Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE:  Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Index Rebalance

<div><p>JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.</p></div><div><p>A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. </p></div><div><p>Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio for the 2021 Rebalance based on April-end data. </p></div>

JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio for the 2021 Rebalance based on April-end data. 

JPX-Nikkei 400 Rebalance 2021: Pre-Event Basket Adjustments for April-End

Travis Lundy

Equity Bottom-Up

Dai Ichi Life Insurance / Equity Bottom-Up

<p>Seemingly perpetually undervalued major Japanese life insurer <a href="https://www.smartkarma.com/entities/dai-ichi-life-insurance" target="_blank" data-smartkarma-citation="entities:1109:1" rel="noopener">Dai Ichi Life Insurance (8750 JP)</a> after the close today <a href="https://www.dai-ichi-life-hd.com/en/newsroom/newsrelease/2020/pdf/index_029.pdf" target="_blank" rel="noopener">announced</a> a new Mid Term Management Plan for the years 2021-2023, called "Re-Connect 2023."</p><p>The last medium-term plan had goals of delivering ¥250bn of Adjusted Profit in FY2020 (a goal it beat in FY2019 but will miss this year), ¥230bn of new business value in FY2020 - a number it hasn't come close to in the mid-term plan and will miss this year, a medium-long-term goal of average Embedded Value growth of 8.0%, a goal it has missed entirely with FY18 and FY19 coming in at -0.6% and -2.8%, and a solvency ratio of 170-200%. Last year was 195% and this year should be quite well above 200%. </p><p>Of more immediate importance, the Company also <a href="https://www.dai-ichi-life-hd.com/en/newsroom/newsrelease/2020/pdf/index_028.pdf" target="_blank" rel="noopener">announced</a> an VERY BIG BUYBACK of "up to 170,000,000 shares" (15.25% of shares out) spending "up to ¥200 billion."</p><p>The headline is big. The actuality is smaller, but it is DEFINITELY worth a slightly deeper dive below.</p><p><em>It may even have an effect on <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a> because of the <a href="https://www.smartkarma.com/insights/huge-japan-post-insurance-buyback-mooted-decks-cleared-time-to-buy" target="_blank" data-smartkarma-citation="insights:46429" rel="noopener">Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy</a> situation from last December (further discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a>).  </em></p>

Seemingly perpetually undervalued major Japanese life insurer Dai Ichi Life Insurance (8750 JP) after the close today announced a new Mid Term Management Plan for the years 2021-2023, called "Re-Connect 2023."The last medium-term plan had goals of delivering ¥250bn of Adjusted Profit in FY2020 (a goal it beat in FY2019 but will miss this year), ¥230bn of new business value in FY2020 - a number it hasn't come close to in the mid-term plan and will miss this year, a medium-long-term goal of average Embedded Value growth of 8.0%, a goal it has missed entirely with FY18 and FY19 coming in at -0.6% and -2.8%, and a solvency ratio of 170-200%. Last year was 195% and this year should be quite well above 200%. Of more immediate importance, the Company also announced an VERY BIG BUYBACK of "up to 170,000,000 shares" (15.25% of shares out) spending "up to ¥200 billion."The headline is big. The actuality is smaller, but it is DEFINITELY worth a slightly deeper dive below.It may even have an effect on Japan Post Insurance (7181 JP) because of the Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy situation from last December (further discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher).  

Dai-Ichi Life (8750)'s New Mid-Term Plan and Very Big Buyback

Quantitative Analysis

<p>In late November, I updated my "JAPAN FLOW:  Foreign Investor Flows Still Matter" series with <a href="https://www.smartkarma.com/insights/japan-flow-foreign-investor-flows-still-matter-redux-reduxed-playing-catchup" target="_blank" data-smartkarma-citation="insights:45711" rel="noopener">JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup</a>.</p><p>The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically based on a relatively simple indicator. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/938/original/Screenshot+2021-02-21+at+6.33.43+PM.png?1613903639" class="editor-image img-responsive" data-smartkarma-image-id="189938"></figure></section><p>This chart shows 26-week cumulative net buying vs the indicator, which moves faster, but if you break down that average into a shorter-term average, it moves "faster" in response to moves in the light blue line. </p><p>My conclusion in late November was that foreigners were "behind the curve" and needed to play catchup. That was despite the fact that they had purchased ¥1.5trln of stocks in the previous four weeks. Since end-November, they have <em>net purchased</em> more than ¥1.7 trillion worth of Japanese equities through 12 February (the data through 19 Feb is not available until 26 February). </p><p>The inputs to the indicator currently suggest it could go either way from here, but as shown in the chart above (the light blue line) it is an oscillator. And generally speaking, when oscillators reach the outer limits of their ranges, they tend to revert. </p><p>And the dark blue line has a ¥1.4trln "tailwind" over the next 7 weeks. </p><div class="content-highlight"><p>But foreign investment flows into Japan are basically a WANT function. They buy more if they want to do so. I often find it instructive to look at flows in terms of WANT vs NEED. NEED is more compelling, and there are some compelling "NEED flows" in the next 6 weeks.</p></div><p>More below the fold.</p>

