Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>Softbank shares have returned to the pre-Coupang levels of early February, driven by increasing concerns about the value of the Vision Fund portfolio that remains private.  Number one on the list is the potential for second-order effects from the Greensill bankruptcy which not only cost Vision Fund $1.5bn in lost equity but also includes a further $1.2bn in debt exposure and a potential cash squeeze for other Vision Fund companies that were also clients.</p>

Softbank shares have returned to the pre-Coupang levels of early February, driven by increasing concerns about the value of the Vision Fund portfolio that remains private.  Number one on the list is the potential for second-order effects from the Greensill bankruptcy which not only cost Vision Fund $1.5bn in lost equity but also includes a further $1.2bn in debt exposure and a potential cash squeeze for other Vision Fund companies that were also clients.

Softbank Group - Concerns on the Value of Private Vision Fund Assets Re-Surface

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The Nikkei wrote an article last Thursday 18 March 2021 saying the BOJ would change its monetary/quantitative easing policy after having commenced a review in December.</p>
<p>The general idea was a slight curve steepening allowance made "to allow banks to be more profitable" and a change to the way ETF buying was conducted. </p>
<div class="content-highlight">
<p>I published a quick analysis of the <a href="https://www.smartkarma.com/insights/changes-in-boj-etf-buying-which-stocks-impacted-and-how" target="_blank" data-smartkarma-citation="insights:49331" rel="noopener">Changes In BOJ ETF Buying - Which Stocks Impacted and How?</a> </p>
</div>
<p><strong>On Friday 19 March, the BOJ met and after the MPC Meeting published...</strong></p>
<ul>
<li>The policy statement for this release, <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319a.pdf" target="_blank" rel="noopener"><em>Further Effective and Sustainable Monetary Easing</em></a>
</li>
<li>a <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319c.pdf" target="_blank" rel="noopener">Background</a> to the policy change which discussed the work they did called the <em>Assessment for Further Effective and Sustainable Monetary Easing.</em>
</li>
<li>a nifty <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319b.pdf" target="_blank" rel="noopener">two-pager powerpoint presentation</a> of the Background</li>
<li>and a document called <a href="https://www.boj.or.jp/en/announcements/release_2021/rel210319c.pdf" target="_blank" rel="noopener"><em>Establishment of "Principal Terms and Conditions of the Interest Scheme to Promote Lending"</em></a> which also contains the change in wording for the QQE</li>
</ul>
<p>This showed there was some subtlety in the methodology, but it also showed some of the restrictions that the BOJ would place on itself in how it decided when and how much ETF buying to do. </p>
<div class="content-highlight">
<p>I looked at the methodology and numbers and proposed a model in <a href="https://www.smartkarma.com/insights/quantifying-the-boj-change-in-etf-policy-assessing-future-etf-buying-methodology" target="_blank" data-smartkarma-citation="insights:49434" rel="noopener">Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology</a> </p>
</div>
<p>The market reaction on some high-Nikkei weight stocks on Thursday afternoon and particularly Friday afternoon was striking. <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> fell 5.2% in significant volume in the 30 minutes after the announcement.</p>
<p>The balance of ETF buying since the BOJ lifted its buying amount from ¥6 trillion annually to ¥12 trillion in mid-March 2020 in the covid-crash has been as would have been expected. From the 20th of March 2020 through the 19th of March 2021, the BOJ bought ¥5.29trln of regular ETFs of these three indices (and ¥290bn of ETFs to Support Investment in Physical &amp; Human Capital).</p>
<p>In <a href="https://www.smartkarma.com/insights/boj-etf-buying-composition-clarified" target="_blank" data-smartkarma-citation="insights:38898" rel="noopener">BOJ ETF Buying Composition Clarified</a> in April 2020, I noted the mix was at that time likely to be 90.5% TOPIX, 8.9% Nikkei 225, and 0.6% JPX Nikkei 400. By my calculation, reconstructing the purchases every day based on the rules, the purchase amount over the past year has been 90.4% TOPIX, 9.1% Nikkei 225, and 0.6% JPX Nikkei 400. Given that the BOJ owns most of the ETFs outstanding of these three indices, it would have been difficult to see substantial deviation from that rate.</p>
<div class="content-highlight">
<p>The question is whether the change dramatically impacts stocks going forward.</p>
<p>The easy <em>arithmetic</em> answer is.... no. </p>
</div>
<ul>
<li>Assuming the BOJ were to buy the same amount, TOPIX would see a 10.7% increase in allocations to TOPIX ETFs (from 90.4% to 100.0%)</li>
<li>Nikkei 225 and JPX Nikkei 400 ETFs get nothing. But Nikkei 225 stocks are, by definition, also members of TOPIX, and the vast majority of JPX Nikkei 400 stocks are too. </li>
</ul>
<p>But there is some subtlety here too.</p>
<p>What it really means, however, is that traders and investors cannot count on incremental BOJ demand over the next year to be a material part of remaining Real World Float. This is more a problem of expected support being withdrawn.</p>
<p>Analysis on this below the fold. </p>

