'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

MARKET COMPOSITEMARKET MOVING AVERAGES - As a prelude to our usual review of stock moving average outliers, we shall look at the current trend in the market aggregate moving averages as well as trends within our 30 market sectors. Our analysis will use a weighted composite of the 5, 20, 60, 120, and 240-day moving average, weighted to give each period approximately equal representation, and both the market value and stock count percentages are shown.   <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/517/original/2018-12-09_12-08-03.png?1544324897" class="editor-image img-responsive" data-smartkarma-image-id="72517"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM ZONE - As of Friday's close, only 23% by number and 31% by value of Japanese stocks were trading above their composite moving averages. Although both scores are above the low of October 29th, the next few trading days should see a return into the sub-twenty per cent 'buying zone' last visited two years ago. As we have been emphasising in our commentary recently, the decisive low in this market cycle still lies ahead.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/518/original/2018-12-09_12-09-47.png?1544325008" class="editor-image img-responsive" data-smartkarma-image-id="72518"></figure><div class="content-caption">Source: Japan Analytics</div>BREAKING NOT BAD ENOUGH - As a measure of market 'distress' which can often signal important turning points, the percentage of stocks breaking above or below their moving averages is a useful indicator.  The 'Breaking Bad' percentage reached 11% on December 4th, the tenth-lowest reading in three years. A level of below '-15' is normally a good entry point.   <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/519/original/2018-12-09_12-21-10.png?1544325701" class="editor-image img-responsive" data-smartkarma-image-id="72519"></figure><div class="content-caption">Source: Japan Analytics</div>BREAKING BOTH - Adding the Breaking Above and Breaking Below percentages together provides a more straightforward view of the 15% threshold that has marked previous short and medium-term turning points.<hr> SECTORS<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/521/original/2018-12-09_13-17-48.png?1544329081" class="editor-image img-responsive" data-smartkarma-image-id="72521"></figure>SECTOR BREAKDOWN - The top six sectors measured by the percentage above the weighted average of 5-240 Days are all, predictably, domestic and defensive - Food, Beverages &amp; Tobacco, Healthcare, Restaurants, REITs, Information Technology and Utilities. Equally predictable are our bottom half-dozen - Banks, Autos, Metals, Electrical Equipment, Chemicals and Building Materials. The 'sparklines' in the table show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative 'crossovers'. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/524/original/2018-12-09_13-37-19.png?1544330257" class="editor-image img-responsive" data-smartkarma-image-id="72524"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR MOVING AVERAGE RELATIVE TIMELINE - Charting the relative-to-market weighted composite over time illustrates the sector divergences which, in the case of REITs can be very pronounced. The nest tow charts show only the most and least-correlated in terms of moving average divergence. The former are the sectors to take positions in for maximum sector-relative-to market 'bang for your buck'. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/525/original/2018-12-09_13-46-12.png?1544330788" class="editor-image img-responsive" data-smartkarma-image-id="72525"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/526/original/2018-12-09_13-46-45.png?1544330835" class="editor-image img-responsive" data-smartkarma-image-id="72526"></figure><div class="content-caption">Source: Japan Analytics</div><hr>COMPANIESCOMPANY MOVING AVERAGE OUTLIERS - As with the market and sectors, out moving average outlier indicator uses a weighted sum of the share price relative to its 5-day, 20-day, 60-day, 120 day and 240-day moving averages. Extreme values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen in future. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/530/original/2018-12-09_14-26-34.png?1544333203" class="editor-image img-responsive" data-smartkarma-image-id="72530"></figure><div class="content-caption">Source: Japan Analytics</div>THE 100% CLUB - As of Friday 7th, there were 43 extreme positive outliers and 30 extreme negative outliers. Again, the relatively low number of extreme negative outliers suggests that the decisive low lies ahead. <div class="content-highlight">In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. </div>

