In this briefing:
- Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
- Japan Convenience Stores Still Innovating in a Saturated Market
- Singapore REIT – Preferred Picks 2019
- Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
- Japan: Moving Average Outliers – Year-End Blues
1. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
Highlights of significant recent happenings include:
- Feeding the Dragon – Sumitomo Corp (8053 JP) buying into massive Chile copper project; Mitsui & Co Ltd (8031 JP) and Tokyo Gas (9531 JP) announced plans to be long-term buyers of Mexican LNG.
- Local News on Global Companies – Huawei Technology (40978Z CH)‘s to do “whatever is required” to meet Canada’s 5G security standards; Ant Financial (1051260D CH)’s Sesame Credit be used to apply for Canadian visas; Facebook Inc A (FB US) offered data to Netflix Inc (NFLX US) and Royal Bank Of Canada (RY CN); BlackBerry Ltd (BB CN)‘s high-security reputation increasingly valuable; Fedex Corp (FDX US) and United Parcel Service Cl B (UPS US) deny negative impact from Amazon.com Inc (AMZN US)‘s Amazon Air operations; and Anheuser Busch Inbev Sa (Adr) (BUD US) and Tilray Inc (TLRY US) are doing “joint” product development.
- Trade Deals & No Deals – Bosideng Intl Hldgs (3998 HK) got an unexpected boost, while Canada Goose Holdings (GOOS CN) took an unexpected hit as a consequence of the U.S.A. Government’s problems with Huawei Technology (40978Z CH) .
- Outliers – Another “silver lining” to global warming? The Warming Arctic Opens the Northwest Passage as a Potential Maritime Superhighway
2. Japan Convenience Stores Still Innovating in a Saturated Market
The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.
The key operational and strategic themes relevant to investors in CVS in Japan:
- The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
- At the same time, all are looking at new forms of retailing to expand further:
- All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
- Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
- While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.
This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.
3. Singapore REIT – Preferred Picks 2019
With the FTSE ST REIT index’s decline of 9.3% year-to-date, value has emerged for some of the bellwether names in the Singapore REITs sector. The forward yield spread between these REITs and the Singapore government 10-year bond yield (2.13%) currently stand at least 390 basis points. In view of the increasing concerns over global economic growth, rising interest rates and the ongoing trade tension between the US and China, I present three quality REITs with fortified portfolios that are well-positioned to weather the near-term market uncertainties. They possess growth potential from acquisitions, positive rental reversions and deliver resilient forward distribution yield of more than 6%. Some of the bellwether names in the more resilient retail REIT sector, while offering lower yield of around 5.0% – 5.7%, are also in my buy list.
4. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter.
Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations.
Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.
In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season.
5. Japan: Moving Average Outliers – Year-End Blues
MARKET COMPOSITE
![](https://static-prod.smartkarma.com/images/media/000/073/799/original/2018-12-22_16-48-37.png?1545464931)
TRADING ZONE – As of last Friday, the Japan All Market Composite has now entered a bear market, having declined by 20% from the January 23rd high if Y757t. At the close, only 8% by number and 11% by value of Japanese stocks were trading above their weighted composite of 5, 20, 60, 120, and 240-day moving averages. These were the lowest closing values since February 2016 when the All Market Composite reached a low of Y475tand offer an entry point for a short-term trade for those happy to hold over the extended New Year Holiday period.
![](https://static-prod.smartkarma.com/images/media/000/073/800/original/2018-12-22_16-49-53.png?1545465006)
![](https://static-prod.smartkarma.com/images/media/000/073/801/original/2018-12-22_16-52-17.png?1545465147)
Source: Japan Analytics
BREAKOUTS – The ‘Breaking Bad’ percentage reached 11% on December 4th, the tenth-lowest reading in three years bu thas yet to fall below ‘-15-. Adding the Breaking Above and Breaking Below percentages together provides a more straightforward view of the 15% threshold that has marked previous short and medium-term turning points, and which again we have yet to reach.
SECTORS
![](https://static-prod.smartkarma.com/images/media/000/073/804/original/2018-12-22_18-10-04.png?1545469815)
SECTOR BREAKDOWN – The top six sectors measured by the percentage above the weighted average of 5-240 Days are all, predictably, domestic and defensive – Food, Beverages & Tobacco, REITs, Information Technology, Internet, Media and Utilities. Equally predictable are the bottom half-dozen – Banks, Non-Bank Finance, Autos, Metals, Electrical Equipment and Chemicals.
COMPANIES
COMPANY MOVING AVERAGE OUTLIERS – As with the market and sectors, out moving average outlier indicator uses a weighted sum of the 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.
![](https://static-prod.smartkarma.com/images/media/000/073/816/original/2018-12-23_15-00-13.png?1545544826)
THE 100% CLUB – As of Friday 21st, there were 16 extreme positive outliers and 622 extreme negative outliers. The number of extreme negative outliers suggests we are a short-term bottom.
In the DETAIL section below, we highlight the current top and bottom twenty-five larger 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.