In late November, I updated my "JAPAN FLOW:  Foreign Investor Flows Still Matter" series with JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup.The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically based on a relatively simple indicator. This chart shows 26-week cumulative net buying vs the indicator, which moves faster, but if you break down that average into a shorter-term average, it moves "faster" in response to moves in the light blue line. My conclusion in late November was that foreigners were "behind the curve" and needed to play catchup. That was despite the fact that they had purchased ¥1.5trln of stocks in the previous four weeks. Since end-November, they have net purchased more than ¥1.7 trillion worth of Japanese equities through 12 February (the data through 19 Feb is not available until 26 February). The inputs to the indicator currently suggest it could go either way from here, but as shown in the chart above (the light blue line) it is an oscillator. And generally speaking, when oscillators reach the outer limits of their ranges, they tend to revert. And the dark blue line has a ¥1.4trln "tailwind" over the next 7 weeks. But foreign investment flows into Japan are basically a WANT function. They buy more if they want to do so. I often find it instructive to look at flows in terms of WANT vs NEED. NEED is more compelling, and there are some compelling "NEED flows" in the next 6 weeks.More below the fold.

JAPAN FLOW:  Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

<p>With one day to go until the annual, but this time/year delayed, TOPIX FFW Rebalance, which should see up to $32bn in two-way flow, it appears as if those who put on an anticipatory trade prior to the actual announcement on 8 January have started to exit. </p><p>This is as I had warned in <a href="https://www.smartkarma.com/insights/the-delayed-topix-ffw-rebalance-32bn-to-trade" target="_blank" data-smartkarma-citation="insights:46902" rel="noopener">The Delayed TOPIX FFW Rebalance: $32bn To Trade</a>. </p><p>More below the fold. </p>

With one day to go until the annual, but this time/year delayed, TOPIX FFW Rebalance, which should see up to $32bn in two-way flow, it appears as if those who put on an anticipatory trade prior to the actual announcement on 8 January have started to exit. This is as I had warned in The Delayed TOPIX FFW Rebalance: $32bn To Trade. More below the fold. 

TOPIX FFW Rebal: Proceeding But Not Ahead of Plan

Japan

Japan Post Insurance Co. Ltd. operates life insurance business. The Company offers whole life insurance, education endowment, ordinary endowment, medical insurance, and special endowment insurance. Japan Post Insurance provides services for individuals and businesses throughout Japan.

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Japan Post Insurance (7181 JP)

Last Week in Event SPACE: Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

JPX-Nikkei 400 Rebalance 2021: Pre-Event Basket Adjustments for April-End

JPX Nikkei 400 2021 Rebal Pre-Event L/S Basket +2.9% in April (thru the 28th). The 30th is rebal day for readers. 2 potential deletes and 7...

Janaghan Jeyakumar, CFA

Dai-Ichi Life (8750)'s New Mid-Term Plan and Very Big Buyback

Dai-Ichi Life has for years been one of the Very Cheap Life Insurers globally. It seems they have gotten tired of this. The new mid-term plan...

Travis Lundy

JAPAN FLOW: Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

JAPAN FLOW: There are fundamentals, and there are flows. Japan is driven by both. Japan earnings revisions are finally on their way up. Flows have...

Travis Lundy

TOPIX FFW Rebal: Proceeding But Not Ahead of Plan

TOPIX FFW Rebalance is 28 January at the close. $32 billion in two-way flows with some big names to trade. The Top 50 Buys have seen, on average,...

Travis Lundy

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