MARKET COMPOSITEMARKET MOVING AVERAGES - As a prelude to our usual review of stock moving average outliers, we shall look at the current trend in the market aggregate moving averages as well as trends within our 30 market sectors. Our analysis will use a weighted composite of the 5, 20, 60, 120, and 240-day moving average, weighted to give each period approximately equal representation, and both the market value and stock count percentages are shown.   Source: Japan AnalyticsBOTTOM ZONE - As of Friday's close, only 23% by number and 31% by value of Japanese stocks were trading above their composite moving averages. Although both scores are above the low of October 29th, the next few trading days should see a return into the sub-twenty per cent 'buying zone' last visited two years ago. As we have been emphasising in our commentary recently, the decisive low in this market cycle still lies ahead.Source: Japan AnalyticsBREAKING NOT BAD ENOUGH - As a measure of market 'distress' which can often signal important turning points, the percentage of stocks breaking above or below their moving averages is a useful indicator.  The 'Breaking Bad' percentage reached 11% on December 4th, the tenth-lowest reading in three years. A level of below '-15' is normally a good entry point.   Source: Japan AnalyticsBREAKING BOTH - Adding the Breaking Above and Breaking Below percentages together provides a more straightforward view of the 15% threshold that has marked previous short and medium-term turning points. SECTORSSECTOR BREAKDOWN - The top six sectors measured by the percentage above the weighted average of 5-240 Days are all, predictably, domestic and defensive - Food, Beverages &amp; Tobacco, Healthcare, Restaurants, REITs, Information Technology and Utilities. Equally predictable are our bottom half-dozen - Banks, Autos, Metals, Electrical Equipment, Chemicals and Building Materials. The 'sparklines' in the table show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative 'crossovers'. Source: Japan AnalyticsSECTOR MOVING AVERAGE RELATIVE TIMELINE - Charting the relative-to-market weighted composite over time illustrates the sector divergences which, in the case of REITs can be very pronounced. The nest tow charts show only the most and least-correlated in terms of moving average divergence. The former are the sectors to take positions in for maximum sector-relative-to market 'bang for your buck'. Source: Japan AnalyticsCOMPANIESCOMPANY MOVING AVERAGE OUTLIERS - As with the market and sectors, out moving average outlier indicator uses a weighted sum of the share price relative to its 5-day, 20-day, 60-day, 120 day and 240-day moving averages. Extreme values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen in future. Source: Japan AnalyticsTHE 100% CLUB - As of Friday 7th, there were 43 extreme positive outliers and 30 extreme negative outliers. Again, the relatively low number of extreme negative outliers suggests that the decisive low lies ahead. In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. 

Japan: Moving Average Outliers - Market, Sectors & Stocks - Hoshizaki, Sumco & Sharp

