Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The Nikkei 225 Annual Review is in September based on end-July data. Jumping the gun, I propose 3 additions and 3 deletions with granular data and details offered per sector.</li>
<li>I see ¥600bn to buy and a funding trade of 99% of that. There are 15+ names with more than 1 day of ADV to sell (funding only).</li>
<li>The impact on Real World Float is non-negligible. One name in particular is deserving of attention. </li>
</ul>


The Nikkei 225 Annual Review is in September based on end-July data. Jumping the gun, I propose 3 additions and 3 deletions with granular data and details offered per sector.
I see ¥600bn to buy and a funding trade of 99% of that. There are 15+ names with more than 1 day of ADV to sell (funding only).
The impact on Real World Float is non-negligible. One name in particular is deserving of attention. 


Nikkei 225 Sep Annual Review Predictions - 3 In, 3 Out

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

At its Monetary Policy Meeting that concluded on 19 March, the Bank of Japan (BOJ) announced that they would purchase ETFs and J-REIT as necessary with upper limits of about 12 trillion yen and about 180 billion yen respectively. While the upper limits were originally set as a temporary measure in response to the impact of COVID-19, the Bank will maintain them even after COVID-19 subsides.The big change was the announcement that the BOJ would only purchase ETFs tracking the <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a>. This means no more flows to the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> and JPX Nikkei 400 ETFs.From the increase in ETF AUM over calendar year 2020, we estimate that around 88% of the BOJ buying went into <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> ETFs, with smaller amounts going into the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> and JPX Nikkei 400 ETFs.While the impact of BOJ only buying <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> linked ETFs is not material for single stocks in ADV terms, there could be a bigger impact on the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> constituents if other NKY ETF holders redeem their units and sell the underlying shares.The NT ratio (NKY/TPX) had started to move lower over the last 15 trading days due to the shift from growth to value stocks. The BOJ announcement could take the ratio lower in the short term on a change in sentiment and short term flows due to repositioning of portfolios.<a href="https://www.smartkarma.com/entities/nissan-chemical-industries" target="_blank" data-smartkarma-citation="entities:4102:1" rel="noopener">Nissan Chemical Industries (4021 JP)</a>, <a href="https://www.smartkarma.com/entities/comsys-holdings-corp" target="_blank" data-smartkarma-citation="entities:20548:1" rel="noopener">Comsys Holdings (1721 JP)</a>, <a href="https://www.smartkarma.com/entities/konami-holdings-corp" target="_blank" data-smartkarma-citation="entities:13236:1" rel="noopener">Konami Holdings (9766 JP)</a>, <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1" rel="noopener">Kikkoman Corp (2801 JP)</a> and <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> will be among the most negatively affected stocks, but the impact is quite small.<a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)</a> stocks (that will have passive BOJ inflows of at least US$5m) that will have the largest impact in terms of ADV to trade are <a href="https://www.smartkarma.com/entities/hankyu-hanshin-holdings-inc" target="_blank" data-smartkarma-citation="entities:13058:1" rel="noopener">Hankyu Hanshin Holdings (9042 JP)</a>, <a href="https://www.smartkarma.com/entities/kintetsu-group-holdings-co-l" target="_blank" data-smartkarma-citation="entities:18507:1" rel="noopener">Kintetsu Group Holdings Co L (9041 JP)</a>, <a href="https://www.smartkarma.com/entities/hisamitsu-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:17008:1" rel="noopener">Hisamitsu Pharmaceutical Co (4530 JP)</a>, <a href="https://www.smartkarma.com/entities/bank-of-kyoto-ltd" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank Of Kyoto (8369 JP)</a> and <a href="https://www.smartkarma.com/entities/hakuhodo-dy-holdings-inc" target="_blank" data-smartkarma-citation="entities:8736:1" rel="noopener">Hakuhodo Dy Holdings (2433 JP)</a>.

