the Novel Coronavirus (COVID-19).As discussed in <a href="https://www.smartkarma.com/insights/japan-delta-i-the-boj-ups-etf-buying" target="_blank" data-smartkarma-citation="insights:37528" rel="noopener">JAPAN DELTA I - The BOJ Ups ETF Buying</a> this meant the BOJ would lift its ETF buying rate from ¥6 trillion a year to ¥12 trillion a year, including ¥11.7 trillion of purchases of TOPIX, Nikkei 225, and JPX Nikkei 400 ETFs.In the six weeks since then, the BOJ has purchased ¥2.0038 trillion in ETFs, and has lifted its 3-month annualised purchase rate from ¥4.8trln as of the end of February to ¥13.5trln as of the end of last week. This stretches the concept of "upper limit on annualised purchases" but the BOJ has not shown reticence to buy on weakness. An update below.

The BOJ lifted its daily ETF purchase rate on 2 March to a then-record ¥100bn in response to market weakness the previous week and Monday morning in Asia time. Two weeks later, true global central bank easing activity was launched. On 16 March, the BOJ announced Enhancement of Monetary Easing in Light of the Impact of the Outbreak of the Novel Coronavirus (COVID-19).As discussed in JAPAN DELTA I - The BOJ Ups ETF Buying this meant the BOJ would lift its ETF buying rate from ¥6 trillion a year to ¥12 trillion a year, including ¥11.7 trillion of purchases of TOPIX, Nikkei 225, and JPX Nikkei 400 ETFs.In the six weeks since then, the BOJ has purchased ¥2.0038 trillion in ETFs, and has lifted its 3-month annualised purchase rate from ¥4.8trln as of the end of February to ¥13.5trln as of the end of last week. This stretches the concept of "upper limit on annualised purchases" but the BOJ has not shown reticence to buy on weakness. An update below.

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/379/original/Screenshot%202020-03-29%20at%206.18.38%20PM.png?1585477145" class="editor-image img-responsive" data-smartkarma-image-id="125379"></figure>There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX.

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX. 

Breaking Down Wild Nikkei 225 Component Moves

Japan

Kyocera Corporation manufacturers electronic equipment and components. The Company's products include telecommunication equipment, information equipment, optical equipment, ceramic products, semiconductor parts, chips, hybrid integrated circuits, thermal printheads, image sensors, liquid crystal displays, and connectors. Kyocera operates worldwide.

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Kyocera Corp (6971 JP)

BOJ ETF Buying Composition Clarified

Three days ago I wrote BOJ ETF Buying Update which described the impact of the BOJ buying ETFs on the underlying constituents. This morning, the...

Travis Lundy

Murata FY03/20 Earnings Preview: Expect A Miss

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance,...

Aqila Ali

🇯🇵 JAPAN • Results & Revisions 28th April - The 'Unlimited' BoJ + Panasonic, T.Yuden, Kao, Kyocera

THE 'UNLIMTED' BANK OF JAPAN - The Bank of Japan's well-telegraphed announcement that they will be free of any constraints in their purchases of...

Campbell Gunn

BOJ ETF Buying Update

The BOJ lifted its daily ETF purchase rate on 2 March to a then-record ¥100bn in response to market weakness the previous week and Monday morning...

Travis Lundy

Breaking Down Wild Nikkei 225 Component Moves

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of...

Travis Lundy

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