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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Toyo Seikan Group Holdings L / Event-Driven

Nikkei has just announced the 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> as part of its periodic review. The changes will be made prior to the open of the market on 1 October, so passive funds will trade at the closing auction on 30 September.There are 3 changes to the index with <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence Corp (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> and <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a> replacing <a href="https://www.smartkarma.com/entities/nisshinbo-holdings-inc" target="_blank" data-smartkarma-citation="entities:10561:1" rel="noopener">Nisshinbo Holdings (3105 JP)</a>, <a href="https://www.smartkarma.com/entities/toyo-seikan-group-holdings-l" target="_blank" data-smartkarma-citation="entities:11858:1" rel="noopener">Toyo Seikan Group Holdings L (5901 JP)</a> and <a href="https://www.smartkarma.com/entities/sky-perfect-jsat-holdings" target="_blank" data-smartkarma-citation="entities:14097:1" rel="noopener">Sky Perfect Jsat (9412 JP)</a>.While the inclusion of <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a> and the deletion of <a href="https://www.smartkarma.com/entities/sky-perfect-jsat-holdings" target="_blank" data-smartkarma-citation="entities:14097:1" rel="noopener">Sky Perfect Jsat (9412 JP)</a> was expected, the other names are relative surprises.The impact on the inclusions is not very high in terms of days of ADV to buy and in terms of the real float to buy, but the impact on the deletions is a lot higher. The selling on <a href="https://www.smartkarma.com/entities/nisshinbo-holdings-inc" target="_blank" data-smartkarma-citation="entities:10561:1" rel="noopener">Nisshinbo Holdings (3105 JP)</a> and <a href="https://www.smartkarma.com/entities/toyo-seikan-group-holdings-l" target="_blank" data-smartkarma-citation="entities:11858:1" rel="noopener">Toyo Seikan Group Holdings L (5901 JP)</a> will result in around 18% of the free float of the stock being sold and the stocks could drop a lot before investors start to get involved.This is the first review post the market consultation that was announced in May and the conclusions of which were published in July.As usual, Nikkei have ignored the sector balance that is spoken about so much in the index methodology. Apparently its easier to write the index methodology than to follow it!

Nikkei has just announced the changes to the Nikkei 225 (NKY INDEX) as part of its periodic review. The changes will be made prior to the open of the market on 1 October, so passive funds will trade at the closing auction on 30 September.There are 3 changes to the index with Keyence Corp (6861 JP), Murata Manufacturing (6981 JP) and Nintendo Co Ltd (7974 JP) replacing Nisshinbo Holdings (3105 JP), Toyo Seikan Group Holdings L (5901 JP) and Sky Perfect Jsat (9412 JP).While the inclusion of Nintendo Co Ltd (7974 JP) and the deletion of Sky Perfect Jsat (9412 JP) was expected, the other names are relative surprises.The impact on the inclusions is not very high in terms of days of ADV to buy and in terms of the real float to buy, but the impact on the deletions is a lot higher. The selling on Nisshinbo Holdings (3105 JP) and Toyo Seikan Group Holdings L (5901 JP) will result in around 18% of the free float of the stock being sold and the stocks could drop a lot before investors start to get involved.This is the first review post the market consultation that was announced in May and the conclusions of which were published in July.As usual, Nikkei have ignored the sector balance that is spoken about so much in the index methodology. Apparently its easier to write the index methodology than to follow it!

Nikkei 225 Index Rebalance: Nintendo, Keyence, Murata IN; Nisshinbo, Toyo Seikan, SKY Perfect OUT

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.

In this article, I would like to focus on compensation incentives. As the table below shows, among the 1,722 companies in the Metrical Universe as of August 2021, 1,543 companies, or nearly 90%, have introduced some type of compensation incentive. Among the compensation incentives, performance-linked compensation is the most common, with more than 60% of the companies in our universe adopting performance-linked compensation. Only 23.5% of companies have adopted stock option plans. It is important to note that even if a company has adopted a stock option plan, it does not necessarily mean that it is currently granting stock options. The Corporate Governance Report submitted to the TSE does not include "restricted stock compensation" in the breakdown of compensation incentives, but recently this is becoming the mainstream instead of stock options (Metrical thinks this makes more sense).

