Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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.<div>Some of the places active investors will see their influence are:</div><div>
<ul style="list-style-type: disc;">
<li>Stories intermittently published about the BOJ's presence in Japanese ETFs (especially the fact that it owns 85+% of the outstanding ETF market),</li>
<li>Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a> 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 <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> 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. </li>
<li>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. </li>
<li>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.</li>
<li>The timing and quantum of after-event support or overhang on corporate actions such as buybacks, secondary offerings, primary offerings, mergers, etc. </li>
<li>Index inclusions mean big flows. If you follow the insights on <a href="https://www.smartkarma.com/collections/topix-inclusion/insights?item=54585" target="_blank" rel="noopener">TOPIX Inclusions</a> by <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> 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.</li>
<li>The return of <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> 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.</li>
<li>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. </li>
</ul>
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. 
</div>

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. 


Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Japan’s largest apparel retailer, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> is scheduled to release the third quarter ended May 2021 results tomorrow, at a time 3QFY22 consensus revenue and OP were lowered for three consecutive months.We think consensus has not lowered the 3QFY21 EBIT sufficiently during the last three months and Fast Retailing could miss the consensus EBIT estimate. With the market sentiment regarding Fast Retailing on a declining trend and valuation multiples near the all-time high level, an earnings miss could have significant implications on the company’s share price.

Japan’s largest apparel retailer, Fast Retailing (9983 JP) is scheduled to release the third quarter ended May 2021 results tomorrow, at a time 3QFY22 consensus revenue and OP were lowered for three consecutive months.We think consensus has not lowered the 3QFY21 EBIT sufficiently during the last three months and Fast Retailing could miss the consensus EBIT estimate. With the market sentiment regarding Fast Retailing on a declining trend and valuation multiples near the all-time high level, an earnings miss could have significant implications on the company’s share price.

Consensus Continues to Course Correct While Fast Retailing Prepares to Report Q3

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Private Capital Markets

Shein is a monster e-commerce company based in China. Shein is the fastest growing e-commerce company in the world. The company generated nearly $10 billion in revenues in 2020, up nearly 250% YoY. Shein could realistically overtake Zara in terms of revenues by 2022. Shein's core business model is to sell clothing (mostly women's apparel) online to the younger generation consumers in the US, Europe, and other parts of the world. <a href="https://techcrunch.com/2021/06/22/why-amazon-should-pay-attention-to-shein/" target="_blank" rel="noopener">Shein</a> is especially popular among the budget conscious younger generation in the Americas, Europe, and Asia (excluding China). The following are the key competitive advantages of Shein:<ul>
<li>Superb execution of "art of trend setting" in apparel products</li>
<li>Extremely attractive pricing</li>
<li>Faster adoption of new fashion styles</li>
<li>Aggressive promotions through influencers and discount codes</li>
<li>Effective use of data analytics and technology</li>
<li>Capitalize on the tax loop holes between the US and China</li>
</ul>The tremendous growth of Shein and other pure-play fashion companies have had major negative impact on some of the largest apparel companies with signficant brick and mortar operations such as <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/gap-inc-the" target="_blank" data-smartkarma-citation="entities:7941:1" rel="noopener">Gap Inc/The (GPS US)</a>, and <a href="https://www.smartkarma.com/entities/industria-de-diseno-textil-sa" target="_blank" data-smartkarma-citation="entities:21278:1" rel="noopener">Industria De Diseno Textil Sa (ITX SM)</a>.

Shein is a monster e-commerce company based in China. Shein is the fastest growing e-commerce company in the world. The company generated nearly $10 billion in revenues in 2020, up nearly 250% YoY. Shein could realistically overtake Zara in terms of revenues by 2022. Shein's core business model is to sell clothing (mostly women's apparel) online to the younger generation consumers in the US, Europe, and other parts of the world. Shein is especially popular among the budget conscious younger generation in the Americas, Europe, and Asia (excluding China). The following are the key competitive advantages of Shein:
Superb execution of "art of trend setting" in apparel products
Extremely attractive pricing
Faster adoption of new fashion styles
Aggressive promotions through influencers and discount codes
Effective use of data analytics and technology
Capitalize on the tax loop holes between the US and China
The tremendous growth of Shein and other pure-play fashion companies have had major negative impact on some of the largest apparel companies with signficant brick and mortar operations such as Fast Retailing (9983 JP), Gap Inc/The (GPS US), and Industria De Diseno Textil Sa (ITX SM).

