Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, Japanese equities

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. 

Equity Bottom-Up

1Q results were better than we had expected, with operating profit rising 29.9% year-on-year on a 3.5% increase in sales in the three months to June. Profit growth was supported by an 8.9% increase in sales of capacitors led by demand from the auto industry and a 10.1% increase in sales of modules led by multilayer resin substrates for high-end smartphones. Sales were up in all regions except Greater China, where sales were down 4.6%.But new capacitor orders were down 33.9% year-on-year to 80% of sales and the capacitor order backlog declined by 21% from the end of March. 1Q sales and profit momentum are therefore unlikely to be maintained and profits are likely to be down in FY Mar-20 as a whole. Management's guidance - flat sales and a 17.5% decline in operating profit - remains unchanged.This should be mostly discounted. After peaking at ¥6,752 nearly a year ago, Murata dropped below ¥4,500 in January, May and June of this year. At ¥4,810 (August 2 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22.The 5-year P/E range is 12x - 26x. There is 10% potential downside to the 52-week low of ¥4,328, while 20x our EPS estimate for FY Mar-22 yields a long-term share price target of ¥7,500, or 56% potential upside. We continue to recommend buying on weakness for the long term.

1Q results were better than we had expected, with operating profit rising 29.9% year-on-year on a 3.5% increase in sales in the three months to June. Profit growth was supported by an 8.9% increase in sales of capacitors led by demand from the auto industry and a 10.1% increase in sales of modules led by multilayer resin substrates for high-end smartphones. Sales were up in all regions except Greater China, where sales were down 4.6%.But new capacitor orders were down 33.9% year-on-year to 80% of sales and the capacitor order backlog declined by 21% from the end of March. 1Q sales and profit momentum are therefore unlikely to be maintained and profits are likely to be down in FY Mar-20 as a whole. Management's guidance - flat sales and a 17.5% decline in operating profit - remains unchanged.This should be mostly discounted. After peaking at ¥6,752 nearly a year ago, Murata dropped below ¥4,500 in January, May and June of this year. At ¥4,810 (August 2 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22.The 5-year P/E range is 12x - 26x. There is 10% potential downside to the 52-week low of ¥4,328, while 20x our EPS estimate for FY Mar-22 yields a long-term share price target of ¥7,500, or 56% potential upside. We continue to recommend buying on weakness for the long term.

Murata Mfg. (6981 JP): 1Q Profits Up, Orders Down

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/001/original/2019-07-13_16-16-31.png?1563002212" class="editor-image img-responsive" data-smartkarma-image-id="93001"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/005/original/2019-07-13_16-25-24.png?1563002742" class="editor-image img-responsive" data-smartkarma-image-id="93005"></figure>Source: Japan Analytics
</div>MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/020/original/2019-07-14_06-28-16.png?1563053334" class="editor-image img-responsive" data-smartkarma-image-id="93020"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/024/original/2019-07-14_06-45-29.png?1563054338" class="editor-image img-responsive" data-smartkarma-image-id="93024"></figure> Source: Japan Analytics</div>VALUE TRADED RATIO - The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. <div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/025/original/2019-07-14_06-47-40.png?1563054585" class="editor-image img-responsive" data-smartkarma-image-id="93025"></figure> Source: Japan Analytics</div>TORAKU INDEX - Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  <div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/026/original/2019-07-14_06-54-51.png?1563054906" class="editor-image img-responsive" data-smartkarma-image-id="93026"></figure> Source: Japan Analytics</div>VOLUME SCORE TIMELINE - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the 'go-to' defensive Sector while the Information Technology and Internet Sectors are the 'tema-du-jour' - to mix language metaphors. The 'untouchables' are Metals, Banks, UtilitiesTransportation,  and Multi-Industry.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/028/original/2019-07-14_07-31-40.png?1563057109" class="editor-image img-responsive" data-smartkarma-image-id="93028"></figure> Source: Japan Analytics</div>3-MONTH SECTOR CONTRIBUTION - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The Retail Sector has responded well to the results released so far led by drugstores <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a> and <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha (3391 JP), </a><a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a><a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">, and </a><a href="https://www.smartkarma.com/entities/lawson-inc" target="_blank" data-smartkarma-citation="entities:1040:1" rel="noopener">Lawson (2651 JP)</a>. Electrical Equipment has suffered from weakness in component stocks <a href="https://www.smartkarma.com/entities/alps-alpine-co-ltd" target="_blank" data-smartkarma-citation="entities:12001:1" rel="noopener">Alps Alpine (6770 JP)</a> (-38% over one year), <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata (6981 JP)</a> (see <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s <a href="https://www.smartkarma.com/insights/murata-mfg-6981-jp-buy-on-decline-for-the-long-term" target="_blank" data-smartkarma-citation="insights:30919" rel="noopener">(Buy on Decline for the Long Term</a>), and <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" data-smartkarma-citation="entities:9924:1" rel="noopener">Taiyo Yuden (6976 JP)</a>, while <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a>, <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, and <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu (6301 JP)</a> have weighed on the Machinery Sector.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/031/original/2019-07-14_07-44-47.png?1563057897" class="editor-image img-responsive" data-smartkarma-image-id="93031"></figure></figure> Source: Japan Analytics</div>SECTOR SCORE MATRIX - Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (<a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">OBIC (4684 JP)</a>, Other Commerical Products (<a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya Corp (7741 JP)</a>, and Commercial Services (<a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit 6098 JP).</a> We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (<a href="https://www.smartkarma.com/entities/nippon-steel-sumitomo-metal-corp" target="_blank" data-smartkarma-citation="entities:961:1" rel="noopener">Nippon Steel &amp; Sumitomo Metal (5401 JP)</a>) <div class="content-highlight">In the DETAIL section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a>, <a href="https://www.smartkarma.com/entities/daiseki-co-ltd" target="_blank" data-smartkarma-citation="entities:2330:1" rel="noopener">Daiseki (9793 JP), </a><a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP), </a><a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis (4927 JP)</a>, <a href="https://www.smartkarma.com/entities/sekisui-house-ltd" target="_blank" data-smartkarma-citation="entities:4508:1" rel="noopener">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>, and <a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">Obic (4684 JP)</a>.</div>


