Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<p>In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. </p>
<p>However, this is only the calm before the storm.</p>
<p>In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.</p>
<p>Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. </p>

In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. 
However, this is only the calm before the storm.
In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.
Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. 

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

<p>Today, <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a> conducted its planned 1:5 stock split, couple of days ahead of the schedule. The split was conducted to increase the liquidity of Base Inc shares via lowering the minimum investment amount from around ¥800,000 to ¥150,000. Nonetheless, the company’s share price is down 6% from yesterday’s close price on a split adjusted basis, compared to a daily price performance of -1.2% for the Topix IT &amp; Services sector index.</p>

Today, BASE Inc (4477 JP) conducted its planned 1:5 stock split, couple of days ahead of the schedule. The split was conducted to increase the liquidity of Base Inc shares via lowering the minimum investment amount from around ¥800,000 to ¥150,000. Nonetheless, the company’s share price is down 6% from yesterday’s close price on a split adjusted basis, compared to a daily price performance of -1.2% for the Topix IT &amp; Services sector index.

Base Inc: Splits Shares & Institutional Investors Are Taking Profits Amidst Slowing Growth

<p>During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was <a href="https://www.smartkarma.com/entities/faithnetwork-co-ltd" target="_blank" data-smartkarma-citation="entities:29132:1" rel="noopener">FaithNetwork Co Ltd (3489 JP)</a> the third stock out of the four pre-event bets highlighted in <a href="https://www.smartkarma.com/insights/topix-inclusion-trade-summary-sep-2020" target="_blank" data-smartkarma-citation="insights:43700" rel="noopener">TOPIX Inclusion Trade Summary: Sep 2020</a>. During this month, we also introduced new pre-event picks to be added to our list in <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-3-0" target="_blank" data-smartkarma-citation="insights:48306" rel="noopener">TOPIX Inclusions: Who Is READY? 3.0</a>. </p><p>In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. </p>

During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, Toshiba Corp (6502 JP) completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was FaithNetwork Co Ltd (3489 JP) the third stock out of the four pre-event bets highlighted in TOPIX Inclusion Trade Summary: Sep 2020. During this month, we also introduced new pre-event picks to be added to our list in TOPIX Inclusions: Who Is READY? 3.0. In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. 

<div><p>There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  </p></div><div>
<p>Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets. Smartkarma readers familiar with the work of Quiddity Advisors will be able to recall the attractive rewards <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a>, <a href="https://www.smartkarma.com/entities/gremz-inc" target="_blank" data-smartkarma-citation="entities:1858:1" rel="noopener">Gremz Inc (3150 JP)</a>, and <a href="https://www.smartkarma.com/entities/sansan-inc" target="_blank" data-smartkarma-citation="entities:28112:1" rel="noopener">Sansan Inc (4443 JP)</a> were able to deliver in their pre-event phases. </p>
<p>This insight is a continuation of our work in identifying such pre-event candidates.</p>
<p><em>More below the fold</em>  </p>
</div>

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  
Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets. Smartkarma readers familiar with the work of Quiddity Advisors will be able to recall the attractive rewards Shinnihonseiyaku Co Ltd (4931 JP), Gremz Inc (3150 JP), and Sansan Inc (4443 JP) were able to deliver in their pre-event phases. 
This insight is a continuation of our work in identifying such pre-event candidates.
More below the fold  


