'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/837/original/2019-01-18_11-35-42.png?1547778954" class="editor-image img-responsive" data-smartkarma-image-id="75837"></figure>
<p>Source: Japan Analytics</p>
</div>
<p><strong>RELATIVE PRICE SCORE</strong> - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies, reviews the best and worst performing companies by RPS over the last two months and adds some specific comments on stocks on each category.</p>
<p><strong>RPS STATISTICS</strong> - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold.  Currently, of the 3,686 listed companies for which monthly data is available, 91 companies are 'Overbought', and 120 are 'Oversold' - 2.5% and 3.2%, respectively of the total. For companies with a market capitalisation of over ¥100b, there are 35 'Overbought' and 24 'Oversold' companies. </p>
<p><strong>RPS 'TOPS'</strong> - In the last two years, 445 companies have achieved an RPS of '4' or more. 80% have seen their RPS fall to below '4' within the following two months. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 63% - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last two months have been <a href="https://www.smartkarma.com/entities/8225" target="_blank" data-smartkarma-citation="entities:8225:1">Descente (8114 JP)</a>,  <a href="https://www.smartkarma.com/entities/4908" target="_blank" data-smartkarma-citation="entities:4908:1">Ariake Japan (2815 JP)</a>, <a href="https://www.smartkarma.com/entities/15862" target="_blank" data-smartkarma-citation="entities:15862:1">Fancl (4921 JP)</a>, <a href="https://www.smartkarma.com/entities/13435" target="_blank" data-smartkarma-citation="entities:13435:1">Bandai Namco (7832 JP)</a>, <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote (7532 JP)</a>, and <a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">Gmo Payment Gateway (3769 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/838/original/2019-01-18_11-36-19.png?1547778995" class="editor-image img-responsive" data-smartkarma-image-id="75838"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/839/original/2019-01-18_11-37-01.png?1547779035" class="editor-image img-responsive" data-smartkarma-image-id="75839"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/840/original/2019-01-18_11-37-37.png?1547779070" class="editor-image img-responsive" data-smartkarma-image-id="75840"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/841/original/2019-01-18_11-38-07.png?1547779100" class="editor-image img-responsive" data-smartkarma-image-id="75841"></figure>
<div class="content-caption">
<p>Source: Japan Analytics</p>
</div>
<p><strong>RPS 'BOTTOMS'</strong> - 296 companies have seen their RPS fall to '-2' or below in the last two years. 58% have seen their RPS recover to above '-2' within three to six months. For larger capitalisation companies, the numbers are 72 companies and 67%. Some recent examples of positive RPS mean reversion in the last two months have been <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772:1">LINE Corp (3938 JP)</a> - a 'contrarians only' selection in our last <a href="https://www.smartkarma.com/insights/japan-relative-price-score-update-overbought-and-oversold-companies" target="_blank" data-smartkarma-citation="insights:25849">Insight</a>, and <a href="https://www.smartkarma.com/entities/15457" target="_blank" data-smartkarma-citation="entities:15457:1">Tokyo Electric Power (9501 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/842/original/2019-01-18_11-39-56.png?1547779218" class="editor-image img-responsive" data-smartkarma-image-id="75842"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/843/original/2019-01-18_11-42-06.png?1547779350" class="editor-image img-responsive" data-smartkarma-image-id="75843"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<div class="content-highlight">
<p style="text-align: left;">In the <strong>DETAIL </strong>section below we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the largest two-month positive and negative changes in RPS.</p>
<p style="text-align: center;"><strong>NB - All data is as of January 17th close.</strong></p>
</div>



Source: Japan Analytics

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies, reviews the best and worst performing companies by RPS over the last two months and adds some specific comments on stocks on each category.
RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold.  Currently, of the 3,686 listed companies for which monthly data is available, 91 companies are 'Overbought', and 120 are 'Oversold' - 2.5% and 3.2%, respectively of the total. For companies with a market capitalisation of over ¥100b, there are 35 'Overbought' and 24 'Oversold' companies. 
RPS 'TOPS' - In the last two years, 445 companies have achieved an RPS of '4' or more. 80% have seen their RPS fall to below '4' within the following two months. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 63% - demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last two months have been Descente (8114 JP),  Ariake Japan (2815 JP), Fancl (4921 JP), Bandai Namco (7832 JP), Don Quijote (7532 JP), and Gmo Payment Gateway (3769 JP).





