Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In summer of 2016, I warned on Smartkarma that the BOJ was going to have to shift its ETF buy basket away from Nikkei 225. It did so in late 2016. I warned again in early 2018 that it was going to get worse, and suggested a revision to the Nikkei 225 Average methodology in <a href="https://www.smartkarma.com/insights/the-boj-s-ongoing-etf-impact-is-a-nikkei-225-reshuffle-in-the-cards" target="_blank" data-smartkarma-citation="insights:17331" rel="noopener">The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards?</a> (followed by <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980" rel="noopener">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a>) whereby there would be a deemed minimum shares outstanding quantity so that Deemed Minimum Shares Out / Shares out multiplied by Existing Deemed Par Value would become NEW Deemed Par Value.
This would mean that some names would see lower weights, but on the whole, the Nikkei 225 basket would be much more liquid. 
Nothing was done. The BOJ again lowered its use of Nikkei 225 ETFs, then recently finally stopped using the average altogether. 
The Nikkei 225 had been made largely irrelevant by the Nikkei's refusal to adapt to the times.
<h2>The NEW News</h2>
Today after the close, the Nikkei Index Team announced the first proposed revision to the methodology of the Nikkei 225 Average in twenty years, and a consultation over the next five weeks. Because the concept of Par Value is no longer used in Japan in the Companies Act, it would get rid of the "Presumed Par Value" or "Deemed Par Value" for members and potential members of the Average, and replace it with a Price Adjustment Factor ("PAF") which is an inverse multiplier of the Deemed Par Value. 
In short.... it would do nothing to the index and its constituents as they stand today.
And new additions would be assigned a PAF which would presumably be related to their previously understood Deemed Par Value. But in any case, new constituents would be capped at 1% weightings so would see their Price Adjustment Factor.... adjusted. 
There are other changes proposed which change the rebalancing possibilities, and there is a note that the Average would only include members of TSE Prime (such that existing TSE1 and Nikkei 225 members which chose not to become members of TSE Prime would find themselves booted from the Nikkei 225. 
This is highly disappointing. A 20-year review could have been so much more interesting and the Nikkei could have rescued itself from effective oblivion. Alas, this misses the mark, by a wide margin. 
But details are details so we look at them below.

In summer of 2016, I warned on Smartkarma that the BOJ was going to have to shift its ETF buy basket away from Nikkei 225. It did so in late 2016. I warned again in early 2018 that it was going to get worse, and suggested a revision to the Nikkei 225 Average methodology in The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards? (followed by JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225) whereby there would be a deemed minimum shares outstanding quantity so that Deemed Minimum Shares Out / Shares out multiplied by Existing Deemed Par Value would become NEW Deemed Par Value.
This would mean that some names would see lower weights, but on the whole, the Nikkei 225 basket would be much more liquid. 
Nothing was done. The BOJ again lowered its use of Nikkei 225 ETFs, then recently finally stopped using the average altogether. 
The Nikkei 225 had been made largely irrelevant by the Nikkei's refusal to adapt to the times.
The NEW News
Today after the close, the Nikkei Index Team announced the first proposed revision to the methodology of the Nikkei 225 Average in twenty years, and a consultation over the next five weeks. Because the concept of Par Value is no longer used in Japan in the Companies Act, it would get rid of the "Presumed Par Value" or "Deemed Par Value" for members and potential members of the Average, and replace it with a Price Adjustment Factor ("PAF") which is an inverse multiplier of the Deemed Par Value. 
In short.... it would do nothing to the index and its constituents as they stand today.
And new additions would be assigned a PAF which would presumably be related to their previously understood Deemed Par Value. But in any case, new constituents would be capped at 1% weightings so would see their Price Adjustment Factor.... adjusted. 
There are other changes proposed which change the rebalancing possibilities, and there is a note that the Average would only include members of TSE Prime (such that existing TSE1 and Nikkei 225 members which chose not to become members of TSE Prime would find themselves booted from the Nikkei 225. 
This is highly disappointing. A 20-year review could have been so much more interesting and the Nikkei could have rescued itself from effective oblivion. Alas, this misses the mark, by a wide margin. 
But details are details so we look at them below. 

After 20yrs, Nikkei 225 Proposes Minor Impact Rule Changes (Nintendo Disappointment?)

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)

There are more than 2,100 names in TOPIX and only 576 have three or more analysts with coverage. That leaves 1,515 names out of which 273 have enough traded volume to be worth looking at. We used this small-cap universe and screened for Value names.

