'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/889/original/2020-04-01_12-59-11.png?1585713567" class="editor-image img-responsive" data-smartkarma-image-id="125889"></figure><div class="content-caption">Source • Japan Analytics</div>DIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC (5 HK) </a>and <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/899/original/2020-04-01_13-47-18.png?1585716458" class="editor-image img-responsive" data-smartkarma-image-id="125899"></figure><div class="content-caption">Source • Japan Analytics</div>30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/905/original/2020-04-07_13-29-26.png?1586233784" class="editor-image img-responsive" data-smartkarma-image-id="126905"></figure><div class="content-caption">Source • Japan Analytics</div>WHO'S CUTTING NEXT? - Some serial dividend 'cutters', like <a href="https://www.smartkarma.com/entities/nipro-corp" target="_blank" data-smartkarma-citation="entities:18346:1" rel="noopener">Nipro (8086 JP)</a> above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

Source • Japan AnalyticsDIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following HSBC (5 HK) and Standard Chartered (STAN LN) moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.Source • Japan Analytics30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.Source • Japan AnalyticsWHO'S CUTTING NEXT? - Some serial dividend 'cutters', like Nipro (8086 JP) above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.

* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.  

Choke Hold On American SMEs and Ongoing Liquidity Crisis

* European Insurers Leading Global Insurance Capital Preservation: The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade;* Solvency II Regime Not Capturing Risk:The Corona Crisis and monetary/fiscal response have created a perfect storm for insurers with negative risk-free rates and the spike in credit spreads well above 2008 GFC peak is a harbinger of investment default. The usefulness of Solvency II is being tested as ratios are supported by an Ultimate Forward Rate (UFR) which is increasingly at odds with economic reality, while the Volatility Adjustment (VA) is producing a perverse increase in headline ratios. The current environment introduces third party concerns with ratings agencies, credit defaults, and counterparties. Insurers can exhibit solvency ratio increases if corporate credit spreads rise; and  * Asia-Pacific Insurer Solidarity With Western Peer Likely: Global investors should understand the notion of solidarity in time of financial crisis. Europe’s bank and insurance regulator has each called for widespread dividend deferrals/eliminations of its financial institutions. We also fully anticipate solidarity amongst the Asia-Pacific financials with their Western peer. Whilst many of the Asia-Pacific insurers have already adopted some form of the European Solvency II regime, many have also purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to be outsized and challenge capital ratios. We anticipate similar actions with the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea.

* European Insurers Leading Global Insurance Capital Preservation: The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade;* Solvency II Regime Not Capturing Risk:The Corona Crisis and monetary/fiscal response have created a perfect storm for insurers with negative risk-free rates and the spike in credit spreads well above 2008 GFC peak is a harbinger of investment default. The usefulness of Solvency II is being tested as ratios are supported by an Ultimate Forward Rate (UFR) which is increasingly at odds with economic reality, while the Volatility Adjustment (VA) is producing a perverse increase in headline ratios. The current environment introduces third party concerns with ratings agencies, credit defaults, and counterparties. Insurers can exhibit solvency ratio increases if corporate credit spreads rise; and  * Asia-Pacific Insurer Solidarity With Western Peer Likely: Global investors should understand the notion of solidarity in time of financial crisis. Europe’s bank and insurance regulator has each called for widespread dividend deferrals/eliminations of its financial institutions. We also fully anticipate solidarity amongst the Asia-Pacific financials with their Western peer. Whilst many of the Asia-Pacific insurers have already adopted some form of the European Solvency II regime, many have also purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to be outsized and challenge capital ratios. We anticipate similar actions with the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea. 

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.  

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are scheduled to be paid rather than when actually collected. In the case where there is a payment shortfall, the mortgage servicer must advance its own funds to cover the delinquent mortgage even if the funds are collected.  * Mortgage Insurers:Insurance is only partly overs the default after the loan becomes delinquent for 90 days. In other words, the mortgage servicer would still need to front the cash shortfall of each mortgage within the Fannie Mae and Freddie Mac pool. Another factor to consider is this thin capitalization of the mortgage insurers where their credit guarantee may not be worth the paper that its written on.

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are scheduled to be paid rather than when actually collected. In the case where there is a payment shortfall, the mortgage servicer must advance its own funds to cover the delinquent mortgage even if the funds are collected.  * Mortgage Insurers:Insurance is only partly overs the default after the loan becomes delinquent for 90 days. In other words, the mortgage servicer would still need to front the cash shortfall of each mortgage within the Fannie Mae and Freddie Mac pool. Another factor to consider is this thin capitalization of the mortgage insurers where their credit guarantee may not be worth the paper that its written on.

United Kingdom

HSBC Holdings Plc is a British universal bank and financial services group operating worldwide. It offers a wide range of services including retail and personal banking, wealth management, commercial banking, global banking, and markets and securities services. The company was founded in British Hong Kong in 1865 and is headquartered in London, England.

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

HSBC (HSBA LN)

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

DIVIDENDS AT RISK - As noted in our daily Results & Revisions Updates in the last few days, Japanese companies are starting to shore up their...

Campbell Gunn

Choke Hold On American SMEs and Ongoing Liquidity Crisis

* Pandemic Stay At Home Orders To Be Extended: Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the...

Thomas J. Monaco

Asian Insurers - Mea EIOPA

* European Insurers Leading Global Insurance Capital Preservation: The ebbing economic tide has significantly exposed the European financial system...

Thomas J. Monaco

Banks – Bad Loan Delta

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays,...

Daniel Tabbush

Another American Mortgage Tsunami Coming

* Mortgage Servicers:The mortgage servicer of a scheduled remittance must remit funds to the Government Sponsored Entity (GSE) when they are...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)