The Nikkei wrote an article last Thursday 18 March 2021 saying the BOJ would change its monetary/quantitative easing policy after having commenced a review in December.
The general idea was a slight curve steepening allowance made "to allow banks to be more profitable" and a change to the way ETF buying was conducted. 

I published a quick analysis of the Changes In BOJ ETF Buying - Which Stocks Impacted and How? 

On Friday 19 March, the BOJ met and after the MPC Meeting published...

The policy statement for this release, Further Effective and Sustainable Monetary Easing

a Background to the policy change which discussed the work they did called the Assessment for Further Effective and Sustainable Monetary Easing.

a nifty two-pager powerpoint presentation of the Background
and a document called Establishment of "Principal Terms and Conditions of the Interest Scheme to Promote Lending" which also contains the change in wording for the QQE

This showed there was some subtlety in the methodology, but it also showed some of the restrictions that the BOJ would place on itself in how it decided when and how much ETF buying to do. 

I looked at the methodology and numbers and proposed a model in Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology 

The market reaction on some high-Nikkei weight stocks on Thursday afternoon and particularly Friday afternoon was striking. Fast Retailing (9983 JP) fell 5.2% in significant volume in the 30 minutes after the announcement.
The balance of ETF buying since the BOJ lifted its buying amount from ¥6 trillion annually to ¥12 trillion in mid-March 2020 in the covid-crash has been as would have been expected. From the 20th of March 2020 through the 19th of March 2021, the BOJ bought ¥5.29trln of regular ETFs of these three indices (and ¥290bn of ETFs to Support Investment in Physical &amp; Human Capital).
In BOJ ETF Buying Composition Clarified in April 2020, I noted the mix was at that time likely to be 90.5% TOPIX, 8.9% Nikkei 225, and 0.6% JPX Nikkei 400. By my calculation, reconstructing the purchases every day based on the rules, the purchase amount over the past year has been 90.4% TOPIX, 9.1% Nikkei 225, and 0.6% JPX Nikkei 400. Given that the BOJ owns most of the ETFs outstanding of these three indices, it would have been difficult to see substantial deviation from that rate.

The question is whether the change dramatically impacts stocks going forward.
The easy arithmetic answer is.... no. 


Assuming the BOJ were to buy the same amount, TOPIX would see a 10.7% increase in allocations to TOPIX ETFs (from 90.4% to 100.0%)
Nikkei 225 and JPX Nikkei 400 ETFs get nothing. But Nikkei 225 stocks are, by definition, also members of TOPIX, and the vast majority of JPX Nikkei 400 stocks are too. 

But there is some subtlety here too.
What it really means, however, is that traders and investors cannot count on incremental BOJ demand over the next year to be a material part of remaining Real World Float. This is more a problem of expected support being withdrawn.
Analysis on this below the fold. 

Quantifying BOJ Change in ETF Policy: Affecting Single Stocks

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div>
<p><a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">Freee (4478 JP)</a> (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. </p>
<p>We had looked at the company at the time of listing, links to our previous notes are below: </p>
</div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/freee-pre-ipo-has-been-growing-fast-but-missing-data-points-leave-quite-a-few-niggling-doubts" target="_blank" rel="noopener">freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts,</a></li>
<li><a href="https://www.smartkarma.com/insights/freee-k-k-pre-ipo-the-battle-is-far-from-over" target="_blank" rel="noopener">Freee K. K. Pre-IPO - The Battle Is Far from Over,</a></li>
<li>
<a href="https://www.smartkarma.com/insights/free-k-k-ipo-it-s-not-exactly-freee-but-looks-ok-at-the-lower-end" target="_blank" rel="noopener">Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End</a>, and</li>
<li><a href="https://www.smartkarma.com/insights/freee-ipo-trading-priced-at-par-to-comp-it-now-boils-down-to-how-much-premium-it-can-trade-at" target="_blank" rel="noopener">Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At</a></li>
</ul></div><div><p>In this note, we'll run the deal through our ECM framework and talk about deal dynamics.</p></div>


Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. 
We had looked at the company at the time of listing, links to our previous notes are below: 

freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts,
Freee K. K. Pre-IPO - The Battle Is Far from Over,

Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End, and
Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At
In this note, we'll run the deal through our ECM framework and talk about deal dynamics.

