Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The 2023 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each. </li>
<li>Even if you do not "play" index changes, understanding impact is important. Advantest is up 100% in 3mos. Existing passive ownership and new passive buying were crucial to that performance.</li>
<li>Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks in Japan. </li>
</ul>


The 2023 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each. 
Even if you do not "play" index changes, understanding impact is important. Advantest is up 100% in 3mos. Existing passive ownership and new passive buying were crucial to that performance.
Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks in Japan. 


A few years ago I started this series, and I updated it last year. Since last year, it has been a top 10 insight in terms of views. I personally think it is important for investors of all types to understand WHO OWNS WHAT. Many fundamental investors are reticent to spend any time on this but there are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive investors in Japan.<div>Some of the places active investors will see their influence are:</div><div>
<ul style="list-style-type: disc;">
<li>Stories intermittently published about the BOJ's presence in Japanese ETFs (especially the fact that it owns 85+% of the outstanding ETF market),</li>
<li>Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a> by 30+% from May to July, then helped it slide 13% in a week, or the changes in the Nikkei 225 review rules published earlier this year which may change what happens this September to a few large caps, and the announcement of the BOJ that it would no longer buy Nikkei 225 ETFs which started a long slide in <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> shares against comps and the Nikkei itself. Long "held up" by 'market inventory' and Nikkei 225 ETF buying, when the BOJ stopped, it removed the cushion and existing inventory holders had to sell out. </li>
<li>Then if you look at the shareholder structure of Fast Retailing today, you will see that it is STILL fundamentally a serious problem for large foreign active investors who would actually wish to take an active (but not activist) position. Real World Float on the stock is, by my calculation, less than 15% of shares outstanding. </li>
<li>The relatively recent policy of increased stewardship regarding the passive management portion of the GPIF (the Government Pension Investment Fund) - an investing heavyweight in Japan.</li>
<li>The timing and quantum of after-event support or overhang on corporate actions such as buybacks, secondary offerings, primary offerings, mergers, etc. </li>
<li>Index inclusions mean big flows. If you follow the insights on <a href="https://www.smartkarma.com/collections/topix-inclusion/insights?item=54585" target="_blank" rel="noopener">TOPIX Inclusions</a> by <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> and myself, you will often see big moves. Sometimes these stocks move 50% between when we write about them and when they go into the index. If you own them and are considering an exit, you need to know when to take profits, and the dynamic of the liquidity. If you are thinking about getting in for fundamental reasons, it pays to know early so you can get ahead of the major flow.</li>
<li>The return of <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> to the TSE First Section in Q1 this year changed the foreign shareholder percentage ownership, lowering it by 10%. Smartkarma readers knew this last year and in January, which prepared them for the June AGM when the shareholder category ownership was released.</li>
<li>The changes to the TSE's market structure, which will affect TOPIX membership, which will affect many companies' issuance, buyback, share cancellation, etc decisions over the next several months. They are doing this because of the TSE Prime listing rules which will effectively also determine whether or not they will be included in TOPIX in future, or whether they will fall out of TSE Prime and will see constant selling over late 2022 to early 2025. </li>
</ul>
Of course, TOPIX is just over half of the passive tracking AUM in Japan. There's more. 
Find out WHO OWNS WHAT in Japan Passive below the fold. 
</div>

A few years ago I started this series, and I updated it last year. Since last year, it has been a top 10 insight in terms of views. I personally think it is important for investors of all types to understand WHO OWNS WHAT. Many fundamental investors are reticent to spend any time on this but there are many reasons why active investors in Japan should be interested in understanding the ownership and shareholder dynamics of passive investors in Japan.Some of the places active investors will see their influence are:

Stories intermittently published about the BOJ's presence in Japanese ETFs (especially the fact that it owns 85+% of the outstanding ETF market),
Relatively constant interest in Nikkei 225 rebalances like the one we saw in July 2020, which helped push up Japan Exchange Group (8697 JP) by 30+% from May to July, then helped it slide 13% in a week, or the changes in the Nikkei 225 review rules published earlier this year which may change what happens this September to a few large caps, and the announcement of the BOJ that it would no longer buy Nikkei 225 ETFs which started a long slide in Fast Retailing (9983 JP) shares against comps and the Nikkei itself. Long "held up" by 'market inventory' and Nikkei 225 ETF buying, when the BOJ stopped, it removed the cushion and existing inventory holders had to sell out. 
Then if you look at the shareholder structure of Fast Retailing today, you will see that it is STILL fundamentally a serious problem for large foreign active investors who would actually wish to take an active (but not activist) position. Real World Float on the stock is, by my calculation, less than 15% of shares outstanding. 
The relatively recent policy of increased stewardship regarding the passive management portion of the GPIF (the Government Pension Investment Fund) - an investing heavyweight in Japan.
The timing and quantum of after-event support or overhang on corporate actions such as buybacks, secondary offerings, primary offerings, mergers, etc. 
Index inclusions mean big flows. If you follow the insights on TOPIX Inclusions by Janaghan Jeyakumar, CFA and myself, you will often see big moves. Sometimes these stocks move 50% between when we write about them and when they go into the index. If you own them and are considering an exit, you need to know when to take profits, and the dynamic of the liquidity. If you are thinking about getting in for fundamental reasons, it pays to know early so you can get ahead of the major flow.
The return of Toshiba Corp (6502 JP) to the TSE First Section in Q1 this year changed the foreign shareholder percentage ownership, lowering it by 10%. Smartkarma readers knew this last year and in January, which prepared them for the June AGM when the shareholder category ownership was released.
The changes to the TSE's market structure, which will affect TOPIX membership, which will affect many companies' issuance, buyback, share cancellation, etc decisions over the next several months. They are doing this because of the TSE Prime listing rules which will effectively also determine whether or not they will be included in TOPIX in future, or whether they will fall out of TSE Prime and will see constant selling over late 2022 to early 2025. 

