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 coming week has the rebalance implementation for the NIFTY family of indices on Thursday and 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> on Friday.</li>
<li>The review period for the December rebalance of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hang Seng Index</a>, <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index</a>, <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng TECH Index</a> and the HSCI Index ends on Friday.</li>
<li>Inflows to mainland China ETFs resumed following a pause as markets continue to trade weak.</li>
</ul>


The coming week has the rebalance implementation for the NIFTY family of indices on Thursday and the Nikkei 225 (NKY INDEX) on Friday.
The review period for the December rebalance of the Hang Seng Index, Hang Seng China Enterprises Index, Hang Seng TECH Index and the HSCI Index ends on Friday.
Inflows to mainland China ETFs resumed following a pause as markets continue to trade weak.


Index Rebalance & ETF Flow Recap: HSI, HSCI, ASX, SET50, Wharf, SK Tel, Tata Motors, Midea, PCOMP

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>Activist investors' proposals were consistently based on increasing shareholder returns. The change in the environment, in which ％ of foreign shareholders increased while cross-held shares decreased, had a major impact.</li>
<li>Regarding the selection of directors, discussion on contents of Skill Matrix should be more active, as it's suspected that top management is selecting candidates who are aligned with their wishes.</li>
<li>The voting standards of domestic institutional investors are iridescent and still dependent on public opinion for each proposal. The change in public opinion has only just begun.</li>
</ul>


Activist investors' proposals were consistently based on increasing shareholder returns. The change in the environment, in which ％ of foreign shareholders increased while cross-held shares decreased, had a major impact.
Regarding the selection of directors, discussion on contents of Skill Matrix should be more active, as it's suspected that top management is selecting candidates who are aligned with their wishes.
The voting standards of domestic institutional investors are iridescent and still dependent on public opinion for each proposal. The change in public opinion has only just begun.


Public Opinion Is Slowly Catching Up, but the Change Has Only Just Begun

<ul>
<li>The percentage of female managers is low, around 10%, so it will take time for internal executive directors to be nominated, and meanwhile companies will be dependent on outside directors.</li>
<li>Finally, TSE has clearly stated specific numerical targets, so the path to achieving the targets is clear. Now the focus will shift to the content of female board  directors.</li>
<li>Hiring talented people should be the biggest management challenge, but the appointment of foreign talent has been too slow compared to the globalization of the business.</li>
</ul>


The percentage of female managers is low, around 10%, so it will take time for internal executive directors to be nominated, and meanwhile companies will be dependent on outside directors.
Finally, TSE has clearly stated specific numerical targets, so the path to achieving the targets is clear. Now the focus will shift to the content of female board  directors.
Hiring talented people should be the biggest management challenge, but the appointment of foreign talent has been too slow compared to the globalization of the business.


Few Companies Recognize Board Diversity as a Management Issue?

<ul>
<li>If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.</li>
<li>A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.</li>
<li>Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.</li>
</ul>


If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.
A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.
Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.


It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

<ul>
<li>The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.</li>
<li>The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.</li>
<li>GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.</li>
</ul>


The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.
The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.
GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.


Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

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)

Index Rebalance & ETF Flow Recap: HSI, HSCI, ASX, SET50, Wharf, SK Tel, Tata Motors, Midea, PCOMP

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

Public Opinion Is Slowly Catching Up, but the Change Has Only Just Begun

I would like to discuss the issues on the August 22 Nikkei article titled "'Healthy Opposition' Emerging in Capital Markets, Tension between...

Metrical Inc

Few Companies Recognize Board Diversity as a Management Issue?

I would like to discuss the August 27th Nikkei Newspaper article, "Issues of appointing female board members: Urgent need for human resource...

Metrical Inc

It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

I would like to discuss the issues on the August 23 Nikkei article, "High P/B Stocks with Weak Upside, High Interest Rates Make Selection Time for...

Metrical Inc

Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

I would like to discuss the August 23 Nikkei article, "GPIF to Quantitatively Analyze ESG Investments to Explore Causal Relationship between...

Metrical Inc