SHEIN: The Fastest Growing E-Commerce Company in the World & Ready to Overtake Zara in 2022?

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Momentum was building for fashion EC well before 2020 but the situation last year brought an overwhelming response from both consumers and merchants. As a result, market share for the online channel has spiralled upwards and, although there will be a correction once shoppers return to stores, the medium-term trajectory is clear.
The big malls continue to dominate – as Zozo’s 21.5% growth in 2020 attests – but retailers and brands are investing much more in their own online stores, creating a level of dynamism and competition not seen in other fashion retail channels.
The following is an in-depth review of the fashion e-commerce market covering:
<ul>
<li>Market Size and market growth</li>
<li>Winners and losers in the last two years</li>
<li>Ranking of the top vendors online by sales</li>
<li>Ranking of fastest growing e-commerce fashion retailers</li>
<li>Strengths and weaknesses in leading firms</li>
<li>Ranking of firms with highest ratio of online sales to offline</li>
<li>Ranking of firms with highest share of direct online sales vs 3rd party malls.</li>
<li>Review of market share of major malls vs direct sales by retailers and the momentum behind each.</li>
</ul>

Momentum was building for fashion EC well before 2020 but the situation last year brought an overwhelming response from both consumers and merchants. As a result, market share for the online channel has spiralled upwards and, although there will be a correction once shoppers return to stores, the medium-term trajectory is clear.
The big malls continue to dominate – as Zozo’s 21.5% growth in 2020 attests – but retailers and brands are investing much more in their own online stores, creating a level of dynamism and competition not seen in other fashion retail channels.
The following is an in-depth review of the fashion e-commerce market covering:

Market Size and market growth
Winners and losers in the last two years
Ranking of the top vendors online by sales
Ranking of fastest growing e-commerce fashion retailers
Strengths and weaknesses in leading firms
Ranking of firms with highest ratio of online sales to offline
Ranking of firms with highest share of direct online sales vs 3rd party malls.
Review of market share of major malls vs direct sales by retailers and the momentum behind each.


Fashion E-Commerce Has Watershed Year in 2020

Japan

FAST RETAILING CO., LTD. operates a chain of clothing stores, UNIQLO, throughout Japan and in other markets overseas including UK, China, Hong Kong, South Korea, US, France, Singapore and Russia.  The Company designs, manufactures, and retails its own line of casual clothing.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Fast Retailing (9983 JP)

JAPAN PASSIVE: Who Owns What 2021?

This is the 2021 Version of Who Owns What in Japan Passive. It tries to present a relatively comprehensive idea of how much money/float tracks the...

Travis Lundy

Consensus Continues to Course Correct While Fast Retailing Prepares to Report Q3

Fast Retailing is scheduled to release the third quarter ended May 2021 results tomorrow, at a time 3QFY22 consensus revenue and OP were lowered...

Oshadhi Kumarasiri

SHEIN: The Fastest Growing E-Commerce Company in the World & Ready to Overtake Zara in 2022?

Shein is the fastest growing e-commerce company in the world. The company generated nearly $10 billion in revenues in 2020, up nearly 250% YoY....

Douglas Kim

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Japanese retail is in the process of extensive concentration and market consolidation through M&A, organic expansion and tie-ups. Numerous...

Michael Causton

Fashion E-Commerce Has Watershed Year in 2020

A complete review of the fashion e-commerce market in Japan, including rankings by sales, fastest growing, winners and losers and reviews of the...

Michael Causton

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)