'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/000/127/413/original/File%202020-04-10%207%2001%2043.jpeg?1586469736" class="editor-image img-responsive" data-smartkarma-image-id="127413"></figure><div class="content-caption">Source • aatishb.com</div>CATCHING UP - As Japan's COVID-19 curve catches up with the global trendline and Tokyo reported a record number of 181 new confirmed cases, the local and national authorities are sparring over the details of the implementation of the requests to cease business operations. There are also variations of policy at the sub-prefectural level as, for example, concerning child-care facilities as Tokyo's wards adopt differing strategies. Such confusion is leading many individuals and some companies to take stricter measures than have so far been requested. Aichi and Kyoto Prefectures, which were omitted from the state of emergency declaration, have decided to implement measures independently. The constitutional arrangements governing relations between the state and prefectures are not working well at present and the frequent and very public communication breakdowns do not inspire confidence. The 'good' news is that COVID-19-attributed deaths in Japan are still below one hundred and only 99 people are deemed to be in critical condition. YOU ARE ON YOUR OWN (FOR ABOUT A WEEK) - Meanwhile, the national government is adamant that no compensation will be offered to businesses that are required to close. Support will be provided instead at an individual level where there is evidence of a loss of income. It does, however, appear that the shutdown will not now be implemented until the end of next week, which would result in only eight lost working days. The bold assumption is that the 80% social distancing measures that are being requested will have resulted in a peaking of the daily case count by months end.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/127/414/original/2020-04-10_06-57-43.png?1586470869" class="editor-image img-responsive" data-smartkarma-image-id="127414"></figure><div class="content-caption">Source • Social distancing to slow the US COVID-19 epidemic</div>SOCIAL DISTANCING v LOCKDOWNS - In an interesting preprint <a href="https://www.medrxiv.org/content/10.1101/2020.04.03.20052373v1" target="_blank" rel="noopener">paper</a> issued on 8th April - Social distancing to slow the US COVID-19 epidemic - a time-series analysis examined the impact of both social distancing measures and lockdowns in various US states. The evidence suggests that both policies are effective in reducing cases. These conclusions support Japan's current policy of avoiding the economic and social side-effects of universal stay-at-home policies.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/127/417/original/2020-04-10_07-33-27.png?1586471635" class="editor-image img-responsive" data-smartkarma-image-id="127417"></figure><div class="content-caption">Source • Japan Analytics</div>In the DETAIL below, as the pace of announcements picks up, we shall review the 32 results and 14 annual revisions or initial forecasts made yesterday. The positive/negative balance for results was 17:15, for revisions and forecasts the split was 7:7, with <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> being the primary 'casualty'.

Source • aatishb.comCATCHING UP - As Japan's COVID-19 curve catches up with the global trendline and Tokyo reported a record number of 181 new confirmed cases, the local and national authorities are sparring over the details of the implementation of the requests to cease business operations. There are also variations of policy at the sub-prefectural level as, for example, concerning child-care facilities as Tokyo's wards adopt differing strategies. Such confusion is leading many individuals and some companies to take stricter measures than have so far been requested. Aichi and Kyoto Prefectures, which were omitted from the state of emergency declaration, have decided to implement measures independently. The constitutional arrangements governing relations between the state and prefectures are not working well at present and the frequent and very public communication breakdowns do not inspire confidence. The 'good' news is that COVID-19-attributed deaths in Japan are still below one hundred and only 99 people are deemed to be in critical condition. YOU ARE ON YOUR OWN (FOR ABOUT A WEEK) - Meanwhile, the national government is adamant that no compensation will be offered to businesses that are required to close. Support will be provided instead at an individual level where there is evidence of a loss of income. It does, however, appear that the shutdown will not now be implemented until the end of next week, which would result in only eight lost working days. The bold assumption is that the 80% social distancing measures that are being requested will have resulted in a peaking of the daily case count by months end.Source • Social distancing to slow the US COVID-19 epidemicSOCIAL DISTANCING v LOCKDOWNS - In an interesting preprint paper issued on 8th April - Social distancing to slow the US COVID-19 epidemic - a time-series analysis examined the impact of both social distancing measures and lockdowns in various US states. The evidence suggests that both policies are effective in reducing cases. These conclusions support Japan's current policy of avoiding the economic and social side-effects of universal stay-at-home policies.Source • Japan AnalyticsIn the DETAIL below, as the pace of announcements picks up, we shall review the 32 results and 14 annual revisions or initial forecasts made yesterday. The positive/negative balance for results was 17:15, for revisions and forecasts the split was 7:7, with Fast Retailing (9983 JP) being the primary 'casualty'.

