'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>
<p></p>
Source: Japan Analytics</div>
<p style="text-align: left;"><strong>CURRENCY DRIVER</strong> - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>¥ &lt; 100</strong> - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>EARNINGS DRIVER</strong> - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>CURRENCY CORRELATIONS</strong> - In the <strong>DETAIL</strong> below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT </strong>- We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.</p>




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p>Happy New Year! Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the potential low-ball bid for <a href="https://www.smartkarma.com/entities/6296" target="_blank" data-smartkarma-citation="entities:6296:1" rel="noopener">Healius (HLS AU)</a> , we update our view on the messy deal between <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1" rel="noopener">Familymart Uny Holdings (8028 JP)</a> and <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Don Quijote Holdings (7532 JP)</a> as the deal shifts to earnings dislocation. In addition, we question the economics of a material bump for <a href="https://www.smartkarma.com/entities/726" target="_blank" data-smartkarma-citation="entities:726:1" rel="noopener">Healthscope Ltd (HSO AU)</a>, assess the reduced bid (and great call by Arun) on <a href="https://www.smartkarma.com/entities/374" target="_blank" data-smartkarma-citation="entities:374:1" rel="noopener">MYOB Group Ltd (MYO AU)</a> and finally dig into the potentially risky acquisition by <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> of <a href="https://www.smartkarma.com/entities/22568" target="_blank" data-smartkarma-citation="entities:22568:1" rel="noopener">ABB Ltd (ABBN VX)</a>'s power grids. </p>
<p>The rest of our event-driven research can be found below</p>
<p>Best of luck for the new week - Rickin, Venkat and Arun</p>

Happy New Year! Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the potential low-ball bid for Healius (HLS AU) , we update our view on the messy deal between Familymart Uny Holdings (8028 JP) and Don Quijote Holdings (7532 JP) as the deal shifts to earnings dislocation. In addition, we question the economics of a material bump for Healthscope Ltd (HSO AU), assess the reduced bid (and great call by Arun) on MYOB Group Ltd (MYO AU) and finally dig into the potentially risky acquisition by Hitachi Ltd (6501 JP) of ABB Ltd (ABBN VX)'s power grids. 
The rest of our event-driven research can be found below
Best of luck for the new week - Rickin, Venkat and Arun

The GER Weekly EVENTS Wrap: Healius, FamilyMart, Healthscope, Myob and Hitachi

<p>Below is a recap of the key event-driven research produced by the Global Equity Research team. This week Arun develops a differentiated view on the deal between <a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">Anta Sports Products (2020 HK)</a> and <a href="https://www.smartkarma.com/entities/21751" target="_blank" data-smartkarma-citation="entities:21751:1">Amer Sports Oyj (AMEAS FH)</a> which he thinks is worse for the former and better for the latter. In addition, we check the bump possibilities for <a href="https://www.smartkarma.com/entities/26930" target="_blank" data-smartkarma-citation="entities:26930:1">Trade Me (TME AU)</a> which we think is limited by valuation. Further, we find some validity in the short-seller case on <a href="https://www.smartkarma.com/entities/29" target="_blank" data-smartkarma-citation="entities:29:1">Hengan Intl Group (1044 HK)</a> and believe a bump is needed for <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1">Australian Pharma Industries (API AU)</a> to close the deal on <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1">Sigma Healthcare (SIG AU)</a></p><p>The rest of our event-driven research can be found below</p><p>Best of luck for the new week - Arun, Venkat and Rickin</p>

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week Arun develops a differentiated view on the deal between Anta Sports Products (2020 HK) and Amer Sports Oyj (AMEAS FH) which he thinks is worse for the former and better for the latter. In addition, we check the bump possibilities for Trade Me (TME AU) which we think is limited by valuation. Further, we find some validity in the short-seller case on Hengan Intl Group (1044 HK) and believe a bump is needed for Australian Pharma Industries (API AU) to close the deal on Sigma Healthcare (SIG AU)The rest of our event-driven research can be found belowBest of luck for the new week - Arun, Venkat and Rickin

