Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Last May I proposed a model for thinking about the appropriate discount of <a href="https://www.smartkarma.com/entities/bank-of-kyoto" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank of Kyoto (8369 JP)</a> vs its giant equity portfolio and small operations. It was a sell.</li>
<li>In December, the bank changed its shareholder return ratio, which indicated less value destruction, and tighter appropriate discount. The shares rallied and discount narrowed. </li>
<li>Now the Shares Adjusted for Banking Ops Valuation have seen the discount to After-Tax Equity Portfolio Valuation widen sharply in the past 10 days. So here's the hedging model.</li>
</ul>


Last May I proposed a model for thinking about the appropriate discount of Bank of Kyoto (8369 JP) vs its giant equity portfolio and small operations. It was a sell.
In December, the bank changed its shareholder return ratio, which indicated less value destruction, and tighter appropriate discount. The shares rallied and discount narrowed. 
Now the Shares Adjusted for Banking Ops Valuation have seen the discount to After-Tax Equity Portfolio Valuation widen sharply in the past 10 days. So here's the hedging model.


Bank of Kyoto (8369) - A Complicated Risk Model Clarified

<ul>
<li>The TSE went through a multi-year period of planning a "<a href="https://www.jpx.co.jp/english/equities/market-restructure/index.html" target="_blank" rel="noopener">Market Restructuring</a>" which ended on 4 April 2022 as the TSE split into three Sections, TSE Prime, Standard, and Growth.</li>
<li>After that, the TSE formed a "Council of Experts" (<a href="https://www.jpx.co.jp/english/equities/improvements/follow-up/b5b4pj000004yqcc-att/follow-up_member_en.pdf" target="_blank" rel="noopener">some very senior people</a>) that would <a href="https://www.jpx.co.jp/english/equities/improvements/follow-up/b5b4pj000004yqcc-att/follow-up_market_e.pdf" target="_blank" rel="noopener">follow up</a> on the changes, and recommend new measures.  In January, new rule proposals dropped.</li>
<li>There was <a href="https://www.jpx.co.jp/english/equities/improvements/follow-up/b5b4pj000004yqcc-att/dreu250000000uqc.pdf" target="_blank" rel="noopener">talk</a> of a hard end to the transition period. Also, the Council harped on Awareness of Capital Cost and Efficiency. Most notably, for companies with PBR &lt; 1.</li>
</ul>


The TSE went through a multi-year period of planning a "Market Restructuring" which ended on 4 April 2022 as the TSE split into three Sections, TSE Prime, Standard, and Growth.
After that, the TSE formed a "Council of Experts" (some very senior people) that would follow up on the changes, and recommend new measures.  In January, new rule proposals dropped.
There was talk of a hard end to the transition period. Also, the Council harped on Awareness of Capital Cost and Efficiency. Most notably, for companies with PBR &lt; 1.


Japan's Governance Changes I - The PBR 1.0 Target

<ul>
<li>
<a href="https://www.smartkarma.com/entities/bank-of-kyoto" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank of Kyoto (8369 JP)</a> has been on a relative tear recently. This is a bit surprising.  On a static equity-portfolio discount measure, it has outperformed regional banks.</li>
<li>On a static regional bank PBR basis, it has outperformed its equity portfolio and the discount to the After Tax Equity Portfolio Value (ATEPV) is the smallest in eight years.</li>
<li>Is there a sea change? There is a possibility, however remote, that domestic investor disappointment rears its voting head. That's the dream scenario. But I don't see it coming soon.</li>
</ul>



Bank of Kyoto (8369 JP) has been on a relative tear recently. This is a bit surprising.  On a static equity-portfolio discount measure, it has outperformed regional banks.
On a static regional bank PBR basis, it has outperformed its equity portfolio and the discount to the After Tax Equity Portfolio Value (ATEPV) is the smallest in eight years.
Is there a sea change? There is a possibility, however remote, that domestic investor disappointment rears its voting head. That's the dream scenario. But I don't see it coming soon.


Equity Bottom-Up

<ul>
<li>Four months ago, <a href="https://www.smartkarma.com/entities/rakuten-bank-ltd" target="_blank" data-smartkarma-citation="entities:35638:1" rel="noopener">Rakuten Bank (5838 JP)</a> was IPOed too low, then the price went up. It would appear foreign active ownership is relatively high.</li>
<li>Rakuten Bank stands out with high ROE and earnings growth. Banks stand out because, well, they're going up. </li>
<li>Given expected 5yr earnings growth, Rakuten Bank at current price is probably "wrong." But it has much less "bankness" than most banks, so you have to think about it differently.</li>
</ul>


Four months ago, Rakuten Bank (5838 JP) was IPOed too low, then the price went up. It would appear foreign active ownership is relatively high.
Rakuten Bank stands out with high ROE and earnings growth. Banks stand out because, well, they're going up. 
Given expected 5yr earnings growth, Rakuten Bank at current price is probably "wrong." But it has much less "bankness" than most banks, so you have to think about it differently.


Rakuten Bank (5838) - 4 Months On, Volume Decay and RB's Place Among Banks

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>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.</li>
<li>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.</li>
<li>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.</li>
</ul>


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.


TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Japan

The Bank of Kyoto, Ltd. is a regional bank in Kyoto.  The Bank provides banking services including deposits, savings, loans, foreign exchange transactions, and securities investments.  The Bank of Kyoto also provides financial services such as letter of credit, leasing, loans, and credit cards.

Bank of Kyoto (8369 JP)

Bank of Kyoto (8369) - A Complicated Risk Model Clarified

The Bank of Kyoto (8369) model is clarified so dynamic hedging ratios depend on regional bank PBRs. The model suggests it's at the cheap end of its...

Travis Lundy

Japan's Governance Changes I - The PBR 1.0 Target

Japan's powers that be - the TSE and now the Finance Ministry - are targeting listcos with PBRs of less than 1.0x. That will mean they will be...

Travis Lundy

Bank of Kyoto (8369) - Too Far Too Fast

Bank of Kyoto (8369) has a 50% payout but its shareholder base isn’t that supportive of activism need to monetise the value of the equity...

Travis Lundy

Rakuten Bank (5838) - 4 Months On, Volume Decay and RB's Place Among Banks

Since the day after Rakuten Bank's IPO, the Banks Index is +25%, and Rakuten Bank's guided growth to March 2024 is well above TPNBNK average. But...

Travis Lundy

TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Lower FFWs on 970 stocks and higher FFWs on 114 stocks will result in one-way turnover of 2.52% leading to a one-way trade of ¥1.8tn at the close...

Brian Freitas