🇯🇵 JAPAN • Revisions & Results 9th April - Communication Breakdown

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Event-Driven

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to favour TOPIX-based ETFs over Nikkei-based ETFs it made sense for TOPIX to outperform Nikkei today. However, we found the degree of outperformance to be slightly surprising as TOPIX rose 2.60% while the Nikkei barely squeaked out a +0.06% gain. Below, we examine some individual names within the two indices to try and identify pairs which could generate alpha based on this theme.

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to favour TOPIX-based ETFs over Nikkei-based ETFs it made sense for TOPIX to outperform Nikkei today. However, we found the degree of outperformance to be slightly surprising as TOPIX rose 2.60% while the Nikkei barely squeaked out a +0.06% gain. Below, we examine some individual names within the two indices to try and identify pairs which could generate alpha based on this theme.

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Some retailers and brands would like February accounts to evaporate along with the virus that caused this unprecedented downturn. Department stores not only faced falling traffic from fears of contagion but also the ongoing hangover from the consumption tax increase, along with a warm winter and an earlier Chinese New Year.Sales were hammered but calls to retailers tell us March looks like being worse with some suggesting sales down as much as 50%.

Some retailers and brands would like February accounts to evaporate along with the virus that caused this unprecedented downturn. Department stores not only faced falling traffic from fears of contagion but also the ongoing hangover from the consumption tax increase, along with a warm winter and an earlier Chinese New Year.Sales were hammered but calls to retailers tell us March looks like being worse with some suggesting sales down as much as 50%.

