Japanese Equity Specialist, Ortus Advisors

Andrew Jackson

Japanese Equity Specialist

Ortus Advisors

Thematic (Sector/Industry)

<ul>
<li>DOW +0.59%, Russell -1.06%, SPX -1.39%, Nasdaq -2.77%, SOX -6.81% as investors shifted from growth to value stocks. UST10 was flat at 4.16%, and the yen strengthened to Y156.18.</li>
<li>Commodities were mixed with copper -0.3%, nickel -0.83%, and Brent +1.72%. Energy and consumer staples rose, with VSF +13.6% after Essilor Luxottica agreed to buy Supreme. US homebuilders lost ground. </li>
<li>Tech stocks fell sharply after ASML's earnings missed estimates and news of potential US export restrictions to China. Focus on SPE names with high China exposure as shorts.</li>
</ul>


DOW +0.59%, Russell -1.06%, SPX -1.39%, Nasdaq -2.77%, SOX -6.81% as investors shifted from growth to value stocks. UST10 was flat at 4.16%, and the yen strengthened to Y156.18.
Commodities were mixed with copper -0.3%, nickel -0.83%, and Brent +1.72%. Energy and consumer staples rose, with VSF +13.6% after Essilor Luxottica agreed to buy Supreme. US homebuilders lost ground. 
Tech stocks fell sharply after ASML's earnings missed estimates and news of potential US export restrictions to China. Focus on SPE names with high China exposure as shorts.


Japan Morning Connection – 18 July, 2024

'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. 

