Brief Japan: Value-Enhancing 5G Spectrum Allocations on the Way for KDDI, DoCoMo, Softbank and Rakuten and more

In this briefing:

1. Value-Enhancing 5G Spectrum Allocations on the Way for KDDI, DoCoMo, Softbank and Rakuten
2. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
3. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
4. What’s Down with Muji (7453 JP)?
5. Free Money Has Flown

1. Value-Enhancing 5G Spectrum Allocations on the Way for KDDI, DoCoMo, Softbank and Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) will allocate 2.2 GHz of new spectrum bandwidth by the end of March equal to 2.8x the existing spectrum base. This is not unexpected but we think this is a good opportunity to re-iterate some of the positive points on 5G spectrum as operators make their final applications this month and we wait for a final decision in six weeks. Importantly, with ten spectrum channels, not everyone will be treated equally although all should benefit. We expect Rakuten Inc (4755 JP)  to pick up one-two bands whilst KDDI Corp (9433 JP) , NTT Docomo Inc (9437 JP) and Softbank Corp (9434 JP)  should all receive at least two.

2. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues

We remain constructive overall and continue to believe that global equities (MSCI ACWI) are going through a bottoming process. Opportunities exist but Sector leadership is mixed.  In our February International Strategy document, we explore various themes which lead to our overall constructive outlook, as well as a technical appraisal of each Sector and the investable opportunities therein.

3. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

4. What’s Down with Muji (7453 JP)?

Ryohin Keikaku (7453 JP) has downgraded full-year forecasts for its Muji retail chain but still expects record sales and solid profit growth in FY2018.

Overseas sales have been going from strength to strength, but previously stellar results at home have weakened, particularly in the home and accessories category which is under pressure from competitors, including even Nitori (9843 JP).

Muji is responding and also has big plans to grow food retailing, a big potential market.

5. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.