INTRODUCTION - Following on from our earlier updates on the <a href="https://www.smartkarma.com/insights/japan-autumn-results-revisions-scores-market-composite-sector-review-slomo-slowdown" target="_blank" data-smartkarma-citation="insights:25923">Market Composite &amp; Sectors</a> &amp; <a href="https://www.smartkarma.com/insights/japan-autumn-results-revision-scores-peer-groups-four-quadrant-analysis" target="_blank" data-smartkarma-citation="insights:26014">Peer Groups</a>, this Insight will cover the Results Scores and Forecast/Revision Scores for the 800 listed Japanese companies with a market capitalisation of over ¥100 billion.
<ul>
<li>We look at the 25 top and bottom-ranked by Combined Results &amp; Revision Score* as well as the top and bottom changes in Combined Score over the last quarter and provide brief comments on companies and topics of note.</li>
<li>The top and bottom five companies ranked by Combined Score in each of our 30 market sectors are also shown.</li>
<li>By comparing Results Scores and Forecast/Revision Scores, we sort companies into 'Optimists', 'Pessimists', 'Increasingly Optimistic' and 'Increasingly Pessimistic' categories.</li>
<li>Finally, we chart the relationships between the Combined Scores and our Relative Price Scores** for each company and divide our stock universe into four quadrants - 'Contrarian Buy', 'Contrarian Sell', 'Peak Growth/Turnaround' and 'Overpriced Ex-Growth' and highlight the outliers.</li>
</ul>
*SCORING METHODOLOGY - For newcomers to these Insights, our Results Scores and Forecast/Revisions Scores provide standardised 'scoring' of the trend and momentum in both results and initial forecasts/revisions for every listed Japanese company. The data series, which starts in 2008, covers over 160,000 quarterly results and 120,000 initial forecasts and subsequent forecast revisions.
<ul>
<li>
Results Scores are calculated using the most recent eight quarters of data for revenues, operating income and operating margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period.  In cases where the data is insufficient, incomplete or non-comparable data, the score defaults to zero. Usually, 25% of Japanese company quarterly earnings show losses, and therefore scoring methodology is more revealing of trends than percentage changes.</li>
<li>The Forecast/Revision Score is based on both Annual and Interim period forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.</li>
<li>The Combined Score is an average of the Results Scores and the Forecasts/Revision Score and is used to sort the universe by score and change in score in the tables below.</li>
</ul>
**RELATIVE PRICE SCORE - The Relative Price Score measures the difference between the current relative price and the mean absolute deviation of relative prices since listing which allows for a comparison of all companies on the same absolute scale. We consider differences in the top or bottom percentiles of historical observations to be 'Overbought' and 'Oversold'. For companies, the thresholds are '4' for Overbought and '-2' for 'Oversold'.
<hr>
SUMMARY TABLES
COMBINED SCORE TOP 10
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/428/original/2018-11-22_15-38-17.png?1543369018" class="editor-image img-responsive" data-smartkarma-image-id="71428"></figure>
COMBINED SCORE BOTTOM 10
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/433/original/2018-11-28_10-50-59.png?1543369907" class="editor-image img-responsive" data-smartkarma-image-id="71433"></figure>
COMBINED SCORE 1Q▲
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/429/original/2018-11-28_10-42-12.png?1543369388" class="editor-image img-responsive" data-smartkarma-image-id="71429"></figure>
COMBINED SCORE 1Q▼
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/431/original/2018-11-28_10-44-28.png?1543369605" class="editor-image img-responsive" data-smartkarma-image-id="71431"></figure>
<div class="content-caption">All tables &gt; Source: Japan Analytics</div>

INTRODUCTION - Following on from our earlier updates on the Market Composite &amp; Sectors &amp; Peer Groups, this Insight will cover the Results Scores and Forecast/Revision Scores for the 800 listed Japanese companies with a market capitalisation of over ¥100 billion.

We look at the 25 top and bottom-ranked by Combined Results &amp; Revision Score* as well as the top and bottom changes in Combined Score over the last quarter and provide brief comments on companies and topics of note.
The top and bottom five companies ranked by Combined Score in each of our 30 market sectors are also shown.
By comparing Results Scores and Forecast/Revision Scores, we sort companies into 'Optimists', 'Pessimists', 'Increasingly Optimistic' and 'Increasingly Pessimistic' categories.
Finally, we chart the relationships between the Combined Scores and our Relative Price Scores** for each company and divide our stock universe into four quadrants - 'Contrarian Buy', 'Contrarian Sell', 'Peak Growth/Turnaround' and 'Overpriced Ex-Growth' and highlight the outliers.

*SCORING METHODOLOGY - For newcomers to these Insights, our Results Scores and Forecast/Revisions Scores provide standardised 'scoring' of the trend and momentum in both results and initial forecasts/revisions for every listed Japanese company. The data series, which starts in 2008, covers over 160,000 quarterly results and 120,000 initial forecasts and subsequent forecast revisions.


Results Scores are calculated using the most recent eight quarters of data for revenues, operating income and operating margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period.  In cases where the data is insufficient, incomplete or non-comparable data, the score defaults to zero. Usually, 25% of Japanese company quarterly earnings show losses, and therefore scoring methodology is more revealing of trends than percentage changes.
The Forecast/Revision Score is based on both Annual and Interim period forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.
The Combined Score is an average of the Results Scores and the Forecasts/Revision Score and is used to sort the universe by score and change in score in the tables below.

**RELATIVE PRICE SCORE - The Relative Price Score measures the difference between the current relative price and the mean absolute deviation of relative prices since listing which allows for a comparison of all companies on the same absolute scale. We consider differences in the top or bottom percentiles of historical observations to be 'Overbought' and 'Oversold'. For companies, the thresholds are '4' for Overbought and '-2' for 'Oversold'.

