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>TSE, as market operator, should focus on stimulating the market, not informally meddling in the management of listed companies on matters that are not explicitly stated in the listing criteria.</li>
<li>Much of the reason ROE has not increased is that OP Margin has not increased. Despite gradual unwinding of cross-shareholdings, Total Asset Turnover slide and Financial Leverage remained unchanged.</li>
<li>Increasing OP Margin is prerequisite for ROE to rise. It confirms that the root of the problem is the challenge of using cash for growth investments to create competitive products.</li>
</ul>


TSE, as market operator, should focus on stimulating the market, not informally meddling in the management of listed companies on matters that are not explicitly stated in the listing criteria.
Much of the reason ROE has not increased is that OP Margin has not increased. Despite gradual unwinding of cross-shareholdings, Total Asset Turnover slide and Financial Leverage remained unchanged.
Increasing OP Margin is prerequisite for ROE to rise. It confirms that the root of the problem is the challenge of using cash for growth investments to create competitive products.


What Should a Japanese Company Do to Raise Profit Margin, a Prerequisite for Higher ROE?

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

EURO STOXX 50 Price EUR / Technical Analysis

<ul>
<li>It appears the recent pullback is over, and we could see the MSCI ACWI (ACWI-US) test YTD highs at $93. We still expect $93 to cap upside in 2023.</li>
<li>Overweight Europe/UK and non-U.S., we are buyers on pullbacks as long as FTSE 100 is above 7700, STOXX Europe 50 is above 3800, and EURO STOXX 50 is above 4000.</li>
<li>As long as these support levels are holding, we are constructive from a price perspective</li>
</ul>


It appears the recent pullback is over, and we could see the MSCI ACWI (ACWI-US) test YTD highs at $93. We still expect $93 to cap upside in 2023.
Overweight Europe/UK and non-U.S., we are buyers on pullbacks as long as FTSE 100 is above 7700, STOXX Europe 50 is above 3800, and EURO STOXX 50 is above 4000.
As long as these support levels are holding, we are constructive from a price perspective


Remain Overweight Europe/UK & Non-US Equities; Pullback Over?; Buys in Industrials and Financials

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>
<a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661)</a>, <a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723)</a> and <a href="https://www.smartkarma.com/entities/japan-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1184:1" rel="noopener">Japan Airlines (9201)</a> will replace <a href="https://www.smartkarma.com/entities/toyobo-co-ltd" target="_blank" data-smartkarma-citation="entities:6187:1" rel="noopener">Toyobo (3101)</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)</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)</a> in 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>. </li>
<li>
<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> has been added at a post-split PAF of 1. This reduces the passive buying on the stock by around a third.</li>
<li>Passive trackers need to buy between 2.2-6.7 days of ADV on the adds while selling between 5-12 days of ADV on the deletes. There's a big funding trade too.</li>
</ul>



Oriental Land (4661), Renesas Electronics (6723) and Japan Airlines (9201) will replace Toyobo (3101), Nippon Light Metal (5703) and Toho Zinc (5707) in the Nikkei 225 (NKY INDEX). 

Oriental Land (4661 JP) has been added at a post-split PAF of 1. This reduces the passive buying on the stock by around a third.
Passive trackers need to buy between 2.2-6.7 days of ADV on the adds while selling between 5-12 days of ADV on the deletes. There's a big funding trade too.


Nikkei 225 Index Rebalance: Oriental Land, Renesas, JAL IN; Toyobo, Nippon LightMetal, Toho Zinc OUT

<ul>
<li>Increasing numbers of companies with P/Bs below 1x suggest that they failed to deliver to investors plan that would have increased their corporate value, or that such plan didn’t materialize.</li>
<li>While P/B has remained mostly in range, the increase in the number of companies with low P/Bs can be attributed to the widening gap in profitability among companies.</li>
<li>If the difference in profitability depends on the development and execution of management strategies, it depends on the quality of management. The appointment of directors will be very important.</li>
</ul>


Increasing numbers of companies with P/Bs below 1x suggest that they failed to deliver to investors plan that would have increased their corporate value, or that such plan didn’t materialize.
While P/B has remained mostly in range, the increase in the number of companies with low P/Bs can be attributed to the widening gap in profitability among companies.
If the difference in profitability depends on the development and execution of management strategies, it depends on the quality of management. The appointment of directors will be very important.


Is the Challenge of Raising the Stock Price Valuations Ultimately the Quality of Management?

<ul>
<li>The "transitional measures" were set to expire in 3 years. For companies currently subject to the transitional measures, this will end in March 2025 for companies with March fiscal year-end.</li>
<li>Many companies applying the transitional measures that are currently allowed to list on the Prime Market are expected to move to the Standard Market.</li>
<li>Listed companies should take the opportunity to carefully consider these listing costs and benefits, as higher practices in corporate governance and disclosure will be required in the future.</li>
</ul>


The "transitional measures" were set to expire in 3 years. For companies currently subject to the transitional measures, this will end in March 2025 for companies with March fiscal year-end.
Many companies applying the transitional measures that are currently allowed to list on the Prime Market are expected to move to the Standard Market.
Listed companies should take the opportunity to carefully consider these listing costs and benefits, as higher practices in corporate governance and disclosure will be required in the future.


More Important to Keep Prime Market Quality High, Not to Give to Listed Companies a Grace Period

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)

What Should a Japanese Company Do to Raise Profit Margin, a Prerequisite for Higher ROE?

I would like to discuss the February 6 Nikkei article, "TSE should strongly urge management reform of listed companies."

Metrical Inc

Remain Overweight Europe/UK & Non-US Equities; Pullback Over?; Buys in Industrials and Financials

Remain overweight Europe/UK and non-US equities; we are buyers on pullbacks as long as the FTSE 100 is above 7700, the STOXX Europe 50 is above...

Vermilion Research

Nikkei 225 Index Rebalance: Oriental Land, Renesas, JAL IN; Toyobo, Nippon LightMetal, Toho Zinc OUT

There are 3 adds and 3 deletes in March - mostly on expected line. The inclusion of Oriental Land at a lower than expected PAF could see some...

Brian Freitas

Is the Challenge of Raising the Stock Price Valuations Ultimately the Quality of Management?

I would like to discuss the issues on the Nikkei article of January 30, "Can TSE Play a Bad Guy: Determination Tested to Eliminate Low P/B Companies."

Metrical Inc

More Important to Keep Prime Market Quality High, Not to Give to Listed Companies a Grace Period

I would like to discuss the issues of the materials disclosed by the TSE on January 30 for the 7th Follow-up Meeting on the Revision of Market...

Metrical Inc