<p><strong>RELATIVE PRICE SCORE SHORT PORTFOLIOS</strong> - Our recent insight Japan: Most Overbought &amp; Most Oversold - The Relative Price Score introduced our methodology for identifying overbought and oversold outliers based on their Relative Price Score (RPS).  Following on from our "Long Portfolios" insight, we will now focus on generating short ideas based on changes in the monthly closing Relative Price Scores.</p><p><strong>HISTORICAL SIMULATION</strong> - Simulations of trading strategies should be viewed with caution, and the usual caveats apply to what follows. 78% of the 287 'trades' generated since 1992 would have been profitable if held and then sold after twelve months. The average 'outcome' for the 26-year period was a 'gain' of 30%. After the cost of borrowing and slippage are subtracted, a 'result' of 20-25% would be more realistic.  In five periods (1993, 2010, 2012 and 20171H) the average gain before borrowing costs was less than 10%.  In 2016 the strategy lost 3% before costs.  As with all mechanical trading rules, they are times when they cease to work. From August 2016 to November 2017, the number of 'losing' trades outweighs 'winning' trades by 27 to 21. During this period, the TOPIX index rose by 39% and so a small single digit 'loss' from shorting is acceptable. However, we would caution that this strategy has been and will, no doubt, again be fallible.</p><div class="content-highlight">
<p style="text-align: center;"><strong>THE 2014 PORTFOLIO</strong></p>
<ul>
<li>22 'positions' in 18 companies produced an average 'return' of 26% before borrowing costs with only three positions stopped out.</li>
<li>The most successful positions were in <a href="https://www.smartkarma.com/entities/18683" target="_blank" data-smartkarma-citation="entities:18683:1">Nihon Trim (6788 JP)</a>, <a href="https://www.smartkarma.com/entities/5568" target="_blank" data-smartkarma-citation="entities:5568:1">Zuiko (6279 JP)</a> and <a href="https://www.smartkarma.com/entities/11666" target="_blank" data-smartkarma-citation="entities:11666:1">D.Western Therapeutics (4576 JP)</a>.</li>
<li>
<a href="https://www.smartkarma.com/entities/3322" target="_blank" data-smartkarma-citation="entities:3322:1">Micronics Japan (6871 JP)</a> is a good illustration of the need for a stop-loss discipline but also the common feature of overbought stocks to have a second 'wind' within a year of the first set-up.</li>
</ul>
</div><div class="content-highlight">
<p style="text-align: center;"><strong>THE 2015 PORTFOLIO</strong></p>
<ul>
<li>11 'positions' in 10 companies produced an average 'return' of 25% with three positions stopped out.</li>
<li>
<a href="https://www.smartkarma.com/entities/15064" target="_blank" data-smartkarma-citation="entities:15064:1">Toyo Tire &amp; Rubber (5105 JP)</a> was another example of a double top.</li>
</ul>
</div><p></p><div class="content-highlight">
<p style="text-align: center;"><strong>THE 2016 PORTFOLIO</strong></p>
<ul>
<li>2016 was the worst year for this strategy in the 28-year period of the simulation. 20 of 41 trades were stopped out and only eight trades in the final quarter added value. For the period, the average 12-month result was a 3% loss before borrowing costs - which compares with a 2016 loss of 2% for the TOPIX Index.</li>
<li>
<a href="https://www.smartkarma.com/entities/10372" target="_blank" data-smartkarma-citation="entities:10372:1">Ezaki Glico (2206 JP)</a> is an example of the persistence of stocks in the overbought zone during this period - in this case with a triple top.</li>
<li>The strategy can also be helpful in identifying trends in sectors and peer groups which can lead to action in other stocks and overall sector positioning - the large number of biotechnology, pharmaceutical and food companies in the 2016 list coincided with multi-year relative peaks in those sectors.</li>
</ul>
</div><p></p><div class="content-highlight">
<p style="text-align: center;"><strong>THE 2017/2018 PORTFOLIOS</strong></p>
<ul>
<li>At this point, most risk control reviews would have shut down trading.  However, performance gradually improved during 2017 despite TOPIX gaining 20%</li>
<li>The 20171H portfolio closed out with a 9% 'return' before costs and four out of seven positions adding value.</li>
<li>There are currently 36 open positions, and 11 stopped out positions with an average return before costs of 8%</li>
<li>The most successful open positions are <a href="https://www.smartkarma.com/entities/3453" target="_blank" data-smartkarma-citation="entities:3453:1">Fukui Computer (9790 JP)</a> and <a href="https://www.smartkarma.com/entities/16888" target="_blank" data-smartkarma-citation="entities:16888:1">Ivy Cosmetics (4918 JP)</a>
</li>
<li>Of the larger capitalisation open positions, a number have been covered by Smartkarma insight providers:- <ul>
<li>
<a href="https://www.smartkarma.com/entities/26074" target="_blank" data-smartkarma-citation="entities:26074:1">Macnica Fuji Electronics (3132 JP)</a> / <a href="https://www.smartkarma.com/insights/macnica-fuji-electronics-3132-jp-fye-update-recommendation-still-an-avoid" target="_blank" data-smartkarma-citation="insights:19959">STILL AN AVOID</a>
</li>
<li>
<a href="https://www.smartkarma.com/entities/10238" target="_blank" data-smartkarma-citation="entities:10238:1">Harmonic Drive Systems (6324 JP)</a> / <a href="https://www.smartkarma.com/insights/harmonic-drive-4q-margins-look-weak-but-this-is-a-one-off-still-expensive-though" target="_blank" data-smartkarma-citation="insights:20261">Q4 Margins Look Weak - Still Expensive Though</a>
</li>
<li>
<a href="https://www.smartkarma.com/entities/13173" target="_blank" data-smartkarma-citation="entities:13173:1">Izumi (8273 JP)</a> / <a href="https://www.smartkarma.com/insights/izumi-and-seven-i-join-forces-to-foil-aeon" target="_blank" data-smartkarma-citation="insights:20012">Izumi and Seven &amp; I Join Forces to Foil Aeon</a>
</li>
</ul>
</li>
</ul>
<p>The most recently added position is boiler-maker <a href="https://www.smartkarma.com/entities/20185" target="_blank" data-smartkarma-citation="entities:20185:1">Miura (6005 JP)</a> which has seen an exceptional period of profitability but is at an extreme valuation relative to its history. At a current TTM EV/OP of 20.5x, the stock has 34% downside to a no-growth valuation.</p>
</div>