At its Monetary Policy Meeting that concluded on 19 March, the Bank of Japan (BOJ) announced that they would purchase ETFs and J-REIT as necessary with upper limits of about 12 trillion yen and about 180 billion yen respectively. While the upper limits were originally set as a temporary measure in response to the impact of COVID-19, the Bank will maintain them even after COVID-19 subsides.The big change was the announcement that the BOJ would only purchase ETFs tracking the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX). This means no more flows to the Nikkei 225 (NKY INDEX) and JPX Nikkei 400 ETFs.From the increase in ETF AUM over calendar year 2020, we estimate that around 88% of the BOJ buying went into Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) ETFs, with smaller amounts going into the Nikkei 225 (NKY INDEX) and JPX Nikkei 400 ETFs.While the impact of BOJ only buying Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) linked ETFs is not material for single stocks in ADV terms, there could be a bigger impact on the Nikkei 225 (NKY INDEX) constituents if other NKY ETF holders redeem their units and sell the underlying shares.The NT ratio (NKY/TPX) had started to move lower over the last 15 trading days due to the shift from growth to value stocks. The BOJ announcement could take the ratio lower in the short term on a change in sentiment and short term flows due to repositioning of portfolios.Nissan Chemical Industries (4021 JP), Comsys Holdings (1721 JP), Konami Holdings (9766 JP), Kikkoman Corp (2801 JP) and Fast Retailing (9983 JP) will be among the most negatively affected stocks, but the impact is quite small.Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) stocks (that will have passive BOJ inflows of at least US$5m) that will have the largest impact in terms of ADV to trade are Hankyu Hanshin Holdings (9042 JP), Kintetsu Group Holdings Co L (9041 JP), Hisamitsu Pharmaceutical Co (4530 JP), Bank Of Kyoto (8369 JP) and Hakuhodo Dy Holdings (2433 JP). 

BOJ Buying to Focus on TOPIX ETFs: Big Headline, Smaller Impact

Quantitative Analysis

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/379/original/Screenshot%202020-03-29%20at%206.18.38%20PM.png?1585477145" class="editor-image img-responsive" data-smartkarma-image-id="125379"></figure>There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX.

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of dollars, credit spreads exploded, 'risk-free' rate curves steepened dramatically, investment funds blew up, the very structure of money markets was briefly in question. Central banks around the world have acted in coordinated fashion to stem the tide of panic. The US Fed has stepped in with QE Forever, providing trillions of dollars of balance sheet and funding to stabilise systemic risk, and governments have announced trillions of dollars of stimulus packages to try to cushion economies from short-term restrictive social policies meant to stem the slow the spread of COVID-19 and lessen long-term economic damage from loss of life and work.Amidst this, the Nikkei 225/TOPIX ratio has gone through something of a rough patch. There is (obviously) a forest-for-the-trees argument to be made here. I'll stipulate that. But investors are expected to do their job come inclement weather, global pestilence, pandemic, or war - that is their job as stewards. Right now, an enormous part of that is second-guessing what other investors will do. This insight is a walk through the conditions which enabled and perhaps prompted the wild swings in some of the major constituents in Nikkei 225 and what caused the major swings in Nikkei vs. TOPIX. 

Breaking Down Wild Nikkei 225 Component Moves

Last week in <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a> I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. <h2>NOT, MAYBE, and LIKELY Problems</h2>NOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank">previous insight</a>), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart UNY Holdings Co Ltd (8028 JP)</a>, as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.<h2>What To Do?</h2>The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

Last week in JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. NOT, MAYBE, and LIKELY ProblemsNOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the previous insight), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of FamilyMart UNY Holdings Co Ltd (8028 JP), as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.What To Do?The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes