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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/035/original/2020-03-15_07-07-04.png?1584223644" class="editor-image img-responsive" data-smartkarma-image-id="123035"></figure><div class="content-caption">Source • Japan Analytics</div>RELATIVE VALUE - Since the recent peak of December 17th, the TOPIX Index has fallen by 28% in 56 trading days. The -0.57% daily average rate of decline over the last three months has only been exceeded on 32 of the 10,142 days since March 1979, eight of which occurred in 1990, with the balance in 2008. From the January 23rd 2018 peak of 1,911, the index has fallen by 34% and is within 3% of our target (expressed in terms of Total Market Value ex REITs) outlined in our <a href="https://www.smartkarma.com/insights/japan-market-update-opportunity-knocks" target="_blank" data-smartkarma-citation="insights:37049" rel="noopener">Opportunity Knocks?</a> Insight published on 1st March. The market is also within 5% of the TOPIX low of 1,196 of 12th February 2016, which we expect will provide some short-term support. Although Japan and many other developed world economies are now in recession, markets do not fall in a straight line forever. Japanese equities now offer attractive relative value and should outperform over the coming months.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/034/original/2020-03-15_06-53-01.png?1584222882" class="editor-image img-responsive" data-smartkarma-image-id="123034"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/036/original/2020-03-15_07-18-49.png?1584224347" class="editor-image img-responsive" data-smartkarma-image-id="123036"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/037/original/2020-03-15_07-23-55.png?1584224666" class="editor-image img-responsive" data-smartkarma-image-id="123037"></figure><div class="content-caption">Source • Japan Analytics</div>IT'S DIFFERENT THIS TIME - Most bear markets in Japan have coincided with periods of Yen strength, including the 29% 2015/16 decline when the currency strengthened by 19%. Repeating the rate of decline analysis above, in US dollar terms there have only been four days in the last twenty-eight years with worse 56-day rates of decline - all in October 2008. All four days provided fearless investors with excellent medium-term gains. Although this increase in market volatility may be less welcome for international investors in Japanese equities, the impact of the Covid-19 recession on the Japanese economy will be more muted. Also, the 48% collapse in the oil price year-to-date will help offset the negative impact of the October 2019 increase in the consumption tax and the decline in export sales in Europe. Lastly, we would suggest that the much-derided net cash that Japanese corporates 'hoard' for rainy days such as these, should delay the need for increases in credit lines. Our recent series of Insights on<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Who’s Swimming Naked?</a> cover those companies to which this does not apply. Overall, for Japan at least, it is different this time.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/039/original/File%202020-03-15%203%2024%2020.jpeg?1584225464" class="editor-image img-responsive" data-smartkarma-image-id="123039"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/040/original/File%202020-03-15%203%2026%2031.jpeg?1584225508" class="editor-image img-responsive" data-smartkarma-image-id="123040"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/041/original/File%202020-03-15%207%2044%2021.jpeg?1584225894" class="editor-image img-responsive" data-smartkarma-image-id="123041"></figure><div class="content-caption">Source • Max Roser, Hannah Ritchie and Esteban Ortiz-Ospina (2020) - "Coronavirus Disease (COVID-19) – Research and Statistics". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/coronavirus' [Online Resource]</div>CONTAINING COVID - According to <a href="https://ourworldindata.org/coronavirus" target="_blank" rel="noopener">data</a> from the peerless Global Change Data Lab at Oxford University, Japan has, (except for the unfortunate passengers and crew on the Diamond Princess cruise ship), managed to contain Covid-19 better than any other large nation. While, there is some scepticism that this outcome could be a result of under-testing to avoid cancellation of the Olympic Games; nevertheless, the recorded cases fatality rate in a country with an above-average age profile is surprisingly low.  Currently, the daily increase in active Covid-19 cases in Japan is less than one hundred and was only seventeen on March 15th. The cumulative number of confirmed Covid-19 fatalities is 24, of which two occurred yesterday. The confirmed number of cases per 100,000 population is 0.65, which compares with 19.5 in South Korea, 16.5 in Italy and 12 in Iran. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/123/038/original/2020-03-15_07-34-05.png?1584225268" class="editor-image img-responsive" data-smartkarma-image-id="123038"></figure><div class="content-caption">Source • oann.com</div>KEEP CALM AND CARRY ON - Last night's press conference by Prime Minister Abe was in stark contrast to the sombre tone to those of Prime Minister Johnson of the United Kingdom and the tragicomic ramblings of the US President. Having received the legislative powers to declare a state of emergency, Abe declined at this stage to invoke any social restrictions beyond the already-announced school closures. As in the UK, sporting authorities are cancelling events or holding them sine populo. Japan's long obsession with cleanliness, the culture of bowing as a greeting and readiness to conform have served to 'flatten the curve'. The increased focus on such practices has also resulted in a very low incidence of seasonal influenza this year. Japan also has significantly lower levels of air pollution compared to China, Iran and northern Italy, a  factor that has become a factor in fatality rates, especially amongst the elderly. Although internal travel and restaurant patronage have sharply declined in Japan, shops are open and are well-stocked (except for now-rationed paper products) and 'free movement' with slightly-greater-than-normal social distancing is the norm. Whatever the motivations may be regarding the Olympics and Abe's legacy, Japan is unwilling to force the economy into the economic depression that would be the result of prolonged lockdown. A COVID-19 WORLD - This 'keep-calm-carry-on' model of a Covid-19-prevalent world (as is also seen in Singapore and Taiwan) will eventually have to be applied globally. These countries rapid transition to the new 'Covid-19 world' should result in better short-term outcomes for these economies.  The UK is currently being criticised for attempting to follow a version of this model, and may eventually have to go against the advice of its epidemiologists. Fortunately, for now, the general public are giving the UK government the benefit of the doubt. There will be a sharp divergence in the medium-term economic outlooks for countries taking these two 'paths' with those that are over-reacting paying a heavy price. While this does not bode well for the Eurozone, East Asia, including Japan, should emerge in better shape in this new 'viral' world.      <div class="content-highlight">In the DETAIL section below, we shall review a number of our favourite market indicators, recent sector performance and make some recommendations as to how to harness this once-in-a-decade opportunity to buy high-quality Japanese companies at attractive prices.</div>

