Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Every year in April there are two TOPIX rebalance changes - the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.</li>
<li>This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.</li>
<li>
<a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a>'s piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. </li>
</ul>


Every year in April there are two TOPIX rebalance changes - the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.
This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.

Janaghan Jeyakumar, CFA's piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. 


The TOPIX Liquidity Factor Adjustment - Still a Trade To Do

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/316/original/2020-04-17_05-50-08.png?1587070274" class="editor-image img-responsive" data-smartkarma-image-id="128316"></figure><div class="content-caption">Source • @mirais_y_akai</div>CHANGE OF TACK - Many world leaders including President Trump, Boris Johnson and even Prime Minister Stefan Löfven of Sweden have seen surges in their approval ratings almost irrespective of their handling of the COVID-19 pandemic. Unfortunately, Prime Minister Abe has struggled, and his public support and approval ratings for the ruling Liberal Democratic Party are falling away.<ul>
<li>Abe has been derided for his two-mask policy, and the early recipients are claiming they are too small and shrink in when washed.</li>
<li>A PR video of the Prime Minister lounging at home with his dog was mocked, while the accompanying video of a singer was used without permission.</li>
<li>The declaration of a state of emergency in only seven prefectures has resulted in some internal migration which has spread the virus to other parts of Japan and, for example, pachinko addicts crossed from Tokyo into Chiba to play.</li>
<li>Lastly, the plan outlined in the COVID-19 supplementary budget to give needy households ¥300,000 has had to be withdrawn at the last minute in favour an immediate cash handout of ¥100,000 to all, irrespective of means or circumstance at a cost of ¥12 trillion.</li>
</ul>NATIONWIDE - Although both the number of confirmed cases and fatalities are not increasing exponentially and a lower than one week ago, Abe has decided to reclaim the initiative by announcing a nationwide state of emergency with effect from today to last until the end of the Golden Week holidays on 6th May. This period will cover ten working days. Each prefecture will determine the extent and implementation of restrictions on movement. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/317/original/2020-04-16_19-53-56.png?1587072129" class="editor-image img-responsive" data-smartkarma-image-id="128317"></figure><div class="content-caption">Source • Apple/Japan Analytics</div>ROADMAPS - Apple's excellent mobility trend <a href="https://www.apple.com/covid19/mobility" target="_blank" rel="noopener">reports</a> provide are a useful tool in assessing the responses to COVID-19 and their potential impact on economies. We have focused on driving mobility as the better proxy for overall economic activity and smoothed the weekends by using a seven-day rolling average. Even within Asia, there apparent differences between Japan and Taiwan compared to South Korea, Hong Kong and Singapore. Within Europe, the Nordic countries have seen much lower reductions than Spain or Italy. Countries with the most moderate mobility reductions should see the least-damaging economic consequences and are less likely to experience a debilitating 'second-wave.PREVENTION STRATEGIES - An interesting recent non-peer reviewed <a href="https://www.medrxiv.org/content/10.1101/2020.03.28.20036715v3" target="_blank" rel="noopener">paper</a> by German epidemiologist  Dr Knut Wittkowski suggests that while "lockdowns can be effective during the month following the peak incidence in infections.. earlier containment of low-risk people merely prolongs the time the virus needs to circulate until the incidence is high enough to initiate herd immunity. Later containment is not helpful unless to prevent a rebound if containment started too early." His modelling graphs three scenarios:-<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/318/original/2020-04-17_06-44-50.png?1587073534" class="editor-image img-responsive" data-smartkarma-image-id="128318"></figure>I: NO INTERVENTIONS = HERD IMMUNITY<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/319/original/2020-04-17_06-47-49.png?1587073689" class="editor-image img-responsive" data-smartkarma-image-id="128319"></figure>II: PHASED INTERVENTION = LOWER FATALITIES BUT LOWER IMMUNITY<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/320/original/2020-04-17_06-49-36.png?1587073790" class="editor-image img-responsive" data-smartkarma-image-id="128320"></figure>III: EARLY LOCKDOWN = GREATER ECONOMIC COLLATERAL DAMAGE &amp; HIGHER FATALITIES THAN CASE II + HERD IMMUNITY DELAYED BY NINE MONTHSDr Wittkowski concludes: "It is herd immunity that stops the spread of infectious disease, so, in general, one would want to let the epidemic initially run its natural course or even accelerate it...to build immunity as fast as possible. If the aim were to reduce the duration of the epidemic and its impact on the economy (and also increase the time until the next epidemic can spread), one would wait until the prevalence of infectious people reaches its peak - day 83 in the middle graph above." Japan may, more perhaps by accident than design, be following the II: Phased Intervention model above. By having avoided an early lockdown, the country may also be spared an economic catastrophe.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/321/original/2020-04-17_07-28-23.png?1587076129" class="editor-image img-responsive" data-smartkarma-image-id="128321"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/322/original/2020-04-17_07-29-01.png?1587076173" class="editor-image img-responsive" data-smartkarma-image-id="128322"></figure><div class="content-caption">Source • Japan Analytics</div>BOJ SMALL CAP BOOSTER - The Bank of Japan added to its holdings of TOPIX ETFs again yesterday and was 5.42% of TOPIX Value Traded. Their interventions are supporting TOPIX Small, which is beginning to recovery in terms of the TOPIX Small/TOPIX ratio. In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the two results was 2:0:0; and for the 12 revisions/forecasts, the split was 3:1:8. Leisure business <a href="https://www.smartkarma.com/entities/fujita-kanko-inc" target="_blank" data-smartkarma-citation="entities:8847:1" rel="noopener">Fujita Kanko (9722 JP)</a> withdrew its forecast for this December year-end.

