Brief Japan: It’s The Annual Tuesday & Wednesday BUY TOPIX Trade and more

In this briefing:

1. It’s The Annual Tuesday & Wednesday BUY TOPIX Trade
2. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC
3. Zozo: Never Meet a Margin Call
4. 🇰🇷 🇯🇵 Smartkarma North Asia • That Was The Week That Was – 18th-24th March 2019
5. 🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

1. It’s The Annual Tuesday & Wednesday BUY TOPIX Trade

Last year was Tuesday and Wednesday. The year before was too. The year before that was Monday and Tuesday. Four years ago was Wednesday and Thursday, as it was the year before that. 

This Year it is Also Tuesday and Wednesday.

What is it about Tuesday and Wednesday?     The answer, as it is every year (on days such as the above), is hundreds of billions of yen of flows from people who are obliged to allocate money on these particular days.

For most, the benchmark is today.

So today and tomorrow should – by all logical measure – see hundreds of billions of yen worth of flow in Japanese equities (and as much as ¥1 trillion) more than any other average day.

It’s Tuesday. 

2. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC

Energy Transfer LP (ET US) and Royal Dutch Shell (RDSA LN) have signed a Project Framework Agreement to further develop a large-scale LNG export facility in Lake Charles, Louisiana and move toward a potential final investment decision (FID). They have started actively engaging with LNG Engineering, Procurement and Contracting (EPC) companies with a plan to issue an Invitation to Tender (ITT) in the weeks ahead. We look at the potential contract size and winners and also the other US LNG projects that could be negatively impacted. More detail on the LNG project queue for this year in: A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies.

3. Zozo: Never Meet a Margin Call

Yusaku Maezawa is once again in the news. This time due to speculation that he is auctioning off at least part of his art collection at Sotheby’s in Hong Kong on April 1st.

Following on from the share buyback that was conducted in May last year which:

• Allowed Maezawa to sell 6m out of his then 118.227m shares into a buyback that totalled just 6.35m shares.
• Led to a ¥38.3bn swing in net cash from +¥24.6bn to -¥13.8bn (the buyback totaled ¥24.4bn)
• Was conducted at the same time that share options for up to 31m shares were issued, of which Maezawa could have been allocated more than 90%.

this looks a lot like a sudden need to raise cash.

4. 🇰🇷 🇯🇵 Smartkarma North Asia • That Was The Week That Was – 18th-24th March 2019

– TW3 NORTH ASIA – 

This week in North Asia the Smartkarma team Insights were more Bearish than Bullish. 

• Close Outs or Sales were recommended on: Kosaido (7868 JP), the Amorepacific Group/Corp pair, the Hyosung TNC/Corp pair, Resona Holdings (8308 JP) and the Japanese market overall.
• The Hyundai Autoever IPO was covered by two providers as was the Woori Group all with Bullish flags.
• Caution was expressed on Mercari (4385 JP), Onward (8016 JP), and Lasertec (6920 JP) in Japan as well as the Convenience Store and Consumer Electronics retailers there.  
• The upcoming KOSPI 200 re balancing was also covered with a list of potential additions and deletions.   
  

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 – NORTH ASIAN INSIGHT OF THE WEEK – 

Our Top Insight of the week was Douglas Kim ‘s interesting note on Korean companies pulling out of China or restructuring their operations in that country. 

As Douglas notes, “The pace of major Korean companies that are discontinuing part or all of their operations in China in the past year has been UNPRECEDENTED in the past two decades. This trend is very concerning since it suggests deteriorating business conditions and reduced employment in China”. 

The main reason why the Korean companies are pulling out of China is primarily due to the difficulty of generating profits under the current, difficult operating conditions.

However, the reasons why it has become more difficult for these Korean companies to generate profits in China is more complex. The difficult operating environment is a combination of: –

• lower Chinese consumer demand for products such as smartphones, autos, cosmetics, and other consumer goods
• many of the Korean companies’ products have become less competitive as compared to the products made by the Chinese companies, and. 
• additional regulatory pressures that are placed on these Korean companies operating in China have contributed towards the difficult operating environment

 – OTHER INSIGHTS OF THE WEEK – 

Linkbal (6046 JP): Offering & TOPIX Inclusion Late Summer 2019?

Korean Stubs: A Pair Trade Between Ecopro Co and Ecopro BM

Kosaido (7868 JP) Reaches Value You Can Sell

Descente Tamed, Itochu Delicacy Required And Investors Can Probably Wait

TRADE IDEA – Amorepacific Stub (002790 KS): Buyback Helped, Close the Trade

Korean Stubs: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp 

A Trading Strategy for Hyundai Autoever Post IPO

Hyundai Autoever IPO Bookbuilding: Street Bets on Autoever/Glovis Merger

Woori Financials – One Overhang Gone in a Well Flagged Deal, Another Remains

Woori Bank: Overhang Versus Valuation

Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Mercari (4385) A Great Business but Over-Priced

After Zozo: Onward Sets Sights on Digital Renaissance

Lasertec (6920 JP): Pricing in Long-Term Growth

KOSPI 200 June 2019 Rebalancing: List of Addition/Deletion Candidates

Uniqlo Japan’s Most Valuable Retail Brand

Major Korean Companies Shutting Down or Restructuring Operations in China 

Japanese Convenience Stores: Shorter Hours

Consumer Electronics Chains Set for Major Boost This Year – But It Will Be Temporary

🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated

Resona Holding Faces Further Pressure After Corrective Bounce Terminates

5. 🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

– MARKET COMPOSITE –

FIVE-MONTH HIGH – This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on 26th February at ¥659t. The market-value-based percentage above moving averages reached a five-month on Friday. However, the three-month change in that percentage is suggesting that a new bear phase will now commence.

SELL SIGNAL – The three-month change in the market-value-based percentage above moving averages reached 38 on Friday. Although this indicator is not always reliable as a long-term indicator, it has been helpful over shorter periods and has called the most recent peak in October and December’s trough.  We now expect at least a decline in the market composite to below ¥600t and, if economic conditions continue to weaken, a re-test of the December low. 

– SECTORS – 

SECTOR BREAKDOWN – The top six sectors remain mostly domestic and defensive. REITs,Restaurants, Healthcare, Transportation, and Utilities continue from our previous review with Other Commercial Products replacing Information Technology. Equally predictable is the bottom half-dozen – Banks, Non-Bank Finance, Autos, Retail, and Metals remain from two weeks ago, with Energy replacing Construction. With the Yen having broken the ¥110 level against the US dollar on Friday, we would expect the Autos, Machinery, Electrical Equipment, Technology Hardware, and Chemicals sectors to weaken further as indicated by their Negative Crossover percentages. 

– COMPANIES –

COMPANY MOVING AVERAGE OUTLIERS – As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company’s share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. ‘Extreme’ values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 

Source: Japan Analytics