'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Quantitative Analysis

<div>
<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE •</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/735/original/2020-09-23_11-03-49.png?1600826665" class="editor-image img-responsive" data-smartkarma-image-id="160735"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<p><strong><a href="https://www.dropbox.com/s/6h3m1giwbtzcupg/2020-09-23_11-03-49.png?dl=0" target="_blank" rel="noopener">PEAK OUTLIER</a></strong> - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/736/original/2020-09-23_11-11-07.png?1600827080" class="editor-image img-responsive" data-smartkarma-image-id="160736"></figure>
</div><p><strong>SECTOR TIMELINE</strong> - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the <strong>Healthcare</strong> and <strong>FB&amp;T</strong> market of 2016/17. On the downside, there is greater Oversold 'persistence' in the <strong>Energy</strong>, <strong>Banks</strong>, <strong>Multi-Industry</strong> ( <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP))</a>  and <strong>Utilities</strong> Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/741/original/2020-09-23_11-39-24.png?1600828791" class="editor-image img-responsive" data-smartkarma-image-id="160741"></figure><p>In the<strong> DETAIL</strong> section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.</p><div class="content-highlight"><p style="text-align: left;"><strong>RELATIVE PRICE SCORE OUTLIERS</strong> - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, <strong>'Overbought'</strong> and <strong>'Oversold' </strong>outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at <strong>+4</strong> &amp; <strong>-2</strong> for Companies, <strong>+3</strong> &amp; <strong>-1.5</strong> for Peer Groups and<strong> +2</strong> and<strong> -1</strong> for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over <strong>3.2</strong> million observations.</p></div>


• RELATIVE PRICE SCORE •
Source for all charts &amp; tables: Japan Analytics
PEAK OUTLIER - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  

SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( Japan Post (6178 JP))  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Equity Bottom-Up

<ul class="">
<li>We view Warren Buffett's move to invest in Japan's largest trading companies as being indicative of the lack of reasonably-valued opportunities in the US as well as the size disadvantage of Berkshire Hathaway;</li>
<li>While being in no place to judge the superinvestor's investment decision, we find better investment targets to "participate in the future of Japan," especially for those who manage a smaller AUM than Berkshire;</li>
<li>In this article, we list one superior-quality business that serves the backbone of Japan's economy (i.e., the SMEs);</li>
<li>Our investment strategy concentrates on quality from a business perspective and seeks long-term opportunities with a 10%-15% hurdle rate.</li>
</ul>


We view Warren Buffett's move to invest in Japan's largest trading companies as being indicative of the lack of reasonably-valued opportunities in the US as well as the size disadvantage of Berkshire Hathaway;
While being in no place to judge the superinvestor's investment decision, we find better investment targets to "participate in the future of Japan," especially for those who manage a smaller AUM than Berkshire;
In this article, we list one superior-quality business that serves the backbone of Japan's economy (i.e., the SMEs);
Our investment strategy concentrates on quality from a business perspective and seeks long-term opportunities with a 10%-15% hurdle rate.


One "Better" Quality Pick to Consider to Participate in the Future of Japan

Thematic (Sector/Industry)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/477/original/2020-07-23_10-42-06.png?1595468537" class="editor-image img-responsive" data-smartkarma-image-id="147477"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/478/original/2020-07-23_10-44-59.png?1595468712" class="editor-image img-responsive" data-smartkarma-image-id="147478"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/483/original/2020-07-23_11-31-51.png?1595471532" class="editor-image img-responsive" data-smartkarma-image-id="147483"></figure><div class="content-caption">Source • Japan Analytics</div>
<p><strong><a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">OBIC (4684 JP)</a></strong>- OBIC was the largest-cap company to report on Wednesday before the four-day holiday break. Despite a deceleration in the rate of revenue growth, the operating profit margin reached a record level of 58% in the first quarter as both COGS and SG&amp;A continue to decline. The other end of the Income Statement is less impressive. The 17 percentage point gap between the operating and CITC margins is also a new record. OBIC's ability to control its securities investment and returns at unconsolidated subsidiaries is much less impressive. OBIC is now the most Overbought IT Sector company in Japan, although the company's peer-relative earnings and forecast momentum has been declining. At an EV/ TTM OP of 34x times, valuations have only been higher during the 1999/2000 tech bubble and will act a constraint to the upside. With little margin for safety, we would not be buyers at this level.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/485/original/2020-07-23_11-40-21.png?1595472039" class="editor-image img-responsive" data-smartkarma-image-id="147485"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/480/original/2020-07-23_11-19-55.png?1595470809" class="editor-image img-responsive" data-smartkarma-image-id="147480"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/479/original/2020-07-23_10-46-52.png?1595468831" class="editor-image img-responsive" data-smartkarma-image-id="147479"></figure><div class="content-caption">Source • Japan Analytics<hr>
</div>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div><hr><div><p style="text-align: center;"><strong>24 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 10 Positive / 1 Neutral / 13 Negative</li>
<li>
<strong>Average Results Score Change:</strong> -1.3</li>
<li>
<strong>Average % Change in Revenue:</strong> +1.8% Quarter YoY / +2.9% Rolling TTM YoY<em> (exc. Kosei Secs) </em>
</li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -0.3ppt <em>(exc. Kosei Secs)</em>
</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 25%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>13 Annual • 11 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>Annual Forecast/Revision Score: 3 Positive / 2 Neutral / 8 Negative</li>
<li>Interim Forecast/Revision Score Change: 3 Positive / 1 Neutral / 7 Negative</li>
<li>Average Forecast/Revision Score Change: -7.6</li>
</ul></div>


