In this briefing:
- Historical TOPIX Inclusions: How Do They Do Around Inclusion Date?
- Lawson’s New Online Service Is Working, Doubles Coverage
- Small Potatoes Nikkei 225 Changes on Christmas Day
- Japan: The Long and the Short of It – Recommended Portfolios
- Softbank Corp, Takeda, and Newton’s Three Laws of Motion
1. Historical TOPIX Inclusions: How Do They Do Around Inclusion Date?
There are seven stocks which were promoted/reassigned from TSE2, MOTHERS, and JASDAQ in November 2018 leading to the same seven stocks being included in TOPIX at the end of December.
A couple are decently largecap. Most are smaller.
A good question to ask when looking at these stocks might be… What Really Happens Around TOPIX Inclusions?
Having traded them for much of the last 20yrs, I had my hypotheses, and had done studies over the years for my own purposes, but I had not done a study recently. To check my personal hypotheses I tested 340+ TOPIX inclusions over the past five years.
There are patterns to the history of trading these events which are worth a look. Some of the patterns are reasonably interesting.
2. Lawson’s New Online Service Is Working, Doubles Coverage
Lawson (2651 JP) Fresh Pick is the convenience store operator’s new e-commerce solution for food launched earlier this year, and replacing various other less successful experiments.
Unlike competing services, Lawson’s service is limited to just 600 SKUs (stock keeping units), all fresh foods, and Lawson offers no home delivery, only click-and-collect.
In the nine months since launch, the service has expanded from 200 to 1,200 stores, currently concentrated in west Tokyo and Kanagawa.
It is a model that will expand rapidly across the rest of the country because Lawson has to invest so little to make this happen.
3. Small Potatoes Nikkei 225 Changes on Christmas Day
Specialty steel maker Nisshin Steel (5413 JP) is slated to merge with parent company Nippon Steel & Sumitomo Metal (5401 JP) as of January 1, 2019. For that, Nisshin Steel will be delisted on December 26th (i.e. the last day of trading is the 25th) and that means the Nikkei Inc was obliged to choose a replacement to take Nisshin Steel’s place in the Nikkei 225 and other indices.
On December 11th, the Nikkei Inc announced Itoham Yonekyu Holdings Inc (2296 JP) would take Nisshin’s place in the Nikkei 500 Index, announced that Japan Post Holdings (6178 JP) would join the Nikkei 300 Index, and announced that Dic Corp (4631 JP) would replace Nisshin Steel in the Nikkei Stock Average, better known as the Nikkei 225.
The only one which matters is the Nikkei 225 (the other two have tiny tracking), and this is not a huge index trade as both Nisshin Steel and DIC are deemed 500 yen par value stocks.
This is an event one could “miss.”
And it will happen on Christmas Day, after a long weekend for Japan traders.
4. Japan: The Long and the Short of It – Recommended Portfolios
THE LONG AND THE SHORT OF IT – Readers of our earlier Insights will be familiar with our scoring and ranking methodologies that cover corporate results and forecasts as well as our relative price and relative volume series that identify stocks as ‘Overbought’, ‘Oversold’ and ‘Overtraded’. We have also introduced our residual income-based valuation model which we have now extended to all quarterly and annual periods for all currently listed companies. Following some requests, we have incorporated much of the above as well as more traditional factors into a scoring model that ranks all companies by relative attractiveness. This insight presents the top and bottom 100 companies as portfolio recommendations.
IMPLIED SECTOR & PEER GROUP RELATIVE WEIGHTS – The implied sector deviations incorporating all ‘long’ and ‘short’ recommendations at equal 1% weights are as below. The largest implied ‘Overweights’ are in Information Technology, Retail, Technology Hardware, Media and Non-Bank Finance, and the largest ‘Underweights’ are in Healthcare, Autos, Food, Beverages & Tobacco, Other Consumer Products, and Transportation & Logistics. The top five Peer Group implied relative weights are IT System Services, Machine Tools, Retail – Food & Drink, Retail Drugstores and PCs & Computer Peripherals and the bottom five are Pharmaceuticals, Motor Vehicles, Personal Products, Medical & Dental Equipment, and Railways.
LONG & SHORT RECOMMENDATIONS – In the DETAIL section below, recommendations are grouped into fifty ‘longs’ and fifty ‘shorts’, with additional fifty-strong ‘second divisions’ for each. In the tables below, we rank companies in descending order of attractiveness/unattractiveness. The tables presented cover a universe of the largest 771 Japanese companies – those having a current market capitalisation (excluding Treasury Stock) more than ¥100b. For clarity, we show only a selection of factors. All data is as of the close on Friday 14th December.
5. Softbank Corp, Takeda, and Newton’s Three Laws of Motion
It has been a huge Q4 for Japan capital markets and banking, and the result is some fat fees for global investment bankers on the Takeda/Shire deal, and a Softbank Corp IPO which I’d be totally OK not owning. A result of this activity is the fun in index land.
And there is a lot of fun to be had.
Some of that fun has been described in Softbank Corp IPO – Dividends, Index Buying, and Offer Structure. More was described in the various insights in the Takeda/Shire series, most recently in Takeda/Shire VI: Now For The Real Fun.
But it is worth revisiting because it involves, over the five weeks starting just before the Christmas holidays, across the two deals, probably…
US$35 billion of index flows…
Timing and impact is discussed herein.
