'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

• RELATIVE PRICE SCORE •The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company data is cap-weight-aggregated into 328 Peer Group and 30 Sector Relative Price Scores. Outlier thresholds are set at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors. These thresholds equate with the top and bottom first-to-second percentiles of historical observations from which mean reversion normally takes only a few months.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/661/original/2019-09-02_10-54-04.png?1567389310" class="editor-image img-responsive" data-smartkarma-image-id="97661"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/664/original/2019-09-02_10-56-43.png?1567389423" class="editor-image img-responsive" data-smartkarma-image-id="97664"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/676/original/2019-09-02_11-21-41.png?1567390923" class="editor-image img-responsive" data-smartkarma-image-id="97676"></figure><div class="content-caption">Source: Japan Analytics</div>OUTLIER TRENDS - In the past, increases in the percentage of companies that are either Overbought or Oversold has been a useful indicator of market trends with a rising number of Overbought outliers being bullish and an increasing number of Oversold outliers being bearish and the crossovers between the numbers of each offering market timing signals.  The current situation where both sets of outliers are rising has only occurred once before in the last 30 years - in 1999/2000 shortly before the peak of the 'tech bubble' when the combined total of Overbought and Oversold percentages reached over three times the current level.. We attribute some of the market's distortions to the Bank of Japan's market activities and the increase in algorithmic trading. Whatever the cause, repeating the 2000 tech bubble playbook is unlikely to end well.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/672/original/2019-09-02_11-13-07.png?1567390420" class="editor-image img-responsive" data-smartkarma-image-id="97672"></figure><div class="content-caption">Source: Japan Analytics</div>NEGATIVE 'SPREADS' - On a daily closing basis, the Oversold outlier percentage is currently 3.83%, having peaked at 4.06% on 29th August. The Overbought outlier percentage peaked at 2.73% on 26th August and is now at 2.45%. The negative 'spread' is currently -1.38%, having reached -1.59% on 29th August which compares with -1.34 at the recent market low point on December 25th 2018, and -1.26 on 29th January. In this distorted and polarised market, the winners keep on winning, and the losers keep on losing, but the Total Market Value is now out of 'sync' with the spread and should correct to the downside.<hr>• SECTORS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/677/original/2019-09-02_11-30-46.png?1567391475" class="editor-image img-responsive" data-smartkarma-image-id="97677"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR 28-YEAR TIMELINE - The 28-year Sector Relative Price Score Timeline chronicles the periodic extremes of both Overbought and Oversold Sectors. Only seventeen Sectors have been Overbought during this period for a total of 546 months of which half were before 2001. The average Overbought persistence is 4.3 months or 3.4 months excluding the Internet Sector.  Only fourteen Sectors have been Oversold since 1992 for a total of 243 months of which 55% were before 2001. The average Oversold persistence is 5.7 months although this has risen to 7.5 months since 2001. Currently, five Sectors are Overbought - Consumer Services, Healthcare, Other Consumer Products, Information Technology, and Other Commercial Products. Four Sectors are Oversold - Banks, Multi-Industry, Utilities, and Energy.    <div class="content-highlight">In the DETAIL section below, we provide an update on recent Sector and Peer Group trends. A second Insight will follow looking at the September Relative Price Scores for Companies. </div>