There are more than 2,100 names in TOPIX and only 576 have three or more analysts with coverage. That leaves 1,515 names out of which 273 have enough traded volume to be worth looking at. We used this small-cap universe and screened for Value names. 

Small-Cap Value (High Dividend Yield) Names in Japan....

Today after the close the Nikkei Inc announced the results of the Annual Review for the <a href="https://indexes.nikkei.co.jp/en/nkave/archives/news/20180905E_1.pdf" target="_blank">Nikkei 225</a> and the <a href="https://indexes.nikkei.co.jp/en/nkave/archives/news/20180905E_2.pdf" target="_blank">Nikkei 300</a>.<ul>
<li>
In the Nikkei 225, <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent Inc (4751 JP)</a> will replace <a href="https://www.smartkarma.com/entities/19521" target="_blank" data-smartkarma-citation="entities:19521:1">Furukawa Co Ltd (5715 JP)</a>. Cyberagent has been assigned a presumed par value of 250 yen. The Nikkei 225 Rebalance is likely to be worth roughly $300-400mm a side. </li>
<li>
In the Nikkei 300, <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence Corp (6861 JP)</a> will replace <a href="https://www.smartkarma.com/entities/1175" target="_blank" data-smartkarma-citation="entities:1175:1">Nippon Sharyo (7102 JP)</a>. The Nikkei 300 rebalance has almost no significance in flow terms as far as I can tell.</li>
</ul>The changes on both are effective on October 1st, meaning the changes will be executed at the close of the last trading day of September. Outside of these names, there is an interesting angle which is looking at all the names which were deemed "possible" but did not make the cut.

Today after the close the Nikkei Inc announced the results of the Annual Review for the Nikkei 225 and the Nikkei 300.

In the Nikkei 225, Cyberagent Inc (4751 JP) will replace Furukawa Co Ltd (5715 JP). Cyberagent has been assigned a presumed par value of 250 yen. The Nikkei 225 Rebalance is likely to be worth roughly $300-400mm a side. 

In the Nikkei 300, Keyence Corp (6861 JP) will replace Nippon Sharyo (7102 JP). The Nikkei 300 rebalance has almost no significance in flow terms as far as I can tell.
The changes on both are effective on October 1st, meaning the changes will be executed at the close of the last trading day of September. Outside of these names, there is an interesting angle which is looking at all the names which were deemed "possible" but did not make the cut.

2018 Annual Nikkei 225 Rebalance - Small Potatoes As Expected

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Equity Bottom-Up

In our last note on Dowa Holdings on 17 Feb we turned cautious due to the rapid run up in the price since our first buy recommendation (+35% in 5 months), probable conservative guidance, weakening zinc TCs and a lack of recovery in the electronic materials segment. Since then the share price has dropped 14% despite Topix and Nikkei only declining 1% and we feel that the negative catalysts may now be close to priced in.We turn more bullish once again, partly due to valuation, but mostly as a…

In our last note on Dowa Holdings on 17 Feb we turned cautious due to the rapid run up in the price since our first buy recommendation (+35% in 5 months), probable conservative guidance, weakening zinc TCs and a lack of recovery in the electronic materials segment. Since then the share price has dropped 14% despite Topix and Nikkei only declining 1% and we feel that the negative catalysts may now be close to priced in.We turn more bullish once again, partly due to valuation, but mostly as a…

Zinc Prospects and Share Price Fall Make Dowa a Buy Again

Japan

Kurotani Corporation is principally engaged in the non-ferrous metal related business focusing on copper. The Company's operations include the manufacturing and selling of non-ferrous metals and copper and copper alloy fabricated products, copper alloy and aluminum alloys ingots, and arts and crafts.

Chugai Mining Co., Ltd. recycles and refines gold and silver from industrial waste.  The Company smelts gold and produces gold-plated building hardware. Chugai Mining also constructs office buildings and provides brokerage services.

Nasu Denki Tekko Co Ltd manufactures steel products such as steel towers, cables and insulators.  The Company's major customers include Tokyo Electric Power.

NIHON SEIKO CO., LTD. manufactures fire retardant chemical preparations from antimony trioxide.  The Company is affiliated with Sojitz Holdings Corporation.

NICHIA STEEL WORKS, LTD. produces and sells steel products including wires, bolts, and iron sheets.  The Company's products are used for industrial machinery, automobiles, and engineering works.

Shinko Wire Company, Ltd. produces steel wires, ropes, and special metal items such as titanium and foam aluminum wires.  The Company's products are used in a variety of fields, including the computer, automobile, fishing, and construction industries.  Shinko Wire is affiliated with Kobe Steel, Ltd.

