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

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>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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP)</a> is looking to reduce its stake in <a href="https://www.smartkarma.com/entities/japan-post-bank-co-ltd" target="_blank" data-smartkarma-citation="entities:838:1" rel="noopener">Japan Post Bank (7182 JP)</a> from 89% to 60%. That is over US$9bn at the last close.</li>
<li>The placement is supported by buybacks (ToSTNeT-3 and on-market) that will absorb some of the offering. Then there is the passive buying that will absorb a third of the offering. </li>
<li>One of the key short-term supports will be the exercise of the over-allotment of the Japan offering. But that will require persuading retail investors to buy into the offering.</li>
</ul>



Japan Post Holdings (6178 JP) is looking to reduce its stake in Japan Post Bank (7182 JP) from 89% to 60%. That is over US$9bn at the last close.
The placement is supported by buybacks (ToSTNeT-3 and on-market) that will absorb some of the offering. Then there is the passive buying that will absorb a third of the offering. 
One of the key short-term supports will be the exercise of the over-allotment of the Japan offering. But that will require persuading retail investors to buy into the offering.


Japan Post Bank (7182 JP): BIG Offering Supported by Buybacks & Passive Flow

<ul>
<li>If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.</li>
<li>Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.</li>
<li>Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.</li>
</ul>


If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.
Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.
Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.


Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

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: 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

Japan Post Bank (7182 JP): BIG Offering Supported by Buybacks & Passive Flow

JPH's offering of US$9bn will put pressure on JPB. Passive buying will absorb around a third of the offering. The buybacks will absorb some more....

Brian Freitas

Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

I would like to discuss the issues on the Nikkei article of January 26th, "TSE to Request More Disclosure from Low P/B Companies to Press Them to...

Metrical Inc