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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>, <a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK)</a> and <a href="https://www.smartkarma.com/entities/jinxin-fertility-group-ltd" target="_blank" data-smartkarma-citation="entities:28003:1" rel="noopener">Jinxin Fertility Co Ltd (1951 HK)</a>while there was short covering on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>. Shorts increased on Financials, while decreasing on Communication Services, Health Care, Financials and Energy, while shorts decreased on Consumer Discretionary, Real Estate and Information Technology.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/ryohin-keikaku-co-ltd" target="_blank" data-smartkarma-citation="entities:2765:1" rel="noopener">Ryohin Keikaku (7453 JP)</a>, <a href="https://www.smartkarma.com/entities/nomura-real-estate-master-fu" target="_blank" data-smartkarma-citation="entities:22930:1" rel="noopener">Nomura Real Estate Master Fund, (3462 JP)</a>, <a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a> and <a href="https://www.smartkarma.com/entities/orix-jreit-inc" target="_blank" data-smartkarma-citation="entities:314:1" rel="noopener">Orix JREIT Inc (8954 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/trend-micro-inc" target="_blank" data-smartkarma-citation="entities:13172:1" rel="noopener">Trend Micro Inc (4704 JP)</a>, <a href="https://www.smartkarma.com/entities/dmg-mori-co-ltd" target="_blank" data-smartkarma-citation="entities:11125:1" rel="noopener">Dmg Mori Co Ltd (6141 JP)</a> and <a href="https://www.smartkarma.com/entities/pharma-foods-international" target="_blank" data-smartkarma-citation="entities:10530:1" rel="noopener">Pharma Foods International (2929 JP)</a>. Sectorally, shorts increased in Real Estate and decreased in Industrials.</p></div><div>
<p>In Korea, there was large short covering in <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/pearl-abyss-corp" target="_blank" data-smartkarma-citation="entities:24391:1" rel="noopener">Pearl Abyss (263750 KS)</a>, <a href="https://www.smartkarma.com/entities/lotte-chemical-corp" target="_blank" data-smartkarma-citation="entities:8757:1" rel="noopener">Lotte Chemical (011170 KS)</a> and <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>. </p>
<p>Taiwan was closed for the week due to the Lunar New Year.</p>
</div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Wuxi Biologics (2269 HK), Tencent Holdings (700 HK), Postal Savings Bank of China (1658 HK), Innovent Biologics Inc (1801 HK) and Jinxin Fertility Co Ltd (1951 HK)while there was short covering on Alibaba Group (9988 HK), Ping An Insurance (H) (2318 HK), Xiaomi Corp (1810 HK), Meituan (3690 HK) and BYD (1211 HK). Shorts increased on Financials, while decreasing on Communication Services, Health Care, Financials and Energy, while shorts decreased on Consumer Discretionary, Real Estate and Information Technology.In Japan, stocks that saw the most shorts were Ryohin Keikaku (7453 JP), Nomura Real Estate Master Fund, (3462 JP), freee (4478 JP) and Orix JREIT Inc (8954 JP) while shorts decreased on Itochu Corp (8001 JP), Trend Micro Inc (4704 JP), Dmg Mori Co Ltd (6141 JP) and Pharma Foods International (2929 JP). Sectorally, shorts increased in Real Estate and decreased in Industrials.
In Korea, there was large short covering in Samsung Electronics (005930 KS), Pearl Abyss (263750 KS), Lotte Chemical (011170 KS) and Kakao Corp (035720 KS). 
Taiwan was closed for the week due to the Lunar New Year.


Asia Short Interest: WuXi Bio, PSBC, Jinxin Fertility, BYD, Ryohin, Freee, Itochu, Pearl Abyss

Japan

BASE, Inc. offers internet based services. The Company provides net shop creation, shopping application development, online payment development, and other services. BASE provides its services throughout Japan.

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BASE Inc (4477 JP)

TOPIX Inclusion Trade Summary: Mar 2021

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Oshadhi Kumarasiri

TOPIX Inclusion Trade Summary: Feb 2021

TOPIX Inclusion summary for Feb 2021 including performance of Feb inclusions, and March-April inclusions from announcement. Change to recommended...

Janaghan Jeyakumar, CFA

TOPIX Inclusions: Who Is READY? 3.0

We update which stocks in MOTHERS/JASDAQ/TSE2 are eligible, ready, or could be ready to move to TSE1 (TOPIX inclusion). The last list at end-Nov...

Janaghan Jeyakumar, CFA

Asia Short Interest: WuXi Bio, PSBC, Jinxin Fertility, BYD, Ryohin, Freee, Itochu, Pearl Abyss

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

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