The GER Weekly EVENTS Wrap: Anta/Amer, Trade Me, Hengan and API/Sigma

<p>Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the underlying returns at <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a> and contend there is more to the story than the dividend in terms of total shareholder return vs. peers. Secondly, we believe investors should take both the <a href="https://www.smartkarma.com/entities/18531" target="_blank" data-smartkarma-citation="entities:18531:1">Graincorp Ltd A (GNC AU)</a> and <a href="https://www.smartkarma.com/entities/26930" target="_blank" data-smartkarma-citation="entities:26930:1">Trade Me (TME AU)</a> deals - the former which is highly attractive and latter constrained by IRR economics of prospective bidders.  Finally, we remind of our differentiated take on the <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a> / <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote Holdings (7532 JP)</a> two-way deal. </p><p>The rest of our event-driven research can be found below</p><p>Best of luck for the new week - Arun, Venkat and Rickin</p>

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the underlying returns at Softbank Group (9984 JP) and contend there is more to the story than the dividend in terms of total shareholder return vs. peers. Secondly, we believe investors should take both the Graincorp Ltd A (GNC AU) and Trade Me (TME AU) deals - the former which is highly attractive and latter constrained by IRR economics of prospective bidders.  Finally, we remind of our differentiated take on the Familymart Uny Holdings (8028 JP) / Don Quijote Holdings (7532 JP) two-way deal. The rest of our event-driven research can be found belowBest of luck for the new week - Arun, Venkat and Rickin

The GER Weekly Events Wrap: Softbank, Graincorp, Trade Me and Familymart/Don Quijote

<p>Below is a recap of the key event-driven research produced by the Global Equity Research team. This week, we provide further insight into our contrarian view on the deal between <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a> and <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote Holdings (7532 JP)</a>. In addition, we update on <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a> 's conglomerate discount and why we think it may remain subdued.  Finally, we remind of our contrarian thesis on the <a href="https://www.smartkarma.com/entities/623" target="_blank" data-smartkarma-citation="entities:623:1">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> stub, which has broadly performed in-line with the market since our publication despite upside support from a recent selling climax. </p><p>All of our recent event-driven and bottom-up research is listed below.</p><p>Best of luck for the new week - Arun, Venkat and Rickin</p>

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week, we provide further insight into our contrarian view on the deal between Familymart Uny Holdings (8028 JP) and Don Quijote Holdings (7532 JP). In addition, we update on Softbank Group (9984 JP) 's conglomerate discount and why we think it may remain subdued.  Finally, we remind of our contrarian thesis on the NTT (Nippon Telegraph &amp; Telephone) (9432 JP) stub, which has broadly performed in-line with the market since our publication despite upside support from a recent selling climax. All of our recent event-driven and bottom-up research is listed below.Best of luck for the new week - Arun, Venkat and Rickin

The GER Weekly Events Wrap: Familymart, Don Quijote, Softbank, and NTT

Japan

FUJIFILM Holdings Corporation develops, sells and services Imaging, Information, and Document Solutions.  Its products include color films, digital cameras, photofinishing products and equipment.  The Group also manufactures medical and graphic art use equipment and materials, FPD materials, and optical devices, and provides services on office copy machines, printers, and related equipment.

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FUJIFILM Holdings (4901 JP)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

The GER Weekly EVENTS Wrap: Healius, FamilyMart, Healthscope, Myob and Hitachi

Happy New Year! Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the potential...

Rickin Thakrar

The GER Weekly EVENTS Wrap: Anta/Amer, Trade Me, Hengan and API/Sigma

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week Arun develops a differentiated view on the...

Rickin Thakrar

The GER Weekly Events Wrap: Softbank, Graincorp, Trade Me and Familymart/Don Quijote

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the underlying returns at...

Rickin Thakrar

The GER Weekly Events Wrap: Familymart, Don Quijote, Softbank, and NTT

Below is a recap of the key event-driven research produced by the Global Equity Research team. This week, we provide further insight into our...

Rickin Thakrar

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