Source: Japan Analytics

RPS 'BOTTOMS' - 296 companies have seen their RPS fall to '-2' or below in the last two years. 58% have seen their RPS recover to above '-2' within three to six months. For larger capitalisation companies, the numbers are 72 companies and 67%. Some recent examples of positive RPS mean reversion in the last two months have been LINE Corp (3938 JP) - a 'contrarians only' selection in our last Insight, and Tokyo Electric Power (9501 JP).


Source: Japan Analytics

In the DETAIL section below we list the current very overbought (RPS&gt;5), too late to buy (RPS &gt;4&lt;5) and oversold (RPS &lt;-2) stocks as well as the largest two-month positive and negative changes in RPS.
NB - All data is as of January 17th close.


Japan: Relative Price Scores - Overbought and Oversold Companies - Calling 'Tops' & 'Bottoms'

<p><strong>THE J 'NIFTY-FIFTY'</strong> - In our insight posted on July 1st <a href="https://www.smartkarma.com/insights/japan-most-overbought-most-oversold-the-relative-price-score" target="_blank" data-smartkarma-citation="insights:21149">Japan: Most Overbought &amp; Most Oversold - The Relative Price Score</a>, we highlighted the emergence of a momentum-driven concentration in a small number of over-priced growth stocks which we dubbed "Japan's Nifty-Fifty". At that time, this group of stocks - many of which are widely held in foreign investor portfolios - had produced a one-year performance of 60%, substantially outperforming all benchmarks. As we then observed,    </p>
<blockquote>
<p>For portfolio managers willing to go along for this ride, the result has been a career-defining period of relative glory while value-orientated peers have suffered another year in the performance 'doghouse’. The last chapter of this tale requires no spoiler alert. Currently, twenty-eight of our fifty have negative of flat earnings momentum and eighteen have seen a decline in Relative Price Score in the last month. We look for further downside ahead in earnings and price momentum.</p>
</blockquote>
<p><strong>LAST CHAPTER?</strong> - Whether or not we have reached the final chapter of this particular tale, recent months have not been kind to this 'strategy'. The simple average has declined by 20% over both one and three months compared to declines in the market composite of 12% and 10%, respectively. Over one year, the outperformance has declined from 54% to 18%. Certainly, momentum growth stocks have always been a feature of the Japanese market, and many could now well bounce hard with any market recovery. However, when earnings momentum turns down or negative, as it has done recently for <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO Inc (3092 JP)</a>, <a href="https://www.smartkarma.com/entities/15441" target="_blank" data-smartkarma-citation="entities:15441:1">Monotaro (3064 JP)</a> and <a href="https://www.smartkarma.com/entities/15017" target="_blank" data-smartkarma-citation="entities:15017:1">Misumi (9962 JP)</a>, the lack of valuation support can result in short, sharp price shocks that can nullify months of relative out-performance in a few trading sessions.</p>
<p><strong>TOO MUCH OF A GOOD THING</strong> - As with the US 'FAANGs, in the end, all things must pass. The chart below shows the one-year progression of the 50 companies measured by Relative Price Score which plots the relative performance of all companies on the same scale. The 4.0 'Overbought' line is the first percentile of observations for all currently-listed companies since 1990.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/256/original/2018-10-30_20-59-41.png?1540900797" class="editor-image img-responsive" data-smartkarma-image-id="68256"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>THE JULY 2018 'NIFTY-FIFTY'</strong> - The July 2018 'portfolio' in the table below has data as of that date. The average one-year performance was +60%, the average Price Score was 4.09 - just above the 'Overbought' line - while the average PER was 60x and PBR 8.43. The average Results Score was 8 out of a maximum of 30 and the average change from the previous quarter was -1. Only three companies, <a href="https://www.smartkarma.com/entities/1273" target="_blank" data-smartkarma-citation="entities:1273:1">OBIC (4684 JP)</a>, <a href="https://www.smartkarma.com/entities/985" target="_blank" data-smartkarma-citation="entities:985:1">Mcdonald's Japan (2702 JP)</a> and <a href="https://www.smartkarma.com/entities/7431" target="_blank" data-smartkarma-citation="entities:7431:1">Outsourcing (2427 JP)</a>, were not 'Fully Priced'.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/315/original/2018-10-31_10-06-20.png?1540948009" class="editor-image img-responsive" data-smartkarma-image-id="68315"></figure>
<div style="text-align: left;" class="content-caption">The J Nifty Fifty - July 2018 companies are presented in descending order of Market Capitalisation. The selection criteria were: market capitalisation higher than ¥183b, Relative Price Score of over 2.5, PE ratio of over 30 and PBR of over 3. "FP" means Fully Priced - a company that ranked in both the top 20% in terms of PER and PBR.  Price Score and Results Score are as defined in earlier insights.</div>
<p>In the next section, we provide an updated performance review of the July selection, as well as updating the Nifty-Fifty to reflect current data.</p>