• RELATIVE PRICE SCORE •The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company data is cap-weight-aggregated into 328 Peer Group and 30 Sector Relative Price Scores. Outlier thresholds are set at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors. These thresholds equate with the top and bottom first-to-second percentiles of historical observations from which mean reversion normally takes only a few months.Source: Japan AnalyticsOUTLIER TRENDS - In the past, increases in the percentage of companies that are either Overbought or Oversold has been a useful indicator of market trends with a rising number of Overbought outliers being bullish and an increasing number of Oversold outliers being bearish and the crossovers between the numbers of each offering market timing signals.  The current situation where both sets of outliers are rising has only occurred once before in the last 30 years - in 1999/2000 shortly before the peak of the 'tech bubble' when the combined total of Overbought and Oversold percentages reached over three times the current level.. We attribute some of the market's distortions to the Bank of Japan's market activities and the increase in algorithmic trading. Whatever the cause, repeating the 2000 tech bubble playbook is unlikely to end well.Source: Japan AnalyticsNEGATIVE 'SPREADS' - On a daily closing basis, the Oversold outlier percentage is currently 3.83%, having peaked at 4.06% on 29th August. The Overbought outlier percentage peaked at 2.73% on 26th August and is now at 2.45%. The negative 'spread' is currently -1.38%, having reached -1.59% on 29th August which compares with -1.34 at the recent market low point on December 25th 2018, and -1.26 on 29th January. In this distorted and polarised market, the winners keep on winning, and the losers keep on losing, but the Total Market Value is now out of 'sync' with the spread and should correct to the downside.• SECTORS •Source: Japan AnalyticsSECTOR 28-YEAR TIMELINE - The 28-year Sector Relative Price Score Timeline chronicles the periodic extremes of both Overbought and Oversold Sectors. Only seventeen Sectors have been Overbought during this period for a total of 546 months of which half were before 2001. The average Overbought persistence is 4.3 months or 3.4 months excluding the Internet Sector.  Only fourteen Sectors have been Oversold since 1992 for a total of 243 months of which 55% were before 2001. The average Oversold persistence is 5.7 months although this has risen to 7.5 months since 2001. Currently, five Sectors are Overbought - Consumer Services, Healthcare, Other Consumer Products, Information Technology, and Other Commercial Products. Four Sectors are Oversold - Banks, Multi-Industry, Utilities, and Energy.    In the DETAIL section below, we provide an update on recent Sector and Peer Group trends. A second Insight will follow looking at the September Relative Price Scores for Companies. 

🇯🇵 Japan • September Relative Price Scores - Life at the Poles Part 1

• RELATIVE PRICE SCORE • <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/226/original/2019-06-13_16-47-07.png?1560412038" class="editor-image img-responsive" data-smartkarma-image-id="90226"></figure><div class="content-caption">Source: Japan Analytics</div>INTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. <a href="https://www.smartkarma.com/entities/goldwin-inc" target="_blank" data-smartkarma-citation="entities:410:1">Goldwin (8111 JP)</a> has the distinction of being one of only two large-cap RPS 'ten-baggers' since that time.This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/196/original/2019-06-13_11-15-27.png?1560392157" class="editor-image img-responsive" data-smartkarma-image-id="90196"></figure><div class="content-caption">Source: Japan Analytics</div>STATISTICS - Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are 'Overbought', and 131 are 'Oversold' - 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 'Overbought' and 18 'Oversold' companies, 6.6% and 5.0%, respectively. As noted the companion Insight, <a href="https://www.smartkarma.com/insights/japan-june-relative-price-scores-market-sectors-peer-groups-more-of-the-same" target="_blank" data-smartkarma-citation="insights:30323">🇯🇵 Japan • June Relative Price Scores: Market, Sectors &amp; Peer Groups - More of The Same</a>, these numbers and percentages are unusual and were last seen in the Japanese market in 2000. <hr>• RELATIVE PRICE SCORE TOPS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/202/original/2019-06-13_13-06-49.png?1560398835" class="editor-image img-responsive" data-smartkarma-image-id="90202"></figure><div class="content-caption">Source: Japan Analytics</div>RPS 'TOPS' - In the last two years, 444 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been <a href="https://www.smartkarma.com/entities/descente-ltd" target="_blank" data-smartkarma-citation="entities:8225:1">Descente (8114 JP)</a>, <a href="https://www.smartkarma.com/entities/alfresa-holdings-corp" target="_blank" data-smartkarma-citation="entities:10610:1">Alfresa (2784 JP)</a>, <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart Uny (8028 JP)</a>, <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1">Kikkoman (2801 JP)</a>, <a href="https://www.smartkarma.com/entities/kobayashi-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:14930:1">Kobayashi Pharmaceutical (4967 JP)</a>, and <a href="https://www.smartkarma.com/entities/eiken-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:12675:1">Eiken Chemical (4549 JP)</a>.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/201/original/2019-06-13_13-04-38.png?1560398780" class="editor-image img-responsive" data-smartkarma-image-id="90201"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/203/original/2019-06-13_13-08-46.png?1560398945" class="editor-image img-responsive" data-smartkarma-image-id="90203"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/204/original/2019-06-13_13-09-37.png?1560399049" class="editor-image img-responsive" data-smartkarma-image-id="90204"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/205/original/2019-06-13_13-12-01.png?1560399142" class="editor-image img-responsive" data-smartkarma-image-id="90205"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/316/original/2019-06-15_19-45-47.png?1560595558" class="editor-image img-responsive" data-smartkarma-image-id="90316"></figure>Source: Japan Analytics
</div>RPS 'BOTTOMS' - 372 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is <a href="https://www.smartkarma.com/entities/k-o-energy-group-inc" target="_blank" data-smartkarma-citation="entities:17701:1">K&amp;O Energy (1663 JP)</a>.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/207/original/2019-06-13_13-14-03.png?1560399270" class="editor-image img-responsive" data-smartkarma-image-id="90207"></figure>Source: Japan Analytics
</div><div class="content-highlight">In the DETAIL section below, we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the most substantial three-month positive and negative changes in RPS.</div>

