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>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> September rebalance will be done in three parts due to the delisting of <a href="https://www.smartkarma.com/entities/shizuoka-bank-ltd" target="_blank" data-smartkarma-citation="entities:4437:1" rel="noopener">Shizuoka Bank (8355 JP)</a> and the relisting of Shizuoka Financial Group (5831).</li>
<li>
<a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec Corp (6594 JP)</a>, <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC Corp (6273 JP)</a> and <a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya Corp (7741 JP)</a> replace <a href="https://www.smartkarma.com/entities/unitika-ltd" target="_blank" data-smartkarma-citation="entities:7669:1" rel="noopener">Unitika Ltd (3103 JP)</a>, <a href="https://www.smartkarma.com/entities/oki-electric-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:2181:1" rel="noopener">Oki Electric Industry (6703 JP)</a> and <a href="https://www.smartkarma.com/entities/maruha-nichiro-corp" target="_blank" data-smartkarma-citation="entities:20640:1" rel="noopener">Maruha Nichiro (1333 JP)</a>. </li>
<li>Passive trackers need to buy over 10 days ADV on the adds and there is a large impact of the funding trade given the add/delete size difference.</li>
</ul>


The Nikkei 225 (NKY INDEX) September rebalance will be done in three parts due to the delisting of Shizuoka Bank (8355 JP) and the relisting of Shizuoka Financial Group (5831).

Nidec Corp (6594 JP), SMC Corp (6273 JP) and Hoya Corp (7741 JP) replace Unitika Ltd (3103 JP), Oki Electric Industry (6703 JP) and Maruha Nichiro (1333 JP). 
Passive trackers need to buy over 10 days ADV on the adds and there is a large impact of the funding trade given the add/delete size difference.


Nikkei 225 Index Rebalance: Mostly on Expected Lines

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>OP margins for listed companies haven’t increased notably, with maximum of 5% since FY 2008. Meanwhile, real income has continued declining, and there has been trend to reduce labor costs.</li>
<li>The negative aspect is illustrated by the low level of employee engagement in a company that has managed to maintain operating margin at current level by keeping labor costs low.</li>
<li>Inadequate investment by both companies and employees has hindered the expansion of value-added. For expanding added value, shift to investment in human resources is needed along with wage increases.</li>
</ul>


OP margins for listed companies haven’t increased notably, with maximum of 5% since FY 2008. Meanwhile, real income has continued declining, and there has been trend to reduce labor costs.
The negative aspect is illustrated by the low level of employee engagement in a company that has managed to maintain operating margin at current level by keeping labor costs low.
Inadequate investment by both companies and employees has hindered the expansion of value-added. For expanding added value, shift to investment in human resources is needed along with wage increases.


A Policy Shift from Simply Maintaining Corporate Performance to How to Raise Added Value Is Needed

<ul>
<li>Cases of illegal transactions by the president of a company from the founding family should be handled in terms of legal violations before corporate governance.</li>
<li>If we focus on the issue of corporate governance, the problem is that the board of directors and statutory auditors have failed to fulfill their duties and cross-shareholdings were involved.</li>
<li>If corporate governance is not effective in practice, we should at least expect to see improvements in corporate governance practices in organizational forms that are more legally binding.</li>
</ul>


Cases of illegal transactions by the president of a company from the founding family should be handled in terms of legal violations before corporate governance.
If we focus on the issue of corporate governance, the problem is that the board of directors and statutory auditors have failed to fulfill their duties and cross-shareholdings were involved.
If corporate governance is not effective in practice, we should at least expect to see improvements in corporate governance practices in organizational forms that are more legally binding.


Should Move to a Legally Binding Structure to Prevent Corporate Governance from Becoming a Skeleton

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

S&P BSE SENSEX Index / Technical Analysis

<ul>
<li>We continue to see global equities as being in pullback mode, with the MSCI ACWI index (ACWI-US) already testing important support in the $86-87 range, highlighted last week.</li>
<li>A bounce here would be ideal for the bullish case, but we could easily see a test of the YTD lows near $81.50 if $86 fails to hold.</li>
<li>Japan's TOPIX/Nikkei225/TOPIX Small remain bullish, as does India's SENSEX -- add exposure. Seeing some failed breakouts in Europe, notably the EURO STOXX 50 and STOXX Europe 600; a concerning development.</li>
</ul>


We continue to see global equities as being in pullback mode, with the MSCI ACWI index (ACWI-US) already testing important support in the $86-87 range, highlighted last week.
A bounce here would be ideal for the bullish case, but we could easily see a test of the YTD lows near $81.50 if $86 fails to hold.
Japan's TOPIX/Nikkei225/TOPIX Small remain bullish, as does India's SENSEX -- add exposure. Seeing some failed breakouts in Europe, notably the EURO STOXX 50 and STOXX Europe 600; a concerning development.


Pullback Continues; Japan & India Remain Attractive

<ul>
<li>If stock price is high, then a stock split is the way to go, and stockbrokers have provided a mechanism for trading shares in less than single-unit in the past.</li>
<li>The issue isn't "the trading unit should be lowered because people can't buy shares with high stock prices" but "let's improve so that people can become shareholders with one share.</li>
<li>If Japanese companies are reluctant to increase the number of diverse shareholders, this would be in line with their slower progress in solving issues: diversity, human rights, and environment.</li>
</ul>


If stock price is high, then a stock split is the way to go, and stockbrokers have provided a mechanism for trading shares in less than single-unit in the past.
The issue isn't "the trading unit should be lowered because people can't buy shares with high stock prices" but "let's improve so that people can become shareholders with one share.
If Japanese companies are reluctant to increase the number of diverse shareholders, this would be in line with their slower progress in solving issues: diversity, human rights, and environment.


The Crux of the Problem Is the Company's Reluctance to Increase the Number of Diverse Shareholders

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)

Nikkei 225 Index Rebalance: Mostly on Expected Lines

There are 4 changes to the index that will be executed in three parts - changes were mostly expected. One-way turnover is expected at 2.68% and...

Brian Freitas

A Policy Shift from Simply Maintaining Corporate Performance to How to Raise Added Value Is Needed

I would like to discuss the issues on the Nikkei article, "The Limits of Japanese-style Labor-Management Negotiations as Reflected in Jobs or Wage...

Metrical Inc

Should Move to a Legally Binding Structure to Prevent Corporate Governance from Becoming a Skeleton

I would like to discuss the issues on the the Nikkei Shimbun article "Outside Directors of Audit and Supervisory Board Members as a Keystone.”

Metrical Inc

Pullback Continues; Japan & India Remain Attractive

Stick with Japan & India. $ACWI bounce at $86 would be ideal for the bullish case (i.e., establishing a higher low), but we could easily see a test...

Vermilion Research

The Crux of the Problem Is the Company's Reluctance to Increase the Number of Diverse Shareholders

I would like to discuss the points raised the Nikkei article, "Change the system to buy Japanese stocks from one share."

Metrical Inc