Japan

Brief Japan: Omron into the Nikkei 225, Pioneer Out and more

In this briefing:

  1. Omron into the Nikkei 225, Pioneer Out
  2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
  3. 🇯🇵 Japan: Moving Average Outliers – AnGes, SanBio, Adastria, AIN, Sumco & Benefit One
  4. 🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade – Free Cash Flow Turns Negative

1. Omron into the Nikkei 225, Pioneer Out

Friday 8 March after the close, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP)  had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron Corp (6645 JP) will replace Pioneer in the Nikkei 225 Average, with a deemed par value of 50 yen per share.

The date for this index deletion and inclusion event is the 15th of March, as per the schedule of the February 19th announcement as to how the Pioneer event would be treated. 

This affords special sits/events followers a couple of different events to look at. 

2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

Shipping

  • Capital flows are strongly Granger causal
  • Gross capital flows lead World shipping activity by 4 months
  • Capital flows have been slowly rising since June 2018: in February they jumped
  • Reinforces out pro-Asia and pro-China investment message

3. 🇯🇵 Japan: Moving Average Outliers – AnGes, SanBio, Adastria, AIN, Sumco & Benefit One

2019 03 10 15 37 25

– MARKET COMPOSITE –

Source: Japan Analytics
SOUTHBOUND – The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro data intervened and sent the market 3% lower over the last two trading days suggesting the bear market rally is now over. After peaking at 48%, the market-value-based percentage above the weighted sum of moving averages has now retreated to 33%. 

– SECTORS – 

LEGEND: The ‘sparklines’ show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the ‘STDev’ column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.

SECTOR BREAKDOWN – The top six sectors remain domestic and defensive and are unchanged from two weeks ago with REITs, the clear leader. Equally predictable is the bottom half-dozen – BanksNon-Bank Finance, Retail, Autos, and Metals remain from two weeks ago, with Machinery replacing Construction. Banks stay at the bottom, and the sector had its largest volume ‘day’ as measured by our Volume Score since September 21st, 2018 on Friday although many other sectors were ‘active.’ 

Source: Japan Analytics

– 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. 

In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.

Our most extreme positive outlier two weeks ago, Pksha Technology (3993 JP) declined by 8% and ‘tops’ our most negative two-week change list, while the most negative outlier SanBio (4592 JP) rose by 3%. Leopalace21 (8848 JP) which was also featured recovered by 9%.

AnGes (4563 JP) is currently the most extreme large cap positive outlier having peaked at ‘492’ on 26th February up from a ‘trough’ of -132 in December. Biotechnology peer SanBio (4592 JP) is, for the third time this year, the most extreme negative outlier, having topped the 13th January and 24th February positive outlier lists and is another ’round-tripper’. 

Source: Japan Analytics

4. 🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade – Free Cash Flow Turns Negative

2019 03 10 08 44 19

Source: Japan Analytics

JAPAN CORPORATE CASH FLOW UPDATE – This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: –

  • Operating Cash Flow
  • Investing Cash Flow (which includes Inventory Cash Flow) 

    • Free Cash Flow (Operating Cash Flow less Investing Cash Flow)
  • Financing Cash Flow
  • Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) 

     =  Change in Cash (including Minorities Cash Flow)

OCF COLLAPSES – In the last three months, Japan’s non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial ‘red flag’ for the market.

FCF NEGATIVE – Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. Softbank Group (9984 JP)NTT Docomo (9437 JP) and Fast Retailing (9983 JP) together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.

BACK TO BORROWING – To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.

SECTORS & STOCKS – In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including Toyota Motor (7203 JP)Softbank Group (9984 JP), Pan Pacific International (7532 JP)Lawson (2651 JP), and IDOM (7599 JP)

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