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>There are 38 adds/36 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.</li>
<li>Based on the adds, deletes and capping changes, we estimate one way turnover of 4.35% and a two-way trade of JPY 461bn (US$3.24bn).</li>
<li>There are a few stocks that will have same way flow from other index trackers within a few weeks of the JPX Nikkei 400 Index rebalance.</li>
</ul>


There are 38 adds/36 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.
Based on the adds, deletes and capping changes, we estimate one way turnover of 4.35% and a two-way trade of JPY 461bn (US$3.24bn).
There are a few stocks that will have same way flow from other index trackers within a few weeks of the JPX Nikkei 400 Index rebalance.


JPX Nikkei 400 Index Rebalance: Some Big Impact Names

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>Managers/Executives should receive compensation that is appropriate to increase corporate value and stock price, and executive compensation should be tied to the realization of corporate value and stock price growth.</li>
<li>Not many companies have been able to increase their corporate value by hiring global talent on their boards like Hitachi, MUFG, Mitsui &amp; Company, and Daikin.</li>
<li>Currently, the relationship between executive compensation and corporate value is inconsistent. The optimal proportion of variable compensation and the acquisition/utilization of global human resources to strengthen competitiveness will be key.</li>
</ul>


Managers/Executives should receive compensation that is appropriate to increase corporate value and stock price, and executive compensation should be tied to the realization of corporate value and stock price growth.
Not many companies have been able to increase their corporate value by hiring global talent on their boards like Hitachi, MUFG, Mitsui &amp; Company, and Daikin.
Currently, the relationship between executive compensation and corporate value is inconsistent. The optimal proportion of variable compensation and the acquisition/utilization of global human resources to strengthen competitiveness will be key.


No Consistent Relationship Between Executive Compensation and Stock Price/ Earnings Has Been Seen

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

<ul>
<li>Quiddity's <strong>"Who is Ready"</strong> series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>
<a href="https://www.smartkarma.com/entities/plus-alpha-consulting-co-ltd" target="_blank" data-smartkarma-citation="entities:33441:1" rel="noopener">Plus Alpha Consulting (4071 JP)</a> will be included in TOPIX at the end of August 2023 and so far the stock has performed negatively as expected (see <a href="https://www.smartkarma.com/insights/plus-alpha-consulting-4071-jp-30bn-offer-leads-to-5bn-topix-inclusion" target="_blank" rel="noopener">link</a>).</li>
<li>Our long-term TOPIX pre-event name <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> has seen its share price decline sharply in the last few weeks which raises some important questions.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.

Plus Alpha Consulting (4071 JP) will be included in TOPIX at the end of August 2023 and so far the stock has performed negatively as expected (see link).
Our long-term TOPIX pre-event name CELSYS (3663 JP) has seen its share price decline sharply in the last few weeks which raises some important questions.


TOPIX Inclusions: Who Is Ready (Aug 2023)

<ul>
<li>The percentage of stockholdings by individuals will continue rising. Their tendency to buy-on-decline will continue to serve as a cushion in times of falling stocks as well as voting behavior.</li>
<li>Now that the BOJ's ETF purchases have subsided, an increase in trust bank stock holdings is not expected. A limited increase in pension assets is also expected.</li>
<li>The reduction in cross-shareholdings has reduced the shareholding ratio of corporations to 19.6%. Meanwhile, corporations repurchased total of 5,790.7 billion yen in FY2022, indicating that share repurchases have taken root.</li>
</ul>


The percentage of stockholdings by individuals will continue rising. Their tendency to buy-on-decline will continue to serve as a cushion in times of falling stocks as well as voting behavior.
Now that the BOJ's ETF purchases have subsided, an increase in trust bank stock holdings is not expected. A limited increase in pension assets is also expected.
The reduction in cross-shareholdings has reduced the shareholding ratio of corporations to 19.6%. Meanwhile, corporations repurchased total of 5,790.7 billion yen in FY2022, indicating that share repurchases have taken root.


Increasing Attention to the Role Played by Individuals in the Rising Trend of Stock Ownership

<ul>
<li>Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.</li>
<li>It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.</li>
<li>Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.</li>
</ul>


Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.
It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.
Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.


Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

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)

JPX Nikkei 400 Index Rebalance: Some Big Impact Names

There are 38 adds and 36 deletes for the JPXNK400 Index. The adds have outperformed the deletes and there is a fair bit to trade on a lot of...

Brian Freitas

No Consistent Relationship Between Executive Compensation and Stock Price/ Earnings Has Been Seen

I would like to discuss the issues regarding the July 11 Nikkei article, "316 Companies Disclosed Highest Number of Executives with Compensation of...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Aug 2023)

I am Bullish on CELSYS at the current price level (JPY 672). The share price has to increase to slightly for the company to meet the Section...

Janaghan Jeyakumar, CFA

Increasing Attention to the Role Played by Individuals in the Rising Trend of Stock Ownership

I would like to discuss the overview of the document the "Results of the Survey of Stockholding Distribution in FY2022."

Metrical Inc

Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

I would like to discuss the issues on the June 29th Nikkei article, "Shareholders' Meetings are the Starting Point for Dialogue to Enhance...

Metrical Inc