Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: <a href="https://www.smartkarma.com/entities/anshin-guarantor-service-co" target="_blank" data-smartkarma-citation="entities:33234:1" rel="noopener">Anshin Guarantor Service (7183 JP)</a> and <a href="https://www.smartkarma.com/entities/nomura-micro-science-co-ltd" target="_blank" data-smartkarma-citation="entities:11317:1" rel="noopener">Nomura Micro Science (6254 JP)</a>. On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: <a href="https://www.smartkarma.com/entities/tess-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:32979:1" rel="noopener">Tess Holdings Co Ltd (5074 JP)</a> and <a href="https://www.smartkarma.com/entities/kibun-foods-inc" target="_blank" data-smartkarma-citation="entities:33019:1" rel="noopener">Kibun Foods Inc (2933 JP)</a>. Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: Anshin Guarantor Service (7183 JP) and Nomura Micro Science (6254 JP). On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: Tess Holdings Co Ltd (5074 JP) and Kibun Foods Inc (2933 JP). Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.   

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.  

TOPIX Inclusion Trade Summary: April 2021

In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. 
However, this is only the calm before the storm.
In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.
Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021.

In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. 
However, this is only the calm before the storm.
In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.
Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. 

Today after the close, <a href="https://www.smartkarma.com/entities/threepro-group-inc" target="_blank" data-smartkarma-citation="entities:14730:1" rel="noopener">GiG Works (2375 JP)</a> announced a <a href="https://www.release.tdnet.info/inbs/140120210316479514.pdf" target="_blank" rel="noopener">tachiaigai bunbai equity offering</a> stating that they will be working towards to a move to the TSE Prime Market.GiG Works Inc. provides BPO services in the information technology field such as sales support services, maintenance support services for IT equipment, call centre operations, and temporary staffing services for field support. They also operate "GIGWorks Basic" which is a new platform service that connects employers and potential employees to fill temporary roles. The stock is currently listed in the Second Section of the Tokyo Stock Exchange and if they qualify for a move to the Prime market, that would trigger an Inclusion into the TOPIX Index. However, to be able to qualify for a such a move, the company will have to satisfy the relevant Section Transfer requirements. In this insight, we take a look at the potential of this company to satisfy the Section Transfer requirements, the possible timeline of events, and the upside potential of the event.

Today after the close, GiG Works (2375 JP) announced a tachiaigai bunbai equity offering stating that they will be working towards to a move to the TSE Prime Market.GiG Works Inc. provides BPO services in the information technology field such as sales support services, maintenance support services for IT equipment, call centre operations, and temporary staffing services for field support. They also operate "GIGWorks Basic" which is a new platform service that connects employers and potential employees to fill temporary roles. The stock is currently listed in the Second Section of the Tokyo Stock Exchange and if they qualify for a move to the Prime market, that would trigger an Inclusion into the TOPIX Index. However, to be able to qualify for a such a move, the company will have to satisfy the relevant Section Transfer requirements. In this insight, we take a look at the potential of this company to satisfy the Section Transfer requirements, the possible timeline of events, and the upside potential of the event. 

TOPIX Inclusion Pre-Event: GiG Works (2375 JP)

Japan

GiG Works Inc. provides a variety of information technology services for individuals and corporations.  The Company's services include computer tutoring, seminars, consulting, system support, and network maintenance.

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GiG Works (2375 JP)

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Janaghan Jeyakumar, CFA

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