SUMMARY TABLES
COMBINED SCORE TOP 10

COMBINED SCORE BOTTOM 10

COMBINED SCORE 1Q▲

COMBINED SCORE 1Q▼

All tables &gt; Source: Japan Analytics

Japan: Autumn Large Cap Results & Revision Scores Review + '4QUADrant Analysis'

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

Thematic (Sector/Industry)

In Japan, high Beta names and names with a high % of Foreign Investors underperformed this week after doing very well the previous week. It has been quite a while since high Beta names have consistently outperformed. However, Retail Investor names continue to do well.

In Japan, high Beta names and names with a high % of Foreign Investors underperformed this week after doing very well the previous week. It has been quite a while since high Beta names have consistently outperformed. However, Retail Investor names continue to do well. 

High Beta and Names with a High % of Foreign Investors Underperformed This Week in Japan....

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Improvements in Japan are leading broad developed int’l indexes higher. The MSCI EAFE, local currency is bullishly inflecting above its downtrend and putting an end to the YTD pattern of lower highs. Both the TOPIX and Nikkei 225 have continued to improve, and now the TOPIX Small index is also bullishly inflecting. We provide a technical appraisal of major global markets, and highlight a number of actionable stocks within Japan, and across international markets.

Improvements in Japan are leading broad developed int’l indexes higher. The MSCI EAFE, local currency is bullishly inflecting above its downtrend and putting an end to the YTD pattern of lower highs. Both the TOPIX and Nikkei 225 have continued to improve, and now the TOPIX Small index is also bullishly inflecting. We provide a technical appraisal of major global markets, and highlight a number of actionable stocks within Japan, and across international markets.