Of course, TOPIX is just over half of the passive tracking AUM in Japan. There's more. 
Find out WHO OWNS WHAT in Japan Passive below the fold. 


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>The review period for 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> March rebalance ends yesterday. There could be three changes at the rebalance with sector balance in focus.</li>
<li>Depending on the changes, passive trackers will need to buy between 1.3-19x ADV (7.1-24% of real float) on the inclusions and sell between 3.5-47x ADV on the deletions.</li>
<li>
<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> avoids capping in March, passives will buy <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a>, and 25 stocks have over 0.5x ADV to sell as part of the funding trade.</li>
</ul>


The review period for the Nikkei 225 (NKY INDEX) March rebalance ends yesterday. There could be three changes at the rebalance with sector balance in focus.
Depending on the changes, passive trackers will need to buy between 1.3-19x ADV (7.1-24% of real float) on the inclusions and sell between 3.5-47x ADV on the deletions.

Fast Retailing (9983 JP) avoids capping in March, passives will buy Nitori Holdings (9843 JP), and 25 stocks have over 0.5x ADV to sell as part of the funding trade.


Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Fast Retailing

<ul>
<li>The review period for a global index and a bunch of local indices ended last week. The announcement of the changes will be made in 1 week to 4 weeks.</li>
<li>
<a href="https://www.smartkarma.com/entities/strike-energy-ltd" target="_blank" data-smartkarma-citation="entities:12473:1" rel="noopener">Strike Energy (STX AU)</a> will replace <a href="https://www.smartkarma.com/entities/costa-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22632:1" rel="noopener">Costa Group Holdings (CGC AU)</a> in the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> at the close on 8 February.</li>
<li>The inflows to mainland China ETFs continue for another week. There were big inflows to <a href="https://www.smartkarma.com/entities/ishares-msci-india-etf" target="_blank" data-smartkarma-citation="entities:282:1" rel="noopener">iShares India ETF (INDA US)</a> and <a href="https://www.smartkarma.com/entities/ishares-msci-india-small-cap" target="_blank" data-smartkarma-citation="entities:32064:1" rel="noopener">Ishares India Small-Cap (SMIN US)</a>. </li>
</ul>


The review period for a global index and a bunch of local indices ended last week. The announcement of the changes will be made in 1 week to 4 weeks.

Strike Energy (STX AU) will replace Costa Group Holdings (CGC AU) in the S&amp;P/ASX 200 (AS51 INDEX) at the close on 8 February.
The inflows to mainland China ETFs continue for another week. There were big inflows to iShares India ETF (INDA US) and Ishares India Small-Cap (SMIN US). 


Index Rebalance & ETF Flow Recap: N225, ASX, STAR50, NIFTY50, KRX New Deal, UOL SP, Korea Passive

<ul>
<li>There were a lot of rebalance implementations in China on Friday, plus a few upcoming index changes that were announced during the week.</li>
<li>There are a lot of implementations this week, with <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">KOSPI 200</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150</a> on Thursday and then others across a bunch of countries on Friday.</li>
<li>There were big inflows to <a href="https://www.smartkarma.com/entities/tracker-fund-of-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:29257:1" rel="noopener">Tracker Fund of Hong Kong (2800 HK)</a> during the week taking units outstanding to a new high. ETF inflows continue even as the market drops.</li>
</ul>


There were a lot of rebalance implementations in China on Friday, plus a few upcoming index changes that were announced during the week.
There are a lot of implementations this week, with KOSPI 200 and KOSDAQ 150 on Thursday and then others across a bunch of countries on Friday.
There were big inflows to Tracker Fund of Hong Kong (2800 HK) during the week taking units outstanding to a new high. ETF inflows continue even as the market drops.


Index Rebalance & ETF Flow Recap: NKY, TW Div+, ASX200, NZX50, Mom30, Top10EW, MVW, Rakuten Bank

Japan

KIKKOMAN CORPORATION produces and markets soy sauce, alcoholic beverages, and other food products.  The Company has marketing rights for Del Monte brand products outside of the United States.  Kikkoman also operates restaurants in Japan and other countries.

Kikkoman Corp (2801 JP)

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