Source • Japan AnalyticsRELATIVE VALUE - Since the recent peak of December 17th, the TOPIX Index has fallen by 28% in 56 trading days. The -0.57% daily average rate of decline over the last three months has only been exceeded on 32 of the 10,142 days since March 1979, eight of which occurred in 1990, with the balance in 2008. From the January 23rd 2018 peak of 1,911, the index has fallen by 34% and is within 3% of our target (expressed in terms of Total Market Value ex REITs) outlined in our Opportunity Knocks? Insight published on 1st March. The market is also within 5% of the TOPIX low of 1,196 of 12th February 2016, which we expect will provide some short-term support. Although Japan and many other developed world economies are now in recession, markets do not fall in a straight line forever. Japanese equities now offer attractive relative value and should outperform over the coming months.Source • Japan AnalyticsIT'S DIFFERENT THIS TIME - Most bear markets in Japan have coincided with periods of Yen strength, including the 29% 2015/16 decline when the currency strengthened by 19%. Repeating the rate of decline analysis above, in US dollar terms there have only been four days in the last twenty-eight years with worse 56-day rates of decline - all in October 2008. All four days provided fearless investors with excellent medium-term gains. Although this increase in market volatility may be less welcome for international investors in Japanese equities, the impact of the Covid-19 recession on the Japanese economy will be more muted. Also, the 48% collapse in the oil price year-to-date will help offset the negative impact of the October 2019 increase in the consumption tax and the decline in export sales in Europe. Lastly, we would suggest that the much-derided net cash that Japanese corporates 'hoard' for rainy days such as these, should delay the need for increases in credit lines. Our recent series of Insights on Who’s Swimming Naked? cover those companies to which this does not apply. Overall, for Japan at least, it is different this time.Source • Max Roser, Hannah Ritchie and Esteban Ortiz-Ospina (2020) - "Coronavirus Disease (COVID-19) – Research and Statistics". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/coronavirus' [Online Resource]CONTAINING COVID - According to data from the peerless Global Change Data Lab at Oxford University, Japan has, (except for the unfortunate passengers and crew on the Diamond Princess cruise ship), managed to contain Covid-19 better than any other large nation. While, there is some scepticism that this outcome could be a result of under-testing to avoid cancellation of the Olympic Games; nevertheless, the recorded cases fatality rate in a country with an above-average age profile is surprisingly low.  Currently, the daily increase in active Covid-19 cases in Japan is less than one hundred and was only seventeen on March 15th. The cumulative number of confirmed Covid-19 fatalities is 24, of which two occurred yesterday. The confirmed number of cases per 100,000 population is 0.65, which compares with 19.5 in South Korea, 16.5 in Italy and 12 in Iran. Source • oann.comKEEP CALM AND CARRY ON - Last night's press conference by Prime Minister Abe was in stark contrast to the sombre tone to those of Prime Minister Johnson of the United Kingdom and the tragicomic ramblings of the US President. Having received the legislative powers to declare a state of emergency, Abe declined at this stage to invoke any social restrictions beyond the already-announced school closures. As in the UK, sporting authorities are cancelling events or holding them sine populo. Japan's long obsession with cleanliness, the culture of bowing as a greeting and readiness to conform have served to 'flatten the curve'. The increased focus on such practices has also resulted in a very low incidence of seasonal influenza this year. Japan also has significantly lower levels of air pollution compared to China, Iran and northern Italy, a  factor that has become a factor in fatality rates, especially amongst the elderly. Although internal travel and restaurant patronage have sharply declined in Japan, shops are open and are well-stocked (except for now-rationed paper products) and 'free movement' with slightly-greater-than-normal social distancing is the norm. Whatever the motivations may be regarding the Olympics and Abe's legacy, Japan is unwilling to force the economy into the economic depression that would be the result of prolonged lockdown. A COVID-19 WORLD - This 'keep-calm-carry-on' model of a Covid-19-prevalent world (as is also seen in Singapore and Taiwan) will eventually have to be applied globally. These countries rapid transition to the new 'Covid-19 world' should result in better short-term outcomes for these economies.  The UK is currently being criticised for attempting to follow a version of this model, and may eventually have to go against the advice of its epidemiologists. Fortunately, for now, the general public are giving the UK government the benefit of the doubt. There will be a sharp divergence in the medium-term economic outlooks for countries taking these two 'paths' with those that are over-reacting paying a heavy price. While this does not bode well for the Eurozone, East Asia, including Japan, should emerge in better shape in this new 'viral' world.      In the DETAIL section below, we shall review a number of our favourite market indicators, recent sector performance and make some recommendations as to how to harness this once-in-a-decade opportunity to buy high-quality Japanese companies at attractive prices.