One week ago in <a href="https://www.smartkarma.com/insights/the-boj-s-ongoing-etf-impact-is-a-nikkei-225-reshuffle-in-the-cards" target="_blank" data-smartkarma-citation="insights:17331">The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards?</a> I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. <h2>NOT, MAYBE, and LIKELY Problems</h2>NOT A PROBLEM: The fact that the BOJ owned 80.3% of the ETFs outstanding at the end of January (now higher because the BOJ has spent an additional 292.4bn yen in the first seven trading days of February) is not a problem. MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 18% of <a href="https://www.smartkarma.com/entities/18107" target="_blank" data-smartkarma-citation="entities:18107:1">Advantest Corp (6857 JP)</a> and 16.3% of <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing Co Ltd (9983 JP)</a> may be a problem. LIKELY A PROBLEM: Based on January month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the <a href="https://www.smartkarma.com/insights/the-boj-s-ongoing-etf-impact-is-a-nikkei-225-reshuffle-in-the-cards" target="_blank">previous insight</a>), over the next 12 months the BOJ would purchase 18.3% of the remaining float in Fast Retailing, 8.7% of the remaining float in <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart UNY Holdings Co Ltd (8028 JP)</a>, 6.2% of the remaining float in <a href="https://www.smartkarma.com/entities/13236" target="_blank" data-smartkarma-citation="entities:13236:1">Konami Holdings Corp (9766 JP)</a>, and 5+% of the remaining float of five other stocks.<h2>What To Do?</h2>The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. Last week, the proposed dollar-weighted long basket outperformed the proposed DW short basket every day of the week, with the 50-name long basket outperforming the 40-name short basket by 4.8%. On an equal-weighted basis, the proposed long basket outperformed the short basket four days out of five for 2.9% outperformance. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

One week ago in The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards? I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. NOT, MAYBE, and LIKELY ProblemsNOT A PROBLEM: The fact that the BOJ owned 80.3% of the ETFs outstanding at the end of January (now higher because the BOJ has spent an additional 292.4bn yen in the first seven trading days of February) is not a problem. MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 18% of Advantest Corp (6857 JP) and 16.3% of Fast Retailing Co Ltd (9983 JP) may be a problem. LIKELY A PROBLEM: Based on January month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the previous insight), over the next 12 months the BOJ would purchase 18.3% of the remaining float in Fast Retailing, 8.7% of the remaining float in FamilyMart UNY Holdings Co Ltd (8028 JP), 6.2% of the remaining float in Konami Holdings Corp (9766 JP), and 5+% of the remaining float of five other stocks.What To Do?The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. Last week, the proposed dollar-weighted long basket outperformed the proposed DW short basket every day of the week, with the 50-name long basket outperforming the 40-name short basket by 4.8%. On an equal-weighted basis, the proposed long basket outperformed the short basket four days out of five for 2.9% outperformance. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

Japan

COMSYS Holdings Corporation is a holding company established through the merger of Nippon Comsys, Sanwa Elec, and Higashi Nihon System.  The Company, through its subsidiaries, designs, constructs, and maintains telecommunication and electrical facilities.  Comsys Holdings also manages subsidiaries that operate information processing businesses.

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Comsys Holdings (1721 JP)

Nikkei 225 Sep Annual Review Predictions - 3 In, 3 Out

The September Nikkei 225 Rebal announcement is ~ 6 weeks away. Assuming the current plans go through, I see three adds, three deletes. The adds are...

Travis Lundy

BOJ Buying to Focus on TOPIX ETFs: Big Headline, Smaller Impact

The BOJ will only buy ETFs linked to the TOPIX going forward. While this makes for a big headline, the impact on the stocks is much more muted....

Brian Freitas

Breaking Down Wild Nikkei 225 Component Moves

In the past 4 weeks we have seen substantial disruption in global markets. Total equity market cap across the world is down tens of trillions of...

Travis Lundy

JAPAN PASSIVE: The Nikkei 225 Baskets if BOJ Changes

Last week in JAPAN PASSIVE: BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership,...

Travis Lundy

Trading the BOJ-Nikkei 225 Baskets

One week ago in The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards? I discussed the BOJ's past and current ETF purchasing...

Travis Lundy

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