Freee Placement - Needs to Correct by a Whole Lot More

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

<p><em><strong>*Greensill Tab Begins:</strong></em>Greensill Capital (Greensill) filed for insolvency in the United Kingdom after lawyers for had cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In particular, the allegations of fraud by Bafin and the British Business Bank removing the British government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk; and  </p><p><strong><em>*Credit Suisse Taking Steps: </em></strong>The hit parade continues. Credit Suisse has stated that the company’s Board is investigating its own ties with Greensill, replaced its asset management CEO, asset management will be segregated from international wealth management, and employee compensation could be subject to clawback. </p>

*Greensill Tab Begins:Greensill Capital (Greensill) filed for insolvency in the United Kingdom after lawyers for had cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In particular, the allegations of fraud by Bafin and the British Business Bank removing the British government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk; and  *Credit Suisse Taking Steps: The hit parade continues. Credit Suisse has stated that the company’s Board is investigating its own ties with Greensill, replaced its asset management CEO, asset management will be segregated from international wealth management, and employee compensation could be subject to clawback. 

Credit Suisse Group – Greensill Fallout Continues

<p>On Thursday, the Nikkei came out with an <a href="https://asia.nikkei.com/Economy/BOJ-to-widen-interest-rate-target-range-to-support-bank-profits" target="_blank" rel="noopener">article</a> during the lunch break of equities trading. The headline said <em>"BOJ to widen interest rate target range to support bank profits" </em>and indeed in the article it noted that the BOJ would allow the long end of the curve to fluctuate more widely, creating a slightly steeper curve. This could lead to slightly better bank profits less because of the extra 5bp on the curve but more because of the expectation of forcing borrowers to pay more on an absolute basis. </p><p>What was MORE important for equity markets was the idea that the BOJ <em>"would also abolish its target for purchasing exchange-traded funds, now 6 trillion yen ($55 billion) per year, and instead vow to make such purchases only in times of market turmoil."</em></p><p>The article also suggested that the "Target" would be removed for the ¥90bn of J-REITs they buy as a base case (doubled now to ¥180bn as the ¥6trln was doubled to ¥12trln in the depths of the covid crash of March 2020). </p><p>This move caused Nikkei to underperform TOPIX on the day. TOPIX actually ended up on the day, and ended above where the market closed the AM session before the article came out. Nikkei fell, and started underperforming TOPIX from that point on. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/872/original/Screenshot+2021-03-21+at+3.26.17+PM.png?1616311594" class="editor-image img-responsive" data-smartkarma-image-id="195872"></figure><p></p></section><p>Nikkei underperformed TOPIX in the AM session on Friday, and when the BOJ announcements came mid-day on Friday, there were additional subtleties involved. </p><p>The details are <a href="https://www.boj.or.jp/en/announcements/release_2021/rel210319c.pdf" target="_blank" rel="noopener">here</a>. The presentation with the basic details is <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319b.pdf" target="_blank" rel="noopener">here</a>.</p><ul>
<li>The target rates for ETF and REIT buying will be abolished, but the current "Target Rate" of annual buying will become annual maxima (¥12 trillion for ETFs, ¥180bn for J-REITs, with ongoing maximum ownership limits on ETFs in place).</li>
<li>Buying of ETFs and J-REITs will be conducted "as necessary" "in times of market turbulence" and such buying will be done only on TOPIX ETFs.</li>
<li>The "Special Rules for Purchases of ETFs to Support Firms Proactively Investing in Physical and Human Capital" will continue as before with only specific ETFs permitted in this group. The amount of ~¥300bn/year and ¥1.2bn per business day will continue.</li>
</ul><p>It based the new policy on the Reference <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319c.pdf" target="_blank" rel="noopener">document</a> which backs up the changes in policy is <em>much</em> more interesting reading.  Appendix 5 and Chart 12 are the parts you want to read.</p><p>The hypotheses and results are described here.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/869/original/Screenshot+2021-03-21+at+3.02.28+PM.png?1616310186" class="editor-image img-responsive" data-smartkarma-image-id="195869"></figure></section><p>There are a couple of other side conclusions but the base understanding is...</p><div class="content-highlight"><p>When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  </p></div><h3>What This Means</h3><ul>
<li>When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  </li>
<li>Expect the BOJ to follow the concept of its study (Appendix 5 again).</li>
<li>Expect the BOJ to pay greater attention to futures activity. </li>
</ul><h3>What This Does NOT Mean</h3><ul><li>It does NOT mean the BOJ will be selling any ETFs.</li></ul><hr><p>It is worthwhile taking a look at WHY the market reacted the way it did on Thursday and Friday afternoon, and it is worthwhile looking at what the BOJ ETF buying might look like going forward. </p><p>So we do so below the fold.</p><p>Note: This is part 1 of the analysis of potential future BOJ ETF Buying. Part II looks at the difference in single stock makeup. </p>