Source • @mirais_y_akaiCHANGE OF TACK - Many world leaders including President Trump, Boris Johnson and even Prime Minister Stefan Löfven of Sweden have seen surges in their approval ratings almost irrespective of their handling of the COVID-19 pandemic. Unfortunately, Prime Minister Abe has struggled, and his public support and approval ratings for the ruling Liberal Democratic Party are falling away.
Abe has been derided for his two-mask policy, and the early recipients are claiming they are too small and shrink in when washed.
A PR video of the Prime Minister lounging at home with his dog was mocked, while the accompanying video of a singer was used without permission.
The declaration of a state of emergency in only seven prefectures has resulted in some internal migration which has spread the virus to other parts of Japan and, for example, pachinko addicts crossed from Tokyo into Chiba to play.
Lastly, the plan outlined in the COVID-19 supplementary budget to give needy households ¥300,000 has had to be withdrawn at the last minute in favour an immediate cash handout of ¥100,000 to all, irrespective of means or circumstance at a cost of ¥12 trillion.
NATIONWIDE - Although both the number of confirmed cases and fatalities are not increasing exponentially and a lower than one week ago, Abe has decided to reclaim the initiative by announcing a nationwide state of emergency with effect from today to last until the end of the Golden Week holidays on 6th May. This period will cover ten working days. Each prefecture will determine the extent and implementation of restrictions on movement. Source • Apple/Japan AnalyticsROADMAPS - Apple's excellent mobility trend reports provide are a useful tool in assessing the responses to COVID-19 and their potential impact on economies. We have focused on driving mobility as the better proxy for overall economic activity and smoothed the weekends by using a seven-day rolling average. Even within Asia, there apparent differences between Japan and Taiwan compared to South Korea, Hong Kong and Singapore. Within Europe, the Nordic countries have seen much lower reductions than Spain or Italy. Countries with the most moderate mobility reductions should see the least-damaging economic consequences and are less likely to experience a debilitating 'second-wave.PREVENTION STRATEGIES - An interesting recent non-peer reviewed paper by German epidemiologist  Dr Knut Wittkowski suggests that while "lockdowns can be effective during the month following the peak incidence in infections.. earlier containment of low-risk people merely prolongs the time the virus needs to circulate until the incidence is high enough to initiate herd immunity. Later containment is not helpful unless to prevent a rebound if containment started too early." His modelling graphs three scenarios:-I: NO INTERVENTIONS = HERD IMMUNITYII: PHASED INTERVENTION = LOWER FATALITIES BUT LOWER IMMUNITYIII: EARLY LOCKDOWN = GREATER ECONOMIC COLLATERAL DAMAGE &amp; HIGHER FATALITIES THAN CASE II + HERD IMMUNITY DELAYED BY NINE MONTHSDr Wittkowski concludes: "It is herd immunity that stops the spread of infectious disease, so, in general, one would want to let the epidemic initially run its natural course or even accelerate it...to build immunity as fast as possible. If the aim were to reduce the duration of the epidemic and its impact on the economy (and also increase the time until the next epidemic can spread), one would wait until the prevalence of infectious people reaches its peak - day 83 in the middle graph above." Japan may, more perhaps by accident than design, be following the II: Phased Intervention model above. By having avoided an early lockdown, the country may also be spared an economic catastrophe.Source • Japan AnalyticsBOJ SMALL CAP BOOSTER - The Bank of Japan added to its holdings of TOPIX ETFs again yesterday and was 5.42% of TOPIX Value Traded. Their interventions are supporting TOPIX Small, which is beginning to recovery in terms of the TOPIX Small/TOPIX ratio. In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the two results was 2:0:0; and for the 12 revisions/forecasts, the split was 3:1:8. Leisure business Fujita Kanko (9722 JP) withdrew its forecast for this December year-end.

