Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Quantitative Analysis

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of <a href="https://www.smartkarma.com/insights/topix-inclusion-4931-jp-shinnihonseiyaku" target="_blank" data-smartkarma-citation="insights:45660" rel="noopener">TOPIX Inclusion (4931 JP): Shinnihonseiyaku</a> where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. <hr><div class="content-remarks">This insight is an update to <a href="https://www.smartkarma.com/insights/topix-inclusion-pre-events-who-is-ready" target="_blank" data-smartkarma-citation="insights:41091" rel="noopener">TOPIX Inclusion Pre-Events: Who Is Ready?</a>. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. </div>

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of TOPIX Inclusion (4931 JP): Shinnihonseiyaku where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. This insight is an update to TOPIX Inclusion Pre-Events: Who Is Ready?. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. 

TOPIX Inclusions:  New Regulations! Who Is READY? 2.0

Event-Driven

In an insight in July 2020, <a href="https://skr.ma/7bQ9n" target="_blank" rel="noopener">TOPIX Inclusion Pre-Events: Who Is Ready?</a>, I discussed the results of a screening process that identified TSE2, MOTHERS, and JASDAQ-listed stocks which were capable of satisfying most of the TSE1 Section Transfer Requirements and had a high potential to move to TSE1 in the following months.Among these stocks, I highlighted <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> to be the top pick for a pre-event bet at that time due to its potentially attractive inclusion parameters and the recent expiry of its one-year post-IPO waiting period. Since then, the stock has rallied 90%+. Today after market close, <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> announced that they have <a href="https://contents.xj-storage.jp/xcontents/AS04814/091a7183/46ee/419c/95b0/77bcfea2984e/140120201124427377.pdf" target="_blank" rel="noopener">received approval</a> to move from the Mothers Section to TSE1 or TSE2 as of 15th December 2020. In conjunction, they also announced <a href="https://contents.xj-storage.jp/xcontents/AS04814/d99a915b/14c9/455e/95ce/5dc8026ead1d/140120201124427378.pdf" target="_blank" rel="noopener">a sale of shares</a> for a total quantity of 2,070,000 shares including the over-allotment portion. Although the final market section has not been confirmed yet, we expect this to be TSE1 and we anticipate a confirmation by the company on this once the above-mentioned share sale is successfully executed.  Consequently, TSE1 reassignment would trigger inclusion into the TOPIX Index and the Inclusion Event could be at the close of trading 28th January 2021. <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> provides cosmetics, pharmaceuticals, and health foods in Japan and internationally. The company provides skincare products under the Perfect One brand and they operate through online, mail order, and direct store channels. In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event.

In an insight in July 2020, TOPIX Inclusion Pre-Events: Who Is Ready?, I discussed the results of a screening process that identified TSE2, MOTHERS, and JASDAQ-listed stocks which were capable of satisfying most of the TSE1 Section Transfer Requirements and had a high potential to move to TSE1 in the following months.Among these stocks, I highlighted Shinnihonseiyaku Co Ltd (4931 JP) to be the top pick for a pre-event bet at that time due to its potentially attractive inclusion parameters and the recent expiry of its one-year post-IPO waiting period. Since then, the stock has rallied 90%+. Today after market close, Shinnihonseiyaku Co Ltd (4931 JP) announced that they have received approval to move from the Mothers Section to TSE1 or TSE2 as of 15th December 2020. In conjunction, they also announced a sale of shares for a total quantity of 2,070,000 shares including the over-allotment portion. Although the final market section has not been confirmed yet, we expect this to be TSE1 and we anticipate a confirmation by the company on this once the above-mentioned share sale is successfully executed.  Consequently, TSE1 reassignment would trigger inclusion into the TOPIX Index and the Inclusion Event could be at the close of trading 28th January 2021. Shinnihonseiyaku Co Ltd (4931 JP) provides cosmetics, pharmaceuticals, and health foods in Japan and internationally. The company provides skincare products under the Perfect One brand and they operate through online, mail order, and direct store channels. In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event.  

