Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Although the stock split doesn't raise the intrinsic value of the stock, the stock price is likely to rise on the speculation that future purchases into the NISA are expected.</li>
<li>As cross-shareholdings decline, the companies are actively engaging in IR activities with individual investors to secure shareholders who share the company's position against foreign shareholders who are increasing their presence.</li>
<li>Some believe that NISA will be used as receptacle for the disposal of BOJ's ETF holdings, but companies may hope that the silent shareholder hold ETFs as long as possible.</li>
</ul>


Although the stock split doesn't raise the intrinsic value of the stock, the stock price is likely to rise on the speculation that future purchases into the NISA are expected.
As cross-shareholdings decline, the companies are actively engaging in IR activities with individual investors to secure shareholders who share the company's position against foreign shareholders who are increasing their presence.
Some believe that NISA will be used as receptacle for the disposal of BOJ's ETF holdings, but companies may hope that the silent shareholder hold ETFs as long as possible.


Again, It Is the BOJ's ETF Issue that Makes Us Think

<ul>
<li>There are 236 companies with a trading unit of more than 500,000 yen, while there are 967 companies with a trading unit of less than 50,000 yen on the TSE.</li>
<li>It's fair to amend the law to abolish the share unit system, but changing the law takes time. It's also unclear why "between 50,000 yen and 500,000 yen" is appropriate.</li>
<li>While TSE still allows 300 companies that don't meet the listing criteria to be listed on prime market, TSE requires companies with higher stock prices to increase their administrative burden.</li>
</ul>


There are 236 companies with a trading unit of more than 500,000 yen, while there are 967 companies with a trading unit of less than 50,000 yen on the TSE.
It's fair to amend the law to abolish the share unit system, but changing the law takes time. It's also unclear why "between 50,000 yen and 500,000 yen" is appropriate.
While TSE still allows 300 companies that don't meet the listing criteria to be listed on prime market, TSE requires companies with higher stock prices to increase their administrative burden.


Is TSE Being Too Strict with the Honor Students and Too Lenient with the Underdogs?

<ul>
<li>It's unclear whether the stocks that lost ％ TOPIX had been overpriced or whether selling pressure caused temporary underperformance. However, it's clear these illiquid stocks are unsuitable for institutional investors.</li>
<li>While users want TOPIX liquidity to increase, TSE insists on aligning its criteria for TOPIX stock selection with prime market listing criteria, which takes precedence over the interests of users.</li>
<li>Rather than asking these companies to take on daunting task of dramatically raising both profit margins and growth, TSE should bring TOPIX criteria to threshold that institutional investors invest in.</li>
</ul>


It's unclear whether the stocks that lost ％ TOPIX had been overpriced or whether selling pressure caused temporary underperformance. However, it's clear these illiquid stocks are unsuitable for institutional investors.
While users want TOPIX liquidity to increase, TSE insists on aligning its criteria for TOPIX stock selection with prime market listing criteria, which takes precedence over the interests of users.
Rather than asking these companies to take on daunting task of dramatically raising both profit margins and growth, TSE should bring TOPIX criteria to threshold that institutional investors invest in.


High Cost of TOPIX, Which Currently Contains Illiquid Stocks, Is Considered to Be Borne by Users

<ul>
<li>Progress on ESG initiatives should be evaluated objectively. With insufficient transparency and disclosure of compensation, there is concern that incorporating ESG factors into compensation will further increase uncertainty.</li>
<li>Leadership is required for management to seek the evolution of essential initiatives so that ESG efforts don’t fall into "numbers matching" and not be intimidated by temporary setbacks or modifications.</li>
<li>There are the following unresolved issues: non-disclosure of individual director compensation, bias toward fixed compensation, opaque compensation formulas, and ensuring the independence of the Compensation Committee.</li>
</ul>


Progress on ESG initiatives should be evaluated objectively. With insufficient transparency and disclosure of compensation, there is concern that incorporating ESG factors into compensation will further increase uncertainty.
Leadership is required for management to seek the evolution of essential initiatives so that ESG efforts don’t fall into "numbers matching" and not be intimidated by temporary setbacks or modifications.
There are the following unresolved issues: non-disclosure of individual director compensation, bias toward fixed compensation, opaque compensation formulas, and ensuring the independence of the Compensation Committee.


Without Disclosure and Ensuring Transparency, the Black Box on Compensation Will Increase

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>With just over two months left in the review period, we expect three changes to the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> at the March rebalance.</li>
<li>
<a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec Corp (6920 JP)</a>, <a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661 JP)</a> and <a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723 JP)</a> could replace <a href="https://www.smartkarma.com/entities/toyobo-co-ltd" target="_blank" data-smartkarma-citation="entities:6187:1" rel="noopener">Toyobo Co Ltd (3101 JP)</a>, <a href="https://www.smartkarma.com/entities/nippon-light-metal-holdings" target="_blank" data-smartkarma-citation="entities:1485:1" rel="noopener">Nippon Light Metal (5703 JP)</a> and <a href="https://www.smartkarma.com/entities/toho-zinc-co-ltd" target="_blank" data-smartkarma-citation="entities:2796:1" rel="noopener">Toho Zinc (5707 JP)</a>.</li>
<li>As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.</li>
</ul>


With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.

Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.


Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Again, It Is the BOJ's ETF Issue that Makes Us Think

I would like to discuss the issues on Nikkei article of November 7, 2022, "TSE has requested a reduction in the investment unit, which has led to...

Metrical Inc

Is TSE Being Too Strict with the Honor Students and Too Lenient with the Underdogs?

I would like to discuss the issues on the "Request for Consideration Concerning Reduction of Minimum Investment Unit" sent to the companies with...

Metrical Inc

High Cost of TOPIX, Which Currently Contains Illiquid Stocks, Is Considered to Be Borne by Users

I would like to discuss the issues on the October 31 Nikkei article, "Over 60% of stocks that were downgraded as % of TOPIX underperformed the...

Metrical Inc

Without Disclosure and Ensuring Transparency, the Black Box on Compensation Will Increase

I would like to discuss the issues on the Nikkei article "52% 'Reflect ESG in Executive Compensation' in Deloitte's survey of 100 companies.”

Metrical Inc

Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade

There should be 3 changes to the NKY in March. The potential adds have outperformed the potential deletes and there will be large pre-positions on...

Brian Freitas