🇯🇵 JAPAN • Revisions & Results 16th April - Roadmaps

As discussed in <a href="https://www.smartkarma.com/insights/jpx-nikkei-400-rebalance-2018-edition" target="_blank" data-smartkarma-citation="insights:23054">JPX Nikkei 400 Rebalance - 2018 Edition</a> a bit over two weeks ago, the traditional JPX Nikkei 400 Rebalance events are not great trades unto themselves when taken from day before announcement through the rebalance event itself. They are usually much better longs in the year before announcement, and better fades in the two months after the rebalance. This year was no different in the run-up, and I see no reason to expect much different on the back end except for the remarkable sector rotation this year.The Effective Date of Periodic Review changes is 31 August so the trading event is 30 August at the close.The long/short performance (red line) of the event is tracking very closely to the average of the last four years (the dotted black line). <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/062/038/original/Screen%20Shot%202018-08-29%20at%208.17.20%20PM.png?1535545105" class="editor-image img-responsive" data-smartkarma-image-id="62038"></figure><div style="text-align: left;" class="content-caption">data source: capitalIQ</div>Interestingly, this year volumes are running below 90d averages for 16 of the 26 inclusions and 19 out of 25 of the exclusions so for 70% of the names, there has been no excess volume. And only one of the top 5 inclusions by dollar value has seen excess volume meet expected passive buyer demand.Some names will see some large volume tomorrow.

As discussed in JPX Nikkei 400 Rebalance - 2018 Edition a bit over two weeks ago, the traditional JPX Nikkei 400 Rebalance events are not great trades unto themselves when taken from day before announcement through the rebalance event itself. They are usually much better longs in the year before announcement, and better fades in the two months after the rebalance. This year was no different in the run-up, and I see no reason to expect much different on the back end except for the remarkable sector rotation this year.The Effective Date of Periodic Review changes is 31 August so the trading event is 30 August at the close.The long/short performance (red line) of the event is tracking very closely to the average of the last four years (the dotted black line). data source: capitalIQInterestingly, this year volumes are running below 90d averages for 16 of the 26 inclusions and 19 out of 25 of the exclusions so for 70% of the names, there has been no excess volume. And only one of the top 5 inclusions by dollar value has seen excess volume meet expected passive buyer demand.Some names will see some large volume tomorrow.

JPX Nikkei 400 Rebalance Event 30 Aug - Volumes Low So Far On Many Names

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

On the 4th of February the Nikkei <a href="http://asia.nikkei.com/Business/Deals/Toyota-near-tie-up-with-Suzuki-on-development-procurement" target="_blank">reported</a> that <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor Corp (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/732" target="_blank" data-smartkarma-citation="entities:732:1">Suzuki Motor Corp (7269 JP)</a> were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. <a href="https://www.smartkarma.com/entities/20528" target="_blank" data-smartkarma-citation="entities:20528:1">Mazda Motor Corp (7261 JP)</a> may feel particularly pressured…

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. Mazda Motor Corp (7261 JP) may feel particularly pressured…

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

Japan

Nishi-Nippon Railroad Co., Ltd. provides rail and bus transportation services in the northern Kyushu area.  The Company also offers truckload and air cargo transportation services, leases, sells, and maintains real estate, and operates hotels, travel agents, supermarket, and grocery stores.  Nishi-Nippon Railroad manufactures and repairs its own buses.

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Nishi Nippon Railroad (9031 JP)

The TOPIX Liquidity Factor Adjustment - Still a Trade To Do

The TOPIX Liquidity Factor Trade is an esoteric rebalance accompanying the major FFW rebalance to be announced Thursday. The major names have seen...

Travis Lundy

🇯🇵 JAPAN • Revisions & Results 16th April - Roadmaps

CHANGE OF TACK - Many world leaders including President Trump, Boris Johnson and even Prime Minister Stefan Löfven of Sweden have seen surges in...

Campbell Gunn

JPX Nikkei 400 Rebalance Event 30 Aug - Volumes Low So Far On Many Names

As discussed in JPX Nikkei 400 Rebalance - 2018 Edition a bit over two weeks ago, the traditional JPX Nikkei 400 Rebalance events are not great...

Travis Lundy

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an...

Mio Kato

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