In this article, I would like to focus on compensation incentives. As the table below shows, among the 1,722 companies in the Metrical Universe as of August 2021, 1,543 companies, or nearly 90%, have introduced some type of compensation incentive. Among the compensation incentives, performance-linked compensation is the most common, with more than 60% of the companies in our universe adopting performance-linked compensation. Only 23.5% of companies have adopted stock option plans. It is important to note that even if a company has adopted a stock option plan, it does not necessarily mean that it is currently granting stock options. The Corporate Governance Report submitted to the TSE does not include "restricted stock compensation" in the breakdown of compensation incentives, but recently this is becoming the mainstream instead of stock options (Metrical thinks this makes more sense).

Japan's Governance: Compensation Incentives

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

Shanghai Stock Exchange Composite Index / Technical Analysis

While there are always exceptions at the individual stock level, MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs of positive change and we recommend adding exposure to emerging markets and Japan.

While there are always exceptions at the individual stock level, MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs of positive change and we recommend adding exposure to emerging markets and Japan.

Buying Opportunities Within Emerging Markets and Japan; US Dollar Failing At 93.50

In August last year, Metrical proposed an investment strategy from the perspective of corporate governance, which was discussed in the article "Japan's Governance: Parent-Subsidiary Listing and Investment Strategy" on this website in June this year. Parent-subsidiary listing is a practice that is unique to the Japanese stock market and is not commonly seen in markets in other regions. The liquidity standards for the prime market that accompanied the TSE's market reclassification led to an increase in the number of acquisitions of listed subsidiaries by their parent companies, as exemplified by SECOM's TOB of SECOM Joshinetsu. In this article, I would like to examine the "parent-subsidiary listing investment strategy" again using the latest data.

In August last year, Metrical proposed an investment strategy from the perspective of corporate governance, which was discussed in the article "Japan's Governance: Parent-Subsidiary Listing and Investment Strategy" on this website in June this year. Parent-subsidiary listing is a practice that is unique to the Japanese stock market and is not commonly seen in markets in other regions. The liquidity standards for the prime market that accompanied the TSE's market reclassification led to an increase in the number of acquisitions of listed subsidiaries by their parent companies, as exemplified by SECOM's TOB of SECOM Joshinetsu. In this article, I would like to examine the "parent-subsidiary listing investment strategy" again using the latest data.

Japan's Governance: Parent Subsidiary Listing Investment Strategy Update

As mentioned in my previous articles, "TSE Prime Market Listing Requirements and Revised Corporate Governance Code" and "Tokyo Stock Exchange Reorganization and the Future of Corporate Governance", TSE is aiming to revise its Corporate Governance Code by December as part of the reorganization of the Tokyo Stock Exchange's market classification. One of the main features of the revised Corporate Governance Code is expected to be "increasing the ratio of independent outside directors on the board of directors to at least one-third in the principles that explain recommendations limited to the prime market.

As mentioned in my previous articles, "TSE Prime Market Listing Requirements and Revised Corporate Governance Code" and "Tokyo Stock Exchange Reorganization and the Future of Corporate Governance", TSE is aiming to revise its Corporate Governance Code by December as part of the reorganization of the Tokyo Stock Exchange's market classification. One of the main features of the revised Corporate Governance Code is expected to be "increasing the ratio of independent outside directors on the board of directors to at least one-third in the principles that explain recommendations limited to the prime market.

Japan's Governance: Revision of CG Code and Concurrently Serving as Outside Directors

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: Nintendo, Keyence, Murata IN; Nisshinbo, Toyo Seikan, SKY Perfect OUT

Nintendo, Murata & Keyence are into the Nikkei225 while Nisshinbo, Toyo Seikan & Sky Perfect are out. This trade will be more about the deletes...

Brian Freitas

Japan's Governance: Compensation Incentives

Of the 1,722 companies in the Universe, nearly 90% of the companies have some kind of compensation incentive. Conversely, companies are reluctant...

Metrical Inc

Buying Opportunities Within Emerging Markets and Japan; US Dollar Failing At 93.50

MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs...

Vermilion Research

Japan's Governance: Parent Subsidiary Listing Investment Strategy Update

The acquisition of listed subsidiaries by their parent companies has been increasing, triggered by the liquidity standards in the prime market as a...

Metrical Inc

Japan's Governance: Revision of CG Code and Concurrently Serving as Outside Directors

With the expected revision of the Corporate Governance Code due to the market reclassification of TSE, the issue of concurrently serving as an...

Metrical Inc