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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Toyo Seikan Group Holdings L / Index Rebalance

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

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

Wisdomtree Japan Hedged Eq / Technical Analysis

Market dynamics continue to send mixed signals, but the bottom line is that not one MSCI ACWI Sector is breaking down, and important price support levels are holding in the US, Europe, and Japan. Additionally, the MSCI ACWI, ACWI ex-US, and EAFE indexes all remain above critical support levels. Until supports start to break we cannot be bearish. It is also worth noting that various indicators could be making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a potential false breakdown in crude oil, and high yield spreads leveling-out.

Market dynamics continue to send mixed signals, but the bottom line is that not one MSCI ACWI Sector is breaking down, and important price support levels are holding in the US, Europe, and Japan. Additionally, the MSCI ACWI, ACWI ex-US, and EAFE indexes all remain above critical support levels. Until supports start to break we cannot be bearish. It is also worth noting that various indicators could be making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a potential false breakdown in crude oil, and high yield spreads leveling-out.

Critical Supports Holding in the US, Europe, & Japan; Buying Health Care, Utilities, Materials, Tech

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/379/original/Screenshot%202020-03-29%20at%206.18.38%20PM.png?1585477145" class="editor-image img-responsive" data-smartkarma-image-id="125379"></figure>There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX.

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX. 

Breaking Down Wild Nikkei 225 Component Moves

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

Softbank stock ended up locked limit up towards the end of the trading day after the company announced a massive ¥4.5trn in asset sales/monetisation together with a ¥2.0trn share buyback on top of the already announced ¥0.5trn buyback. Together the two buybacks could soak up 45% of outstanding shares. Given that the stock had fallen 53% between the 12th of February and last Thursday, the 19th of March, it is not surprising that it went limit up. It would not be entirely surprising if the stock were limit up again tomorrow. If so, that could have some interesting implications for other Nikkei names. Details below.

Softbank stock ended up locked limit up towards the end of the trading day after the company announced a massive ¥4.5trn in asset sales/monetisation together with a ¥2.0trn share buyback on top of the already announced ¥0.5trn buyback. Together the two buybacks could soak up 45% of outstanding shares. Given that the stock had fallen 53% between the 12th of February and last Thursday, the 19th of March, it is not surprising that it went limit up. It would not be entirely surprising if the stock were limit up again tomorrow. If so, that could have some interesting implications for other Nikkei names. Details below.

What Do You Buy if the Softbank Mega-Buyback Drives a Nikkei Squeeze?

Last week in <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a> I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. <h2>NOT, MAYBE, and LIKELY Problems</h2>NOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank">previous insight</a>), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart UNY Holdings Co Ltd (8028 JP)</a>, as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.<h2>What To Do?</h2>The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

Last week in JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. NOT, MAYBE, and LIKELY ProblemsNOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the previous insight), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of FamilyMart UNY Holdings Co Ltd (8028 JP), as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.What To Do?The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes

Japan

Toyo Seikan Group Holdings Ltd primarily manufactures, markets, and sells metal, plastic, and glass packaging products and containers.  The Company specializes in food cans, 18-liter cans, and other beverage cans.  Toyo Seikan also produces steel products such as steel sheets.

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Toyo Seikan Group Holdings L (5901 JP)

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

Critical Supports Holding in the US, Europe, & Japan; Buying Health Care, Utilities, Materials, Tech

Various indicators are making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a false breakdown in...

Vermilion Research

Breaking Down Wild Nikkei 225 Component Moves

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of...

Travis Lundy

What Do You Buy if the Softbank Mega-Buyback Drives a Nikkei Squeeze?

Softbank stock ended up locked limit up towards the end of the trading day after the company announced a massive ¥4.5trn in asset...

Mio Kato

JAPAN PASSIVE: The Nikkei 225 Baskets if BOJ Changes

Last week in JAPAN PASSIVE: BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership,...

Travis Lundy

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