• RELATIVE PRICE SCORE • Source: Japan AnalyticsINTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS 'ten-baggers' since that time.This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.Source: Japan AnalyticsSTATISTICS - Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are 'Overbought', and 131 are 'Oversold' - 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 'Overbought' and 18 'Oversold' companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors &amp; Peer Groups - More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000. • RELATIVE PRICE SCORE TOPS •Source: Japan AnalyticsRPS 'TOPS' - In the last two years, 444 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP), Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).  
Source: Japan Analytics
RPS 'BOTTOMS' - 372 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&amp;O Energy (1663 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the most substantial three-month positive and negative changes in RPS.

🇯🇵 Japan • Relative Price Scores - Overbought & Oversold Companies - June 2019

• RELATIVE PRICE SCORE •The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company data is cap-weight-aggregated into 328 Peer Group and 30 Sector Relative Price Scores. Outlier thresholds are set at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors. These thresholds equate with the top and bottom first-to-second percentiles of historical observations from which mean reversion normally takes only a few months.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/981/original/2019-06-10_17-53-34.png?1560156828" class="editor-image img-responsive" data-smartkarma-image-id="89981"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/982/original/2019-06-10_17-58-02.png?1560157092" class="editor-image img-responsive" data-smartkarma-image-id="89982"></figure>Source: Japan Analytics
</div>OUTLIER TRENDS - In the past, increases in the percentage of companies that are either Overbought or Oversold has been a useful indicator of market trends with a rising number of Overbought outliers being bullish and an increasing number of Oversold outliers being bearish and the crossovers between the numbers of each offering market timing signals.  TECH BUBBLE PLAYBOOK - The current situation where both sets of outliers are rising has only occurred once before in the last 30 years - in 1999/2000 shortly before the peak of the 'tech bubble'. We attribute some of the market's distortions to the Bank of Japan's market activities and the increase in algorithmic trading. Whatever the cause, repeating the 2000 tech bubble playbook is unlikely to end well. NEGATIVE 'SPREADS' - On a daily closing basis, the Oversold outlier percentage is currently 3.31%, having peaked at 3.51% on 17th May. The Overbought outlier percentage peaked at 2.52% on 27th May and is now at 2.37%. The negative 'spread' is currently -0.94%, having reached -1.22% on 14th May compared to -1.34 on December 25th 2018, and -1.26 on 29th January. In this distorted and polarised market, the winners keep on winning, and the losers keep on losing.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/985/original/2019-06-10_18-46-51.png?1560160026" class="editor-image img-responsive" data-smartkarma-image-id="89985"></figure><div class="content-caption">Source: Japan Analytics</div>MARKET TIMING - Using the crossover from Net Overbought to Net Oversold as a market timing indicator over the last two decades has produced reasonably good results.  The most recent monthly closing signal was generated in January when the total market value was ¥634t, 1.9% above the current level.<hr>• SECTORS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/987/original/2019-06-10_19-30-41.png?1560162668" class="editor-image img-responsive" data-smartkarma-image-id="89987"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR 28-YEAR TIMELINE - The 28-year Sector Relative Price Score Timeline chronicles the periodic extremes of both Overbought and Oversold Sectors. Only seventeen Sectors have been Overbought during this period for a total of 546 months of which half were before 2001. The average Overbought persistence is 4.3 months or 3.4 months excluding the Internet Sector.  Only fourteen Sectors have been Oversold since 1992 for a total of 243 months of which 55% were before 2001. The average Oversold persistence is 5.7 months although this has risen to 7.5 months since 2001. Currently, five Sectors are Overbought - Consumer Services, Information Technology, Healthcare Other Consumer Products, and Healthcare -  and two Sectors are Oversold - Banks and Utilities.    <div class="content-highlight">In the DETAIL section below, we provide an update on recent Sector and Peer Group trends and make some specific recommendations. A second Insight will follow looking at the Relative Price Scores for Companies. </div>