MSCI EAFE Inflecting, Aided by Strength in Japan

APATHY STRIKES AGAIN<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/686/original/2018-09-23_17-11-57.png?1537690346" class="editor-image img-responsive" data-smartkarma-image-id="64686"></figure><div class="content-caption">Source: Japan Analytics</div>THE APATHY INDICATOR - Our Fortnightly Update for 26th August highlighted the lack of market activity after the end of the results announcements over the previous six weeks. In recent years, similar periods of apathy had coincided with market turning points, usually to the upside. After an initial rally the following week, our 'apathy indicator' added another three signals before the market subsequently bottomed out on 7th September. Since then, Total Market Value has risen by 6.7%, TOPIX has had its best week in almost two years, both the 50 and 200-day moving averages were surpassed and, on Friday, the Value Traded Ratio had its fifth-best day of the year. Its 'party-time' here indeed.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/690/original/2018-09-23_17-44-03.png?1537692262" class="editor-image img-responsive" data-smartkarma-image-id="64690"></figure><div class="content-caption">Source: Japan Analytics</div>BREAKOUT - Much fanfare was also made over the fact that the <a href="https://www.smartkarma.com/entities/22909" target="_blank" data-smartkarma-citation="entities:22909:1">Nikkei 225 (NKY INDEX)</a> reached a 26-year high and broke out of nine-month and 22-year trading ranges. Although such positive news is always welcome for us Japan-only 'diehards', both TOPIX and TOPIX-US$ reached new 26-year highs in January, only to later fade away for the next seven months. New highs for both these indices are required to confirm that the December 1989 high is indeed again the target.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/701/original/2018-09-05_19-59-32.png?1537698981" class="editor-image img-responsive" data-smartkarma-image-id="64701"></figure><div class="content-caption">Source: Japan Analytics</div>GAIJIN WRONGFOOTED - As <a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a> noted on 2nd September - <a href="https://www.smartkarma.com/insights/japan-flow-redux-foreign-investor-flows-still-matter-and-they-are-still-cyclical" target="_blank" data-smartkarma-citation="insights:23654">Foreign Investor Flows (Still) Matter, and They Are (Still) Cyclical</a>, foreign investor flows have recently been at 'the lower end of the cycle' and foreign investors tend to be pro-cyclical price-takers chasing returns on a net exposure basis driven by the relative performance of the US$TOPIX/S&amp;P 500 ratio. As we also noted in <a href="https://www.smartkarma.com/insights/japan-seasonality-sell-in-july-and-say-goodbye-please-come-back-on-culture-day" target="_blank" data-smartkarma-citation="insights:23682">Japan: Seasonality</a>, historically September is the second-worst performing month in the Japanese market calendar with October being the fourth-worst. Add some concerns over trade and auto tariffs to the mix and a portfolio underweighting of Japan at the start of this quarter was not going to alarm any trustees. Given all of the above and with a holiday this Monday, some sharp short-covering was also in evidence towards to end of last week in anticipation of more leisurely-timed long-only fund flows to come.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/704/original/2018-09-23_20-08-06.png?1537700901" class="editor-image img-responsive" data-smartkarma-image-id="64704"></figure><div class="content-caption">Source: Japan Analytics</div>CHEAP + UPSIDE TO FORECASTS - The last two weeks have taken the total market cap (ex REITs) to back above ¥700t, however, the trailing-twelve-month (TTM) PER is still below 15x. In aggregate the current forecasts for current year's Net Income are nearly ¥2t behind the TTM data, leaving scope for some market-boosting upward revisions in November as the (mostly interim) results are announced. Assuming upward revisions bring forecasts in line with our estimate the November TTM aggregate Net Income of ¥50t, the market PE at the January peak capitalisation would still be below 15x.  CAVEATS - Curbing the enthusiasm in the last paragraph are some macro caveats. Industrial production has slowed to nearly zero in recent months, and higher wage income is being mostly channelled into increased savings. For the first time in the post-WWII era, both profit's share and labour's share of GDP exceed 12%. Both cannot continue to rise in tandem indefinitely, and we would expect the former to turn down before the latter. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/705/original/2018-09-23_20-19-16.png?1537701582" class="editor-image img-responsive" data-smartkarma-image-id="64705"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/707/original/2018-09-23_20-34-21.png?1537702506" class="editor-image img-responsive" data-smartkarma-image-id="64707"></figure><div class="content-caption">Source: Japan Analytics</div>OUTLOOK - After a hectic four-day week and another shortened week to come, a pause would be welcome. The 5-day Relative Strength Index at 91 is at its highest level since 8th November 2017 and is in the first percentile of occurrences over the last three years. The 25-day Toraku advance-decline indicator is also nearing '120'. Although this is far from perfect as an indicator, recent peaks and troughs have coincided with Toraku outliers. Two weeks ago, we suggested the market would rise and Yen would fall 'into the month end absent any adverse developments on the trade front'. With newly-re-elected PM Abe in New York this week, we expect another quiet week for the continuing (now sector-specific) Japan-US trade negotiations. Further Yen weakness would limit any short-term profit-taking, and there are still enough global portfolios underweight Japan to buy the coming dip and support rolling our forecast forward until month-end.SECTOR RECOMMENDATIONS - Our sector recommendations have fared less well over the last two weeks. Our most-preferred marginally out-performed our least-preferred with the gains in Energy and Telecoms offsetting 'losses' from underweights in Utilities, Machinery, Real Estate and Autos and overweights in Information Technology and Other Commercial Products. COMPANIES - Our results, revisions and stock performance reviews below contain short comments on <a href="https://www.smartkarma.com/entities/11720" target="_blank" data-smartkarma-citation="entities:11720:1">Kikkoman (2801 JP)</a>, <a href="https://www.smartkarma.com/entities/4102" target="_blank" data-smartkarma-citation="entities:4102:1">Nissan Chemical (4021 JP)</a> and <a href="https://www.smartkarma.com/entities/1496" target="_blank" data-smartkarma-citation="entities:1496:1">Showa Denko (4004 JP)</a>.