🇯🇵 JAPAN MARKET UPDATE • Relative Value: Short-Term Buy On Japanese Equities

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Equity Bottom-Up

Pan Pacific International Holdings / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corp" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International (7532 JP)</a>, the owner of the famous Japanese discount store chain Don Quijote reported its 2QFY20 results on 5th February 2020. While the rest of the Japanese retail sector faced a tough 2QFY20, Don Quijote performed rather well and as a result, its 2QFY20 results exceeded consensus expectations by a significant margin. The company also upgraded its FY20 guidance and issued its brand-new long-term plan during its 2QFY20 results release. The market reaction to these were quite overwhelming as Don Quijote’s share price appreciated 17.7% on the very next day after its 2QFY20 results.Below we discuss each of those catalysts to check if there is further upside potential.

Pan Pacific International (7532 JP), the owner of the famous Japanese discount store chain Don Quijote reported its 2QFY20 results on 5th February 2020. While the rest of the Japanese retail sector faced a tough 2QFY20, Don Quijote performed rather well and as a result, its 2QFY20 results exceeded consensus expectations by a significant margin. The company also upgraded its FY20 guidance and issued its brand-new long-term plan during its 2QFY20 results release. The market reaction to these were quite overwhelming as Don Quijote’s share price appreciated 17.7% on the very next day after its 2QFY20 results.Below we discuss each of those catalysts to check if there is further upside potential.

Pan Pacific: New Long-Term Plan “Passion 2030” Full Steam Ahead

Japan

RYOHIN KEIKAKU CO., LTD. is a retailer and wholesaler of Mujirushi Ryohin brand products, which were originally a generic private-brand product.  The Company's product line includes knitwear, food, and household items

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Ryohin Keikaku (7453 JP)

🇯🇵 JAPAN • Revisions & Results 9th April - Communication Breakdown

CATCHING UP - As Japan's COVID-19 curve catches up with the global trendline and Tokyo reported a record number of 181 new confirmed cases, the...

Campbell Gunn

The Topix Vs. Nikkei Skew

With the BOJ announcing yesterday that it would double the upper limit of its ETF purchases to ¥12trn a year and its previous policy shift to...

Mio Kato

Japanese Department Stores Catch the Flu

Some retailers and brands would like February accounts to evaporate along with the virus that caused this unprecedented downturn. Department stores...

Michael Causton

🇯🇵 JAPAN MARKET UPDATE • Relative Value: Short-Term Buy On Japanese Equities

RELATIVE VALUE - Since the recent peak of December 17th, the TOPIX Index has fallen by 28% in 56 trading days. The -0.57% daily average rate of...

Campbell Gunn

Pan Pacific: New Long-Term Plan “Passion 2030” Full Steam Ahead

Pan Pacific International (7532 JP), the owner of the famous Japanese discount store chain Don Quijote reported its 2QFY20 results on 5th February...

Oshadhi Kumarasiri

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