THE J 'NIFTY-FIFTY' - In our insight posted on July 1st Japan: Most Overbought &amp; Most Oversold - The Relative Price Score, we highlighted the emergence of a momentum-driven concentration in a small number of over-priced growth stocks which we dubbed "Japan's Nifty-Fifty". At that time, this group of stocks - many of which are widely held in foreign investor portfolios - had produced a one-year performance of 60%, substantially outperforming all benchmarks. As we then observed,    

For portfolio managers willing to go along for this ride, the result has been a career-defining period of relative glory while value-orientated peers have suffered another year in the performance 'doghouse’. The last chapter of this tale requires no spoiler alert. Currently, twenty-eight of our fifty have negative of flat earnings momentum and eighteen have seen a decline in Relative Price Score in the last month. We look for further downside ahead in earnings and price momentum.

LAST CHAPTER? - Whether or not we have reached the final chapter of this particular tale, recent months have not been kind to this 'strategy'. The simple average has declined by 20% over both one and three months compared to declines in the market composite of 12% and 10%, respectively. Over one year, the outperformance has declined from 54% to 18%. Certainly, momentum growth stocks have always been a feature of the Japanese market, and many could now well bounce hard with any market recovery. However, when earnings momentum turns down or negative, as it has done recently for ZOZO Inc (3092 JP), Monotaro (3064 JP) and Misumi (9962 JP), the lack of valuation support can result in short, sharp price shocks that can nullify months of relative out-performance in a few trading sessions.
TOO MUCH OF A GOOD THING - As with the US 'FAANGs, in the end, all things must pass. The chart below shows the one-year progression of the 50 companies measured by Relative Price Score which plots the relative performance of all companies on the same scale. The 4.0 'Overbought' line is the first percentile of observations for all currently-listed companies since 1990.

Source: Japan Analytics
THE JULY 2018 'NIFTY-FIFTY' - The July 2018 'portfolio' in the table below has data as of that date. The average one-year performance was +60%, the average Price Score was 4.09 - just above the 'Overbought' line - while the average PER was 60x and PBR 8.43. The average Results Score was 8 out of a maximum of 30 and the average change from the previous quarter was -1. Only three companies, OBIC (4684 JP), Mcdonald's Japan (2702 JP) and Outsourcing (2427 JP), were not 'Fully Priced'.

The J Nifty Fifty - July 2018 companies are presented in descending order of Market Capitalisation. The selection criteria were: market capitalisation higher than ¥183b, Relative Price Score of over 2.5, PE ratio of over 30 and PBR of over 3. "FP" means Fully Priced - a company that ranked in both the top 20% in terms of PER and PBR.  Price Score and Results Score are as defined in earlier insights.
In the next section, we provide an updated performance review of the July selection, as well as updating the Nifty-Fifty to reflect current data.

Japan: The Demise of The "J Nifty-Fifty"?

Japan

JCR Pharmaceuticals Co., Ltd. develops, produces, and sells pharmaceutical products and raw materials.  The Company also sells equipment for hospital and laboratory use.  JCR Pharmaceuticals' products include drug for leukemic diseases and hormonal agents including genetically engineered human somatotrophic hormone (growth hormone) and gonadotropic hormone.

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Jcr Pharmaceuticals (4552 JP)

Japan: Relative Price Scores - Overbought and Oversold Companies - Calling 'Tops' & 'Bottoms'

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the...

Campbell Gunn

Japan: The Demise of The "J Nifty-Fifty"?

THE J 'NIFTY-FIFTY' - In our insight posted on July 1st Japan: Most Overbought & Most Oversold - The Relative Price Score, we highlighted the...

Campbell Gunn

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