APATHY STRIKES AGAINSource: Japan AnalyticsTHE APATHY INDICATOR - Our Fortnightly Update for 26th August highlighted the lack of market activity after the end of the results announcements over the previous six weeks. In recent years, similar periods of apathy had coincided with market turning points, usually to the upside. After an initial rally the following week, our 'apathy indicator' added another three signals before the market subsequently bottomed out on 7th September. Since then, Total Market Value has risen by 6.7%, TOPIX has had its best week in almost two years, both the 50 and 200-day moving averages were surpassed and, on Friday, the Value Traded Ratio had its fifth-best day of the year. Its 'party-time' here indeed.Source: Japan AnalyticsBREAKOUT - Much fanfare was also made over the fact that the Nikkei 225 (NKY INDEX) reached a 26-year high and broke out of nine-month and 22-year trading ranges. Although such positive news is always welcome for us Japan-only 'diehards', both TOPIX and TOPIX-US$ reached new 26-year highs in January, only to later fade away for the next seven months. New highs for both these indices are required to confirm that the December 1989 high is indeed again the target.Source: Japan AnalyticsGAIJIN WRONGFOOTED - As Travis Lundy noted on 2nd September - Foreign Investor Flows (Still) Matter, and They Are (Still) Cyclical, foreign investor flows have recently been at 'the lower end of the cycle' and foreign investors tend to be pro-cyclical price-takers chasing returns on a net exposure basis driven by the relative performance of the US$TOPIX/S&amp;P 500 ratio. As we also noted in Japan: Seasonality, historically September is the second-worst performing month in the Japanese market calendar with October being the fourth-worst. Add some concerns over trade and auto tariffs to the mix and a portfolio underweighting of Japan at the start of this quarter was not going to alarm any trustees. Given all of the above and with a holiday this Monday, some sharp short-covering was also in evidence towards to end of last week in anticipation of more leisurely-timed long-only fund flows to come.Source: Japan AnalyticsCHEAP + UPSIDE TO FORECASTS - The last two weeks have taken the total market cap (ex REITs) to back above ¥700t, however, the trailing-twelve-month (TTM) PER is still below 15x. In aggregate the current forecasts for current year's Net Income are nearly ¥2t behind the TTM data, leaving scope for some market-boosting upward revisions in November as the (mostly interim) results are announced. Assuming upward revisions bring forecasts in line with our estimate the November TTM aggregate Net Income of ¥50t, the market PE at the January peak capitalisation would still be below 15x.  CAVEATS - Curbing the enthusiasm in the last paragraph are some macro caveats. Industrial production has slowed to nearly zero in recent months, and higher wage income is being mostly channelled into increased savings. For the first time in the post-WWII era, both profit's share and labour's share of GDP exceed 12%. Both cannot continue to rise in tandem indefinitely, and we would expect the former to turn down before the latter. Source: Japan AnalyticsOUTLOOK - After a hectic four-day week and another shortened week to come, a pause would be welcome. The 5-day Relative Strength Index at 91 is at its highest level since 8th November 2017 and is in the first percentile of occurrences over the last three years. The 25-day Toraku advance-decline indicator is also nearing '120'. Although this is far from perfect as an indicator, recent peaks and troughs have coincided with Toraku outliers. Two weeks ago, we suggested the market would rise and Yen would fall 'into the month end absent any adverse developments on the trade front'. With newly-re-elected PM Abe in New York this week, we expect another quiet week for the continuing (now sector-specific) Japan-US trade negotiations. Further Yen weakness would limit any short-term profit-taking, and there are still enough global portfolios underweight Japan to buy the coming dip and support rolling our forecast forward until month-end.SECTOR RECOMMENDATIONS - Our sector recommendations have fared less well over the last two weeks. Our most-preferred marginally out-performed our least-preferred with the gains in Energy and Telecoms offsetting 'losses' from underweights in Utilities, Machinery, Real Estate and Autos and overweights in Information Technology and Other Commercial Products. COMPANIES - Our results, revisions and stock performance reviews below contain short comments on Kikkoman (2801 JP), Nissan Chemical (4021 JP) and Showa Denko (4004 JP).

Japan

Resonac Holdings Corporation manufactures and distributes chemical products. The Company produces synthetic resins, petrochemical products, inorganics, and other related products. Resonac Holdings also produces ceramics, metals, carbon, electronic materials, and other products.

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Resonac Holdings (4004 JP)

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