In this briefing:
- Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
- This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
- Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
- Japan Drugstores Set to Expand Further
- ECB, BoJ Suck Wind – EA Threatened with Japanisation
1. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
If one were looking for evidence of the inherent dangers of risk concentration in the banking industry, one need only look to tiny secondary regional bank Tochigi Bank (8550 JP), which reported its earnings for the nine months to end-December 2018 on 31 January 2019. Having made consolidated net profits of ¥1.57 billion in 1H FY3/2019, the bank plunged into the red in 3Q by ¥1.80 billion as a result of losses on disposing of fixed-rate US$-denominated securities. Rather surprisingly, foreign investors own just over 21% of outstanding shares. Tochigi Bank may not be the only small Japanese bank to run into trouble with its foreign securities portfolio in CY2019. Caveat emptor! (May the buyer beware)!
2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies.
Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.
In our opinion, potential synergies between LINE’s cryptocurrency business and its other business ventures are quite enticing. LINE could very well lure “millions” of its existing messaging and LINE Pay users to be a part of its blockchain eco-system.
3. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
- China implements coal import caps specifically targeting Australian producers
- Unclear as to how widespread these restrictions will eventually be
- Thermal and metallurgical coal exports affected
- Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
- Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
- Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP
- Actions appear to be a response to blocking Huawei bidding for the 5G network
- Recent Chinese cyber-attacks harden Australian Government’s resolve
- Expect similar Chinese measures (in time) to be applied to other commodities and industries
4. Japan Drugstores Set to Expand Further
The drugstore sector has been the fastest growing retail sector after e-commerce in the last decade, boosted by the popularity of Japanese toiletry and cosmetics brands among tourists and the push for market share by leading players.
Drugstores already account for 40% of cosmetics sales and their share of other key categories is growing, even in food, with some chains already selling enough food to qualify as top 20 supermarkets (in 2017, 26.2% of drugstore sales came from food).
Future profit growth will be determined by prescription services, food and M&A, with all of the leading firms racing to build capacity.
5. ECB, BoJ Suck Wind – EA Threatened with Japanisation
By Charles Dumas, Chief Economist
- Monetary stimulus fails export-dependent savings glut countries
- Japan now accepts huge budget deficits and negative interest rates
- EA needs broad structural reform to avoid Japan’s deep malaise
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