Source • Japan Analytics
OBIC (4684 JP)- OBIC was the largest-cap company to report on Wednesday before the four-day holiday break. Despite a deceleration in the rate of revenue growth, the operating profit margin reached a record level of 58% in the first quarter as both COGS and SG&amp;A continue to decline. The other end of the Income Statement is less impressive. The 17 percentage point gap between the operating and CITC margins is also a new record. OBIC's ability to control its securities investment and returns at unconsolidated subsidiaries is much less impressive. OBIC is now the most Overbought IT Sector company in Japan, although the company's peer-relative earnings and forecast momentum has been declining. At an EV/ TTM OP of 34x times, valuations have only been higher during the 1999/2000 tech bubble and will act a constraint to the upside. With little margin for safety, we would not be buyers at this level.
Source • Japan Analytics

DAILY STATS
24 Quarterly Results

Results Score: 10 Positive / 1 Neutral / 13 Negative

Average Results Score Change: -1.3

Average % Change in Revenue: +1.8% Quarter YoY / +2.9% Rolling TTM YoY (exc. Kosei Secs) 


Average Operating Profit Margin Change: -0.3ppt (exc. Kosei Secs)


Percentage Making Quarterly Losses: 25%
 13 Annual • 11 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 3 Positive / 2 Neutral / 8 Negative
Interim Forecast/Revision Score Change: 3 Positive / 1 Neutral / 7 Negative
Average Forecast/Revision Score Change: -7.6


🇯🇵 JAPAN • Results & Revisions 22nd July - OBIC, CyberAgent, Tokyo Steel & The Deep Freeze

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>The risk of a pullback remains very real, however at this point the weight of the evidence suggests a meaningful pullback is not imminent. We recap important technical levels across market as well as Actionable Themes within the Consumer Staples, Health Care, and Technology sectors.</p>

The risk of a pullback remains very real, however at this point the weight of the evidence suggests a meaningful pullback is not imminent. We recap important technical levels across market as well as Actionable Themes within the Consumer Staples, Health Care, and Technology sectors.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/414/original/2020-04-24_05-17-46.png?1587673330" class="editor-image img-responsive" data-smartkarma-image-id="129414"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/415/original/2020-04-24_05-22-47.png?1587673388" class="editor-image img-responsive" data-smartkarma-image-id="129415"></figure><div class="content-caption">Source • IHS Markit/au Jibun Bank, Cabinet Office</div><p><strong>"GETTING WORSE RAPIDLY"</strong> - According to Japan's Cabinet Office in language that has not been used since May 2009, "the Japanese economy is getting worse rapidly in an extremely severe situation" and has dropped the word "recovering" for the first time in the Abenomics era. The IHS Markit Composite PMI data (sponsored by au Jibun Bank) shown above is already below the trough of 2009 and expectations suggest that the manufacturing output indicator will follow Services into the "20s" next month. The Bank of Japan is reported to be discussing 'unlimited' purchases of fixed income securities.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/417/original/IMG_1497.jpg?1587675446" class="editor-image img-responsive" data-smartkarma-image-id="129417"></figure><div class="content-caption">Source • NHK</div><p><strong>SIGNALLING</strong> - COVID-19 daily case counts remain above 300 and 100, respectively, although these are lagging indicators given that it takes up to one week to get a test result due to a lack of personnel and excessively fax-centric bureaucratic processes.  The central and local governments are stepping up their rhetoric to encourage more social distancing, especially over the upcoming Golden Week national holidays. They have asked companies to 'cease operations' from tomorrow until 6th May. Parking lots at tourist attractions are being closed, and flower buds are being culled in parks and nature reserves. The closure of national highway routes is also being discussed. Many pachinko parlours are defying the government's request to cease operations. They may now be subjected to 'naming and shaming' - a tactic complicated by the over-representation of Korean ethnic minorities in the industry.<strong> Japan's current strategy risks falling between its twin objectives of limiting the damage to the economy while avoiding 'overshoot' in the medical system. We continue to expect the 'states of emergency' to be extended beyond 6th May.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/418/original/2020-04-23_07-03-24.png?1587676688" class="editor-image img-responsive" data-smartkarma-image-id="129418"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>INTERIM FORECASTS</strong> - Many companies issue forecasts for the interim as well as the annual period ahead. The former forecasts are often prepared and reviewed at a lower 'level' in the company than the latter, which are seen as 'targets' set by the CEO. As a result and as seen last year, the interim forecasts provide better forward guidance, a pattern that is beginning to repeat this year as seen in our scoring above. </p><p>In the <strong>DETAIL</strong> below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the 16 results was 9:0:7; and for the 17 revisions/forecasts, the split was 12:0:5, with three of the twelve 'positives' being in the Information Technology Sector. Of the eleven companies reporting annual results, only five made a forecast for the current year. <strong><a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon (7751 JP)</a></strong>became the largest company so far by market cap to withdraw its year-end forecasts. One company withdrew its dividend forecast; two increased their payouts, while <a href="https://www.smartkarma.com/entities/nok-corp" target="_blank" data-smartkarma-citation="entities:2980:1" rel="noopener">NOK