Source: Japan Analytics
MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
 Source: Japan AnalyticsVALUE TRADED RATIO - The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. 
 Source: Japan AnalyticsTORAKU INDEX - Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  
 Source: Japan AnalyticsVOLUME SCORE TIMELINE - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the 'go-to' defensive Sector while the Information Technology and Internet Sectors are the 'tema-du-jour' - to mix language metaphors. The 'untouchables' are Metals, Banks, UtilitiesTransportation,  and Multi-Industry.
 Source: Japan Analytics3-MONTH SECTOR CONTRIBUTION - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The Retail Sector has responded well to the results released so far led by drugstores Welcia (3141 JP) and Tsuruha (3391 JP), Fast Retailing (9983 JP), and Lawson (2651 JP). Electrical Equipment has suffered from weakness in component stocks Alps Alpine (6770 JP) (-38% over one year), Murata (6981 JP) (see Scott Foster's (Buy on Decline for the Long Term), and Taiyo Yuden (6976 JP), while SMC (6273 JP), Fanuc (6954 JP), and Komatsu (6301 JP) have weighed on the Machinery Sector.
 Source: Japan AnalyticsSECTOR SCORE MATRIX - Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (Nippon Steel &amp; Sumitomo Metal (5401 JP)) In the DETAIL section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on Welcia (3141 JP), Daiseki (9793 JP), Yaskawa Electric (6506 JP), Pola Orbis (4927 JP), Sekisui House (1928 JP), Keyence (6861 JP), Japan Post Insurance (7181 JP), and Obic (4684 JP).

🇯🇵 JAPAN • Market Update - Levitating on Thin Air

Murata continues to invest heavily in more efficient and greater production capacity, while weak demand for smart phones and the U.S.-China trade war undercut short-term demand for multi-layer ceramic capacitors (MLCCs) and its other products. As a result, after 15% sales growth and near-record operating profit last fiscal year, management is guiding for flat sales and a 17.5% decline in operating profit in FY Mar-20. Negative factors include significantly higher depreciation and R&amp;D spending, lower capacity utilization rates and lower prices.To a large degree, this should already be discounted. After peaking at ¥6,752 nearly a year ago and spiking to ¥6,500 last November, Murata's share price dropped below ¥4,500 in January, May and June of this year. But uncertainty over sanctions on Huawei (a major customer) and the timing of recovery remains. The book-to-bill ratio (new orders/sales) has dropped below 1.0 and it is not yet clear to what degree achieving sales guidance might depend on the order backlog and profit guidance on cutting back R&amp;D spending.Murata's long-term growth story appears to be intact: rising demand driven by smart phone upgrades, 5G, auto electronics, the Internet of Things, etc.; industry-leading technology; dominant market share. We expect sales growth and profits to recover going into 2020 and operating profit to reach a new record high in FY Mar-22.At ¥4,849 (July 10 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22. At ¥4,500, the post-recovery FY Mar-22 P/E ratio would be 12x. At ¥7,000, it would be 20x. The 5-year P/E range is 12x - 26x. Downside to ¥4,500 is 7%. Upside to ¥7,000 is 55%.1Q results are scheduled to be announced on July 31.