TOPIX Inclusion (4931 JP): Shinnihonseiyaku

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When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur.
This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
In this insight, I have provided performance updates for 3 "Live" event stocks which have announced their TSE1 move in  October 2020 and 5 "Post" event stocks that completed their Inclusion Events today and some Pre-event trades involving stocks that are likely to become TSE1-promotion candidates in the near future. 
</div>


When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur.
This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
In this insight, I have provided performance updates for 3 "Live" event stocks which have announced their TSE1 move in  October 2020 and 5 "Post" event stocks that completed their Inclusion Events today and some Pre-event trades involving stocks that are likely to become TSE1-promotion candidates in the near future. 


In late July 2020, the Tokyo Stock Exchange issued Revisions to Listing Rules to Enhance Functions for Raising Funds through the Capital Market. These were discussed by <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> in <a href="https://www.smartkarma.com/insights/the-tse-s-listing-criteria-revisions-part-i" target="_blank" data-smartkarma-citation="insights:43150" rel="noopener">The TSE's Listing Criteria Revisions - Part I</a>.These revisions have very important implications to Pre-event trades in the TOPIX Inclusions Universe as fewer candidates will be able to meet these more-stringent new requirements. In this insight, we take a look at how these new requirements will influence our Pre-event trades. In addition, I have also provided performance updates for 5 "Live" events which have announced their TSE1 move in September 2020 and 6 "Post" events that involves stocks which have already had their Inclusion events in August 2020. As noted last month, unusually there were no inclusions for September due to section/segment reassignment.As always, there is more below the fold.

In late July 2020, the Tokyo Stock Exchange issued Revisions to Listing Rules to Enhance Functions for Raising Funds through the Capital Market. These were discussed by Travis Lundy in The TSE's Listing Criteria Revisions - Part I.These revisions have very important implications to Pre-event trades in the TOPIX Inclusions Universe as fewer candidates will be able to meet these more-stringent new requirements. In this insight, we take a look at how these new requirements will influence our Pre-event trades. In addition, I have also provided performance updates for 5 "Live" events which have announced their TSE1 move in September 2020 and 6 "Post" events that involves stocks which have already had their Inclusion events in August 2020. As noted last month, unusually there were no inclusions for September due to section/segment reassignment.As always, there is more below the fold. 

The month of August has been a fairly quiet one as far as TSE1 promotion announcements go. At the time of writing, there has been only one TSE1 promotion so far this month - <a href="https://www.smartkarma.com/insights/topix-inclusion-7059-jp-copro-holdings" target="_blank" data-smartkarma-citation="insights:42694" rel="noopener">TOPIX Inclusion (7059 JP): COPRO Holdings</a> (though another was announced after the close today).  
In this month's summary, I have provided performance updates for our "Pre-event" strategies and discussed 9 "Post" events which involve stocks which had their Inclusion Events at the end of July and August 2020. 
As always, there is more below the fold.

The month of August has been a fairly quiet one as far as TSE1 promotion announcements go. At the time of writing, there has been only one TSE1 promotion so far this month - TOPIX Inclusion (7059 JP): COPRO Holdings (though another was announced after the close today).  
In this month's summary, I have provided performance updates for our "Pre-event" strategies and discussed 9 "Post" events which involve stocks which had their Inclusion Events at the end of July and August 2020. 
As always, there is more below the fold. 

Japan

Shinnihonseiyaku Co., Ltd. manufactures medical products. The Company produces functional drugs and other products. Shinnihonseiyaku also produces health foods, cosmetics, and other products.

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Shinnihonseiyaku Co Ltd (4931 JP)

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This was a great pre-event trade. It might be an OK event trade as now the stock is confirmed as a TOPIX inclusion for January, but a share...

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A monthly round-up of TSE Section Transfer (upwards) and future index inclusion-related events including the high-return Quiddity Post-IPO Strategy

Janaghan Jeyakumar, CFA

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