RELATIVE PRICE SCORE SHORT PORTFOLIOS - Our recent insight Japan: Most Overbought &amp; Most Oversold - The Relative Price Score introduced our methodology for identifying overbought and oversold outliers based on their Relative Price Score (RPS).  Following on from our "Long Portfolios" insight, we will now focus on generating short ideas based on changes in the monthly closing Relative Price Scores.HISTORICAL SIMULATION - Simulations of trading strategies should be viewed with caution, and the usual caveats apply to what follows. 78% of the 287 'trades' generated since 1992 would have been profitable if held and then sold after twelve months. The average 'outcome' for the 26-year period was a 'gain' of 30%. After the cost of borrowing and slippage are subtracted, a 'result' of 20-25% would be more realistic.  In five periods (1993, 2010, 2012 and 20171H) the average gain before borrowing costs was less than 10%.  In 2016 the strategy lost 3% before costs.  As with all mechanical trading rules, they are times when they cease to work. From August 2016 to November 2017, the number of 'losing' trades outweighs 'winning' trades by 27 to 21. During this period, the TOPIX index rose by 39% and so a small single digit 'loss' from shorting is acceptable. However, we would caution that this strategy has been and will, no doubt, again be fallible.
THE 2014 PORTFOLIO

22 'positions' in 18 companies produced an average 'return' of 26% before borrowing costs with only three positions stopped out.
The most successful positions were in Nihon Trim (6788 JP), Zuiko (6279 JP) and D.Western Therapeutics (4576 JP).

Micronics Japan (6871 JP) is a good illustration of the need for a stop-loss discipline but also the common feature of overbought stocks to have a second 'wind' within a year of the first set-up.


THE 2015 PORTFOLIO

11 'positions' in 10 companies produced an average 'return' of 25% with three positions stopped out.

Toyo Tire &amp; Rubber (5105 JP) was another example of a double top.


THE 2016 PORTFOLIO

2016 was the worst year for this strategy in the 28-year period of the simulation. 20 of 41 trades were stopped out and only eight trades in the final quarter added value. For the period, the average 12-month result was a 3% loss before borrowing costs - which compares with a 2016 loss of 2% for the TOPIX Index.

Ezaki Glico (2206 JP) is an example of the persistence of stocks in the overbought zone during this period - in this case with a triple top.
The strategy can also be helpful in identifying trends in sectors and peer groups which can lead to action in other stocks and overall sector positioning - the large number of biotechnology, pharmaceutical and food companies in the 2016 list coincided with multi-year relative peaks in those sectors.


THE 2017/2018 PORTFOLIOS

At this point, most risk control reviews would have shut down trading.  However, performance gradually improved during 2017 despite TOPIX gaining 20%
The 20171H portfolio closed out with a 9% 'return' before costs and four out of seven positions adding value.
There are currently 36 open positions, and 11 stopped out positions with an average return before costs of 8%
The most successful open positions are Fukui Computer (9790 JP) and Ivy Cosmetics (4918 JP)

Of the larger capitalisation open positions, a number have been covered by Smartkarma insight providers:- 

Macnica Fuji Electronics (3132 JP) / STILL AN AVOID


Harmonic Drive Systems (6324 JP) / Q4 Margins Look Weak - Still Expensive Though


Izumi (8273 JP) / Izumi and Seven &amp; I Join Forces to Foil Aeon




The most recently added position is boiler-maker Miura (6005 JP) which has seen an exceptional period of profitability but is at an extreme valuation relative to its history. At a current TTM EV/OP of 20.5x, the stock has 34% downside to a no-growth valuation.


Japan: Relative Price Score Short Portfolios

Japan

MICRONICS JAPAN CO., LTD. designs, manufactures, and markets probe cards, which are used to inspect semiconductors and integrated circuits (ICs).  The Company also makes wafer probers, probe card testers, IC handlers, and inspection devices used for liquid crystal display (LCD) manufacturing.

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Micronics Japan (6871 JP)

Japan Morning Connection – 18 July, 2024

Investors shift from growth to value stocks, tech stocks fall on ASML earnings miss and US export restrictions to China, VSF surges after Essilor...

Andrew Jackson

Japan: Relative Price Score Short Portfolios

RELATIVE PRICE SCORE SHORT PORTFOLIOS - Our recent insight Japan: Most Overbought & Most Oversold - The Relative Price Score introduced our...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japan Morning Connection – 18 July, 2024

​Investors shift from growth to value stocks, tech stocks fall on ASML earnings miss and US export restrictions to China, VSF surges after Essilor...

Andrew Jackson

Japan: Relative Price Score Short Portfolios

RELATIVE PRICE SCORE SHORT PORTFOLIOS - Our recent insight Japan: Most Overbought & Most Oversold - The Relative Price Score introduced our...

Campbell Gunn

Investors shift from growth to value stocks, tech stocks fall on ASML earnings miss and US export restrictions to China, VSF surges after Essilor...