Japan/Asia Long-Short, LightStream Research

Mio Kato

Over 15 years analysing Japanese and Asian stocks from a long/short perspective

I focus on cyclically driven sectors such as Gaming, Factory Automation and Autos

An eclectic background as a long-short analyst, upper management at a financial data startup through its listing, and as the founder of a team analysing big/alternative data, all of which supports independent and differentiated views... we hope

An appreciation for Mathematics drives the development of a "Micro-Quantamental" process which can provide a data-driven, historically-informed and semi-automated foundation upon which to layer more qualitative and judgemental analysis, thus improving investment decision-making speed and accuracy

Japan/Asia Long-Short

Wage Growth Is About to Return to Japan and Could Lead to Labour Market Reform

Japan: Wage Inflation, Startups and an Evolving Economy

Japan's Long-Term Macro Trend Change - Time Has Defeated Deflation Where the BOJ Could Not

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Macroeconomics

<p>Recent macro news in Japan has tended towards the positive with unemployment levels hitting lows and the ratio of job openings to applicants hitting record highs (1.48, above the bubble peak of 1.46 from July 1990). In fact, even for regular employees, the level of 0.97 is the highest since records began in 2004. Thus, while the overall strength of the job market, once you factor in the lower quality of jobs, is not as high as that of the bubble era, underlying conditions have clearly improved. Wage growth remains tepid, with cash earnings growth having failed to clear 0.5% YoY since Aug 2016, but <a href="http://asia.nikkei.com/Business/Trends/Over-60-of-Japanese-students-graduating-next-spring-have-job-offers" target="_blank">trends in graduate hiring</a> and widespread reports of labour shortages in construction, food service, and transport services imply a likely strengthening over the next 12-18 months. In later insights we will examine the trend of rising employment among females and the elderly which has spurred a rise in the absolute number of employed people. In this insight, however, we focus on a trend which is making fewer headlines - the improved health of Japanese corporate balance sheets and what we interpret as a return to a growth stance from the defensive/survival stance which is a central pillar of the balance sheet recession theory.</p><p>In particular, we view smaller manufacturers and non-manufacturers as being more representative of Japan's domestic economy. Using MOF data, we find that while large manufacturers appear to have remained largely healthy even following the bursting of Japan's bubble, the other participants within the economy did indeed seem to follow the behaviour expected by the balance sheet recession theory. However, examining the underlying data suggests that this process is complete or almost complete. As such, while population shrinkage is likely to limit investment in absolute capacity expansion, we believe significant scope for refurbishment and investment in efficiency enhancement is significant. Our conclusion is that while growth rates are unlikely to be spectacular, Japan's domestic economy is likely to continue surprising to the upside going forward and ironically the external environment is now more of a risk factor. We will examine potential investment opportunities in a series of follow-up insights.</p>

Recent macro news in Japan has tended towards the positive with unemployment levels hitting lows and the ratio of job openings to applicants hitting record highs (1.48, above the bubble peak of 1.46 from July 1990). In fact, even for regular employees, the level of 0.97 is the highest since records began in 2004. Thus, while the overall strength of the job market, once you factor in the lower quality of jobs, is not as high as that of the bubble era, underlying conditions have clearly improved. Wage growth remains tepid, with cash earnings growth having failed to clear 0.5% YoY since Aug 2016, but trends in graduate hiring and widespread reports of labour shortages in construction, food service, and transport services imply a likely strengthening over the next 12-18 months. In later insights we will examine the trend of rising employment among females and the elderly which has spurred a rise in the absolute number of employed people. In this insight, however, we focus on a trend which is making fewer headlines - the improved health of Japanese corporate balance sheets and what we interpret as a return to a growth stance from the defensive/survival stance which is a central pillar of the balance sheet recession theory.In particular, we view smaller manufacturers and non-manufacturers as being more representative of Japan's domestic economy. Using MOF data, we find that while large manufacturers appear to have remained largely healthy even following the bursting of Japan's bubble, the other participants within the economy did indeed seem to follow the behaviour expected by the balance sheet recession theory. However, examining the underlying data suggests that this process is complete or almost complete. As such, while population shrinkage is likely to limit investment in absolute capacity expansion, we believe significant scope for refurbishment and investment in efficiency enhancement is significant. Our conclusion is that while growth rates are unlikely to be spectacular, Japan's domestic economy is likely to continue surprising to the upside going forward and ironically the external environment is now more of a risk factor. We will examine potential investment opportunities in a series of follow-up insights.

Japan Reflation Take... 4? - The End of Deleveraging