On Thursday, the Nikkei came out with an article during the lunch break of equities trading. The headline said "BOJ to widen interest rate target range to support bank profits" and indeed in the article it noted that the BOJ would allow the long end of the curve to fluctuate more widely, creating a slightly steeper curve. This could lead to slightly better bank profits less because of the extra 5bp on the curve but more because of the expectation of forcing borrowers to pay more on an absolute basis. What was MORE important for equity markets was the idea that the BOJ "would also abolish its target for purchasing exchange-traded funds, now 6 trillion yen ($55 billion) per year, and instead vow to make such purchases only in times of market turmoil."The article also suggested that the "Target" would be removed for the ¥90bn of J-REITs they buy as a base case (doubled now to ¥180bn as the ¥6trln was doubled to ¥12trln in the depths of the covid crash of March 2020). This move caused Nikkei to underperform TOPIX on the day. TOPIX actually ended up on the day, and ended above where the market closed the AM session before the article came out. Nikkei fell, and started underperforming TOPIX from that point on. Nikkei underperformed TOPIX in the AM session on Friday, and when the BOJ announcements came mid-day on Friday, there were additional subtleties involved. The details are here. The presentation with the basic details is here.
The target rates for ETF and REIT buying will be abolished, but the current "Target Rate" of annual buying will become annual maxima (¥12 trillion for ETFs, ¥180bn for J-REITs, with ongoing maximum ownership limits on ETFs in place).
Buying of ETFs and J-REITs will be conducted "as necessary" "in times of market turbulence" and such buying will be done only on TOPIX ETFs.
The "Special Rules for Purchases of ETFs to Support Firms Proactively Investing in Physical and Human Capital" will continue as before with only specific ETFs permitted in this group. The amount of ~¥300bn/year and ¥1.2bn per business day will continue.
It based the new policy on the Reference document which backs up the changes in policy is much more interesting reading.  Appendix 5 and Chart 12 are the parts you want to read.The hypotheses and results are described here.There are a couple of other side conclusions but the base understanding is...When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  What This Means
When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  
Expect the BOJ to follow the concept of its study (Appendix 5 again).
Expect the BOJ to pay greater attention to futures activity. 
What This Does NOT MeanIt does NOT mean the BOJ will be selling any ETFs.It is worthwhile taking a look at WHY the market reacted the way it did on Thursday and Friday afternoon, and it is worthwhile looking at what the BOJ ETF buying might look like going forward. So we do so below the fold.Note: This is part 1 of the analysis of potential future BOJ ETF Buying. Part II looks at the difference in single stock makeup. 

Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology

Japan

SoftBank Group Corp. provides telecommunication services. The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

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Softbank Group (9984 JP)

Softbank Group - Concerns on the Value of Private Vision Fund Assets Re-Surface

Softbank shares have returned to the pre-Coupang levels of early February, driven by increasing concerns about the value of the Vision Fund...

Kirk Boodry

Quantifying BOJ Change in ETF Policy: Affecting Single Stocks

BOJ Policy Changes are dramatic in price and volatility space. Vol goes up near space, down far space, skew flattens. Fast Retailing and others are...

Travis Lundy

Freee Placement - Needs to Correct by a Whole Lot More

Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. In this note, we'll run the deal...

Sumeet Singh

Credit Suisse Group – Greensill Fallout Continues

CREDIT SUISSE GROUP: The hits continue at CS. The Board is investigating ties with Greensill, replaced its AM CEO, AM will be segregated, and...

Thomas J. Monaco

Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology

The BOJ has announced a change in ETF Buying Program Parameters. The study/review they did is required reading to understand how they might buy...

Travis Lundy

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