NIPPON KOSHUHA STEEL CO., LTD. is a manufacturer of specialty steel.  The Company's products include bearing steel, tool steel, precision metal molds, and related products.

Tohoku Steel Co., Ltd. manufactures, processes, and sells ferroalloys.  The Company's products include stainless steels and heat-resisting steel products for cars and consumer electronics.  Tohoku Steel also operates real estate leasing business.

NIPPON CHUTETSUKAN K.K. manufactures and sells iron pipes.  The Company sells its products to utility companies such as Tokyo Water Department and Tokyo Gas. Nippon Chutetsukan also produces manhole lids and other iron products.

Shinhokoku Steel Corp manufactures, sells, and processes steel products. The Company's products include seamless steel pipes, metal wires, and various types of processed metal products.  Shin-Hokoku Steel also manufactures metal polishers and other types of metalworking machinery.

Dongil Industries Co., Ltd. manufactures steel products.  The Company's main products include hot rolled steel bars, alloyed steel, and casting.

Xanadu Mines, Ltd. is a copper exploration company that is active across the Mongolian section of the Central Asian Orogenic Belt.  The Company has a position in several license that are prospective for copper and gold and in particular the Oyut Ulaan copper project in the south Gobi region.  Xanadu has been established in Mongolia since 2005.

SAMWONSTEEL Co., Ltd. manufactures automobile spring materials such as flat bar, round bar, and multi-leaf spring for commercial vehicles as well as wire rod products and pipe.

Korea Steel Shapes Co., Ltd., an affiliate of Dong Kuk Steel Mill, manufactures and sells reinforcing rod bars, angles, and related products.

Orion Minerals Ltd operates as a minerals exploration and development company. The Company focuses on zinc, copper, nickel, gold, and platinum mining projects. Orion Minerals serves customers worldwide.

Kyeong Nam Steel Company Limited manufactures cold rolled steel and galvanized steel.  The Company supplies its products mainly to automobile and electronic product manufacturers in Korea.

DCM Corp. manufactures laminating steel sheets.  The Company also develops and produces high-illumination aluminum reflecting plates and plastic buttons for garments.

Tivan Limited is a resource and mineral processing technology company. The Company focuses on development of mount peake vanadium-titanium-iron project in the Northern Territory of Australia.

Sinkang Industries Co., Ltd. manufactures stainless steel products.  The Company produces stainless steel plates, pipes, tubes, and bars.  Sinkang mainly sells its products in Taiwan.

KOSSEN Co., Ltd. manufactures and markets stainless steel pipes used in heat exchangers of boilers and piping systems.  The Company supplies its products to the construction, petrochemical, pulp, and environment related industries.

Toho Zinc Co., Ltd. is non-ferrous metal smelter.  The Company produces zinc, lead, sulfuric acid, electronic parts, zinc sulfate, and silver.  Toho Zinc also operates a recycling business.

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Toho Zinc (5707 JP)

After 20yrs, Nikkei 225 Proposes Minor Impact Rule Changes (Nintendo Disappointment?)

TWENTY YEARS after its last major index methodology review, the Nikkei has proposed changes to the Nikkei 225. Existing constituents are not...

Travis Lundy

Small-Cap Value (High Dividend Yield) Names in Japan....

There are more than 2,100 names in TOPIX and only 576 have three or more analysts with coverage. That leaves 1,515 names out of which 273 have...

Custom Products Group

2018 Annual Nikkei 225 Rebalance - Small Potatoes As Expected

Today after the close the Nikkei Inc announced the results of the Annual Review for the Nikkei 225 and the Nikkei 300. In the Nikkei 225,...

Travis Lundy

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P/E

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After 20yrs, Nikkei 225 Proposes Minor Impact Rule Changes (Nintendo Disappointment?)

TWENTY YEARS after its last major index methodology review, the Nikkei has proposed changes to the Nikkei 225. Existing constituents are not...

Travis Lundy

Small-Cap Value (High Dividend Yield) Names in Japan....

There are more than 2,100 names in TOPIX and only 576 have three or more analysts with coverage. That leaves 1,515 names out of which 273 have...

Custom Products Group

2018 Annual Nikkei 225 Rebalance - Small Potatoes As Expected

Today after the close the Nikkei Inc announced the results of the Annual Review for the Nikkei 225 and the Nikkei 300. In the Nikkei 225,...

Travis Lundy

Zinc Prospects and Share Price Fall Make Dowa a Buy Again

In our last note on Dowa Holdings on 17 Feb we turned cautious due to the rapid run up in the price since our first buy recommendation (+35% in 5...

Mio Kato