Murata continues to invest heavily in more efficient and greater production capacity, while weak demand for smart phones and the U.S.-China trade war undercut short-term demand for multi-layer ceramic capacitors (MLCCs) and its other products. As a result, after 15% sales growth and near-record operating profit last fiscal year, management is guiding for flat sales and a 17.5% decline in operating profit in FY Mar-20. Negative factors include significantly higher depreciation and R&amp;D spending, lower capacity utilization rates and lower prices.To a large degree, this should already be discounted. After peaking at ¥6,752 nearly a year ago and spiking to ¥6,500 last November, Murata's share price dropped below ¥4,500 in January, May and June of this year. But uncertainty over sanctions on Huawei (a major customer) and the timing of recovery remains. The book-to-bill ratio (new orders/sales) has dropped below 1.0 and it is not yet clear to what degree achieving sales guidance might depend on the order backlog and profit guidance on cutting back R&amp;D spending.Murata's long-term growth story appears to be intact: rising demand driven by smart phone upgrades, 5G, auto electronics, the Internet of Things, etc.; industry-leading technology; dominant market share. We expect sales growth and profits to recover going into 2020 and operating profit to reach a new record high in FY Mar-22.At ¥4,849 (July 10 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22. At ¥4,500, the post-recovery FY Mar-22 P/E ratio would be 12x. At ¥7,000, it would be 20x. The 5-year P/E range is 12x - 26x. Downside to ¥4,500 is 7%. Upside to ¥7,000 is 55%.1Q results are scheduled to be announced on July 31.

Murata Mfg. (6981 JP): Buy on Decline for the Long Term

- 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/000/083/923/original/2019-04-03_12-00-47.png?1554260470" class="editor-image img-responsive" data-smartkarma-image-id="83923"></figure><div style="text-align: center;" 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'. 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/000/083/924/original/2019-04-03_12-13-50.png?1554261675" class="editor-image img-responsive" data-smartkarma-image-id="83924"></figure><div class="content-caption">Source: Japan Analytics</div>NEGATIVE 'SPREAD' - On a daily closing basis, the Oversold outlier percentage is currently 3.17%, the highest since December 25th 2018, despite the total market value being 14% higher than on that day. The 'spread' between Overbought and Oversold outliers is now -1.10, and has only been wider for three days at the end of last year either side of Christmas Day. Nevertheless, the Overbought percentage reached a new fifteen-year high at the end of March despite the total market value being 12.6% below the peak of January 2018. In a 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/000/084/184/original/2019-04-06_13-57-40.png?1554526675" class="editor-image img-responsive" data-smartkarma-image-id="84184"></figure><div class="content-caption">Source: Japan Analytics</div>MARKET TIMING - Using the crossover from Net Overbought to Net Oversold has been a reasonably good market timing indicator over the last two decades and would have avoided the five-year-long slump from 2007-2012. The most recent monthly closing signal was generated in January when the total market value was ¥634t, 2.7% lower than the current level.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/084/185/original/2019-04-06_14-00-23.png?1554526834" class="editor-image img-responsive" data-smartkarma-image-id="84185"></figure><div class="content-caption">Source: Japan Analytics</div>DAILY TIMING SIGNALS - Using daily closing prices but slightly wider parameters to reduce 'noise' the signals are reasonably effective. The last signal was a sell on 18th December 2018 when the total market value was ¥623b, 4.5% below the current level. Both monthly and daily indicators have large negative 'spreads' and are unlikely to generate 'buy' signals for some time. Both are also suggesting that further declines lie ahead.   <hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/084/040/original/2019-04-04_17-34-34.png?1554366894" class="editor-image img-responsive" data-smartkarma-image-id="84040"></figure><div class="content-caption">Source: Japan Analytics</div>28-YEAR TIMELINE - The twenty-eight-year history of Sectors' Relative Price Score is shown above and chronicles the periodic extremes of both Overbought and Oversold and the persistence of each. 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 Content &amp; Services 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, three Sectors are Overbought - Consumer Services, 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.