• RELATIVE PRICE SCORE •The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company data is cap-weight-aggregated into 328 Peer Group and 30 Sector Relative Price Scores. Outlier thresholds are set at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors. These thresholds equate with the top and bottom first-to-second percentiles of historical observations from which mean reversion normally takes only a few months.
Source: Japan Analytics
OUTLIER TRENDS - In the past, increases in the percentage of companies that are either Overbought or Oversold has been a useful indicator of market trends with a rising number of Overbought outliers being bullish and an increasing number of Oversold outliers being bearish and the crossovers between the numbers of each offering market timing signals.  TECH BUBBLE PLAYBOOK - The current situation where both sets of outliers are rising has only occurred once before in the last 30 years - in 1999/2000 shortly before the peak of the 'tech bubble'. We attribute some of the market's distortions to the Bank of Japan's market activities and the increase in algorithmic trading. Whatever the cause, repeating the 2000 tech bubble playbook is unlikely to end well. NEGATIVE 'SPREADS' - On a daily closing basis, the Oversold outlier percentage is currently 3.31%, having peaked at 3.51% on 17th May. The Overbought outlier percentage peaked at 2.52% on 27th May and is now at 2.37%. The negative 'spread' is currently -0.94%, having reached -1.22% on 14th May compared to -1.34 on December 25th 2018, and -1.26 on 29th January. In this distorted and polarised market, the winners keep on winning, and the losers keep on losing.  Source: Japan AnalyticsMARKET TIMING - Using the crossover from Net Overbought to Net Oversold as a market timing indicator over the last two decades has produced reasonably good results.  The most recent monthly closing signal was generated in January when the total market value was ¥634t, 1.9% above the current level.• SECTORS •Source: Japan AnalyticsSECTOR 28-YEAR TIMELINE - The 28-year Sector Relative Price Score Timeline chronicles the periodic extremes of both Overbought and Oversold Sectors. Only seventeen Sectors have been Overbought during this period for a total of 546 months of which half were before 2001. The average Overbought persistence is 4.3 months or 3.4 months excluding the Internet Sector.  Only fourteen Sectors have been Oversold since 1992 for a total of 243 months of which 55% were before 2001. The average Oversold persistence is 5.7 months although this has risen to 7.5 months since 2001. Currently, five Sectors are Overbought - Consumer Services, Information Technology, Healthcare Other Consumer Products, and Healthcare -  and two Sectors are Oversold - Banks and Utilities.    In the DETAIL section below, we provide an update on recent Sector and Peer Group trends and make some specific recommendations. A second Insight will follow looking at the Relative Price Scores for Companies. 

🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups - More of The Same

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/325/original/2019-06-01_09-16-25.png?1559348196" class="editor-image img-responsive" data-smartkarma-image-id="89325"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/326/original/2019-06-01_09-19-21.png?1559348371" class="editor-image img-responsive" data-smartkarma-image-id="89326"></figure>Source: Japan Analytics
</div>INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/329/original/2019-06-01_10-10-41.png?1559351453" class="editor-image img-responsive" data-smartkarma-image-id="89329"></figure><div class="content-caption">Source: Japan Analytics</div>CURRENCY RISK? - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/330/original/2019-06-01_10-14-50.png?1559351702" class="editor-image img-responsive" data-smartkarma-image-id="89330"></figure><div class="content-caption">Source: Japan Analytics</div>RSI - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/331/original/2019-06-01_10-28-00.png?1559352497" class="editor-image img-responsive" data-smartkarma-image-id="89331"></figure><div class="content-caption">Source: Japan Analytics</div>TORAKU - The Toraku advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/333/original/2019-06-01_10-38-19.png?1559353116" class="editor-image img-responsive" data-smartkarma-image-id="89333"></figure><div class="content-caption">Source: Japan Analytics</div>HIGHS - LOWS - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/332/original/2019-06-01_10-32-11.png?1559352742" class="editor-image img-responsive" data-smartkarma-image-id="89332"></figure><div class="content-caption">Source: Japan Analytics</div>VOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Electrical Equipment, and Energy Sectors, the Materials,  Restaurants, and Multi-Industry Sectors are the volume laggards.<div class="content-highlight">In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1">Kikkoman (2801 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1">Inpex (1605 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a>, and <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1">Dentsu (4324 JP)</a>.     </div>


Source: Japan Analytics
INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  Source: Japan AnalyticsCURRENCY RISK? - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  Source: Japan AnalyticsRSI - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. Source: Japan AnalyticsTORAKU - The Toraku advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.Source: Japan AnalyticsHIGHS - LOWS - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.Source: Japan AnalyticsVOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Electrical Equipment, and Energy Sectors, the Materials,  Restaurants, and Multi-Industry Sectors are the volume laggards.In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on Kikkoman (2801 JP), Inpex (1605 JP), Keyence (6861 JP), Leopalace21 (8848 JP), and Dentsu (4324 JP).     

🇯🇵 JAPAN • Market Update - Retesting the Low

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/401/original/2019-05-21_15-51-33.png?1558421503" class="editor-image img-responsive" data-smartkarma-image-id="88401"></figure>Source: Japan Analytics
</div>SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.NOT THAT 'CONSERVATIVE' - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. NO LONGER 'CHEAP' - As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/408/original/2019-05-21_16-29-55.png?1558423805" class="editor-image img-responsive" data-smartkarma-image-id="88408"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/411/original/2019-05-21_16-39-58.png?1558424413" class="editor-image img-responsive" data-smartkarma-image-id="88411"></figure><div class="content-caption">Source: Japan Analytics</div>ROLLING TTMs AND PEAKING MARGINS - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/418/original/2019-05-21_17-16-38.png?1558426621" class="editor-image img-responsive" data-smartkarma-image-id="88418"></figure><div class="content-caption">Source: Japan Analytics</div>RESULT &amp; REVISION SCORE FLATTENS OUT - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.SECOND HALF RECOVERY? - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.


Source: Japan Analytics
SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.NOT THAT 'CONSERVATIVE' - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. NO LONGER 'CHEAP' - As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   Source: Japan AnalyticsROLLING TTMs AND PEAKING MARGINS - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. Source: Japan AnalyticsRESULT &amp; REVISION SCORE FLATTENS OUT - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.SECOND HALF RECOVERY? - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.

🇯🇵 JAPAN • Spring Results & Revisions - Market  & Sector Aggregates & Scores - 2nd▼Quarter

Japan

Lion Corporation manufactures a variety of household products such as toothpaste and detergents. The Company also produces pharmaceuticals, chemical products, and seasonings.  Lion sells its products primarily in Asia.

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Lion Corp (4912 JP)

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