In today’s briefing:
- JAPAN PASSIVE: Who Owns What 2021?
- Thinking Strategically About a Shinsei Position – Things To Do NOW
- KOSDAQ150 Index Rebalance Preview: Moving in the Right Direction
- Hero Motocorp (HMCL IN) | Brace for Disappointment
- Sumitomo/Myovant: Minorities Takeout
- TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade
- SKC Co: Announces a Share Buyback of 5% of Outstanding Shares
- TOPIX October 2022 Rebal – BIG Names with BIG Flows
- Rule Changes in Disclosing the Identities of Foreign Short Sellers in Korea
- Is Kakao Cheap or Not? Actions Louder than Words
JAPAN PASSIVE: Who Owns What 2021?
A few years ago I started this series, and I updated it last year. Since last year, it has been a top 10 insight in terms of views.
I personally think it is important for investors of all types to understand WHO OWNS WHAT.
Many fundamental investors are reticent to spend any time on this but there are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive investors in Japan.
Some of the places active investors will see their influence are:
- Stories intermittently published about the BOJ’s presence in Japanese ETFs (especially the fact that it owns 85+% of the outstanding ETF market),
- Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up Japan Exchange Group (8697 JP) by 30+% from May to July, then helped it slide 13% in a week, or the changes in the Nikkei 225 review rules published earlier this year which may change what happens this September to a few large caps, and the announcement of the BOJ that it would no longer buy Nikkei 225 ETFs which started a long slide in Fast Retailing (9983 JP) shares against comps and the Nikkei itself. Long “held up” by ‘market inventory’ and Nikkei 225 ETF buying, when the BOJ stopped, it removed the cushion and existing inventory holders had to sell out.
- Then if you look at the shareholder structure of Fast Retailing today, you will see that it is STILL fundamentally a serious problem for large foreign active investors who would actually wish to take an active (but not activist) position. Real World Float on the stock is, by my calculation, less than 15% of shares outstanding.
- The relatively recent policy of increased stewardship regarding the passive management portion of the GPIF (the Government Pension Investment Fund) – an investing heavyweight in Japan.
- The timing and quantum of after-event support or overhang on corporate actions such as buybacks, secondary offerings, primary offerings, mergers, etc.
- Index inclusions mean big flows. If you follow the insights on TOPIX Inclusions by Janaghan Jeyakumar, CFA and myself, you will often see big moves. Sometimes these stocks move 50% between when we write about them and when they go into the index. If you own them and are considering an exit, you need to know when to take profits, and the dynamic of the liquidity. If you are thinking about getting in for fundamental reasons, it pays to know early so you can get ahead of the major flow.
- The return of Toshiba Corp (6502 JP) to the TSE First Section in Q1 this year changed the foreign shareholder percentage ownership, lowering it by 10%. Smartkarma readers knew this last year and in January, which prepared them for the June AGM when the shareholder category ownership was released.
- The changes to the TSE’s market structure, which will affect TOPIX membership, which will affect many companies’ issuance, buyback, share cancellation, etc decisions over the next several months. They are doing this because of the TSE Prime listing rules which will effectively also determine whether or not they will be included in TOPIX in future, or whether they will fall out of TSE Prime and will see constant selling over late 2022 to early 2025.
Of course, TOPIX is just over half of the passive tracking AUM in Japan. There’s more.
Find out WHO OWNS WHAT in Japan Passive below the fold.
Thinking Strategically About a Shinsei Position – Things To Do NOW
- SBI Holdings (8473 JP)‘s subsidiary has reportedly filed its application to become a Bank Holding Company, the definition being a company holding a 50% or greater stake in a bank.
- The day after I last wrote, Shinsei announced it had received approval to change its name to SBI Shinsei Bank as of 4 January 2023.
- My expectation is the move above 50% happens sooner rather than later. And in that case, investors should think about their approach. Get your cowbells ready.
KOSDAQ150 Index Rebalance Preview: Moving in the Right Direction
- With 85% of the review period complete, we see 10 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
- There are a few stocks that are close adds/deletes on market cap and liquidity and could make it into the final list depending on price/volume over the next few weeks.
- The potential adds have outperformed the potential deletes over the last month and pre-positioning could continue till the end of the review period.
Hero Motocorp (HMCL IN) | Brace for Disappointment
- Hero Motocorp (HMCL IN) has been outperforming the Nifty 50 over the last 6M
- Our flash checks done in the south suggests the outperformance may not last long
- Failure of a model, high competitive intensity, and changing preferences can again lead to high inventory levels leading to a possible correction in wholesales post-festive season.
Sumitomo/Myovant: Minorities Takeout
- Sumitomo has offered $22.75/share in cash, 27% premium, for the 48% stake it doesn’t hold in Myovant, whose Board has rejected the offer and is open to negotiate.
- The sell-side forecasts peak sales of over $2 billion for Orgovyx and Myfembree. Myovant also has a co-marketing deal with Pfizer could be worth $3.8 billion in milestones.
- My TP is $22.84 (in line with consensus and the offer price). The market certainly believes that Sumitomo could be preparing a sweetened offer. Will Orgovyx become a blockbuster?
TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade
- At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.
- Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.
- Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.
SKC Co: Announces a Share Buyback of 5% of Outstanding Shares
- On 7 October, SKC Co Ltd (011790 KS) announced that it will conduct a share buyback of 1.89 million shares, representing 5% of outstanding shares.
- We continue to maintain a Negative view of SKC Co.
- We remain concerned about lack of clear measures to protect existing minority shareholders if its major subsidiaries (such as Nexilis) complete IPOs in the next several years.
TOPIX October 2022 Rebal – BIG Names with BIG Flows
- The TSE announced its first large FFW rebalance under new rules and Market Segmentation. ~1,000 names see FFW drop 5% or more. 100+ rise 5+%. Reverse funding trades are significant.
- Top BUY flow: Toyota, Olympus, Daiichi Sankyo, Tokio Marine, JP Holdings with an average of 4.0 days’ ADV to buy. Softbank/9984, MitCorp, Hitachi, Suzuki, Marubeni average 4.8 days to SELL.
- 493 names start their phased weight reduction out of TOPIX because they do not meet the hurdle for minimum trading value. And… Shinsei is the most impressive SELL name.
Rule Changes in Disclosing the Identities of Foreign Short Sellers in Korea
- Chairman Kim of the FSC mentioned potential rule changes in disclosing the names of short sellers at the state audit last Thursday.
- The first is to reveal the identity of short sellers who traded through a swap contract with a broker, which is currently exempt from the short-selling disclosure obligation.
- The second is to disclose the identity of investors caught in illegal short-selling activities, mostly naked short-selling and wall-crossing.
Is Kakao Cheap or Not? Actions Louder than Words
- Why KakaoBank (323410 KS) , Kakao Games Corp (293490 KS) and Kakao Pay (377300 KS) were hit recently
- Aside from the sum of the 3, why Kakao Corp (035720 KS) is getting hit further
- Are near the bottom or is there more to go?
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