- 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'. 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 'SPREAD' - On a daily closing basis, the Oversold outlier percentage is currently 3.17%, the highest since December 25th 2018, despite the total market value being 14% higher than on that day. The 'spread' between Overbought and Oversold outliers is now -1.10, and has only been wider for three days at the end of last year either side of Christmas Day. Nevertheless, the Overbought percentage reached a new fifteen-year high at the end of March despite the total market value being 12.6% below the peak of January 2018. In a 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 has been a reasonably good market timing indicator over the last two decades and would have avoided the five-year-long slump from 2007-2012. The most recent monthly closing signal was generated in January when the total market value was ¥634t, 2.7% lower than the current level.Source: Japan AnalyticsDAILY TIMING SIGNALS - Using daily closing prices but slightly wider parameters to reduce 'noise' the signals are reasonably effective. The last signal was a sell on 18th December 2018 when the total market value was ¥623b, 4.5% below the current level. Both monthly and daily indicators have large negative 'spreads' and are unlikely to generate 'buy' signals for some time. Both are also suggesting that further declines lie ahead.   - SECTORS - Source: Japan Analytics28-YEAR TIMELINE - The twenty-eight-year history of Sectors' Relative Price Score is shown above and chronicles the periodic extremes of both Overbought and Oversold and the persistence of each. 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 Content &amp; Services 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, three Sectors are Overbought - Consumer Services, 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 • Relative Price Scores - Market, Sectors & Peer Groups > Extreme Negative Divergence

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Friday 8 March after the close, the Nikkei <a href="https://indexes.nikkei.co.jp/en/nkave/archives/news/20190308E_1.pdf" target="_blank">announced</a> that because the third party share sale of <a href="https://www.smartkarma.com/entities/15895" target="_blank" data-smartkarma-citation="entities:15895:1">Pioneer Corp (6773 JP)</a>  had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). <a href="https://www.smartkarma.com/entities/15904" target="_blank" data-smartkarma-citation="entities:15904:1">Omron Corp (6645 JP)</a> will replace Pioneer in the Nikkei 225 Average, with a deemed par value of 50 yen per share.The date for this index deletion and inclusion event is the 15th of March, as per the schedule of the February 19th announcement as to how the Pioneer event would be treated. This affords special sits/events followers a couple of different events to look at.

Friday 8 March after the close, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP)  had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron Corp (6645 JP) will replace Pioneer in the Nikkei 225 Average, with a deemed par value of 50 yen per share.The date for this index deletion and inclusion event is the 15th of March, as per the schedule of the February 19th announcement as to how the Pioneer event would be treated. This affords special sits/events followers a couple of different events to look at. 

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.

TDK CORPORATION manufactures electronics components such as magnetic tapes and ferrite cores.  The Company also sells power supplies, inductors, transformers, ceramic capacitors, magnets, LAN (Local Area Network) components, sensors, and semiconductors.  TDK markets its products worldwide.

Murata Manufacturing Co., Ltd. manufactures and sells electronic modules and components. The Company produces communication modules, power supply modules, multilayer ceramic capacitors, noise countermeasure components, timing devices, sensor devices, high frequency components, batteries, and other products. Murata Manufacturing markets its products across worldwide.

YASKAWA Electric Corporation manufactures and markets servomotors, controllers, inverters, and industrial robots.  The Company's products include spindle controllers, computerized numerical control (CNC) systems, and system engineering.

YOKOGAWA ELECTRIC CORPORATION develops, manufactures, and markets information technology (IT) solutions, measuring and control equipment, semiconductors, and electronic components.  The Company's products include IT controllers, flowmeters, pressure transmitters, analyzers, data recorder, switching power supplies, and AC (alternating current) adaptors.

OMRON Corporation manufactures electronic components, equipment and systems used for factory automation. The Company provides products and services in a variety of fields including industrial automation, electronic components, automotive electronics, social systems such as ticket gate machines and traffic control, and healthcare.

IBIDEN CO, LTD. develops, produces, and markets ceramics, housing materials, and electronics.  The Company's products include printed circuit boards (PCB), graphite specialties, integrated circuit (IC) packages, ceramic fibers, melamine decorative high-pressure laminates, and pre-cut structural materials.

Shimadzu Corporation is a precision tools and equipment maker.  The Company develops, manufactures, and sells analytical and measuring instruments, medical systems, and  aircraft and industrial equipment.  Shimadzu researches, develops, and markets the products through its related companies in Japan, the US, the UK, and China.

YASKAWA Electric Corporation manufactures and markets motors, controllers, inverters, and industrial robots. The Company's products is split into 4 segments such as motion control, robotics, system engineering, and information technology.

Azbil Corporation develops, manufactures, and markets total automation equipment used in industrial and commercial buildings. The Company's products include sensors, switches, recording meters, security systems, air conditioners, pressure transmitters, and flow meters.

Samsung SDI Co., Ltd. specializes in developing Lithium Ion Battery (LIB) technology.  The Company also manufactures cathode ray tubes (CRTs) for televisions and computer monitors.  Samsung SDI also produces liquid crystal display (LCD) components and rechargeable batteries for cellular phones , personal digital assistants (PDAs), Energy Storage Systems and solar panels.

Keysight Technologies, Inc. offers electronic measurement services using wireless, modular, and software solutions.

CDW Corporation of Delaware provides information technology products and services. The Company offers hardware, software, computer peripherals, cloud computing, mobile devices, network communication, and security solutions. CDW serves business, government, education, and healthcare customers throughout North America.

NAURA Technology Group Co., Ltd. is an integrated high-tech company, which manufactures electronics equipments and components, including IC equipments, hybrid integrated circuits and combines with R&D, sales, and services.

Hangzhou Hikvision Digital Technology Co., Ltd develops, manufactures and sells video surveillance products.  The Company manufactures video and audio compression card, network hard disk video recorders, video servers, cameras, network storage, and other digital products.

Largan Precision Company Limited manufactures and markets optical lens modules and optoelectronic components. The Company offers lenses for liquid crystal display (LCD) projectors, scanners, optical mice, digital still cameras (DSCs), digital versatile discs (DVDs), light emitting diodes (LEDs), and photography mobile phones.

Coherent Corp. designs engineered materials and optoelectronic components. The Company offers products to industrial, optical communications, military, life sciences, semiconductor equipment, and consumer markets. Coherent also manufactures semiconductor lasers and optics for high power industrial lasers, optical communications systems, datacenter connectivity, and 3D sensing.

Zebra Technologies Corporation designs and manufactures enterprise mobile computers, advanced data capture devices, such as laser, 2D and RFID scanners and readers, and specialty printers for barcode labeling and personal identification. The Company also produces WLAN products, real-time location systems, related supplies and application software.

Trimble Navigation Ltd is a leading provider of advanced location-based solutions that maximize productivity and enhance profitability. The Company integrates its positioning expertise in GPS, laser, optical and inertial technologies with application software, wireless communications, and services to provide complete commercial solutions.

Delta Electronics Inc. manufactures power supplies and video display products. The Company's products include switching power supplies, telecom power systems, uninterrupted power supply (UPS), variable speed alternating current (AC) monitor drives, high resolution color monitors, and projectors.  Delta also manufactures magnetic and networking components.

MURATA MANUFACTURING COMPANY, LTD. manufactures and sells ceramic applied electronic components.  The Company's products include filters, capacitors, thermistors, resistors, noise suppression components, coils, piezoelectric sound components, power supplies, sensors, hybrid integrated circuit (IC), and microwave components.

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Murata Manufacturing (6981 JP)

Murata Mfg. (6981 JP): 1Q Profits Up, Orders Down

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🇯🇵 JAPAN • Market Update - Levitating on Thin Air

MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has...

Campbell Gunn

Murata Mfg. (6981 JP): Buy on Decline for the Long Term

Murata continues to invest heavily in more efficient and greater production capacity, while weak demand for smart phones and the U.S.-China trade...

Scott Foster

🇯🇵 Japan • Relative Price Scores - Market, Sectors & Peer Groups > Extreme Negative Divergence

- RELATIVE PRICE SCORE - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the...

Campbell Gunn

Omron into the Nikkei 225, Pioneer Out

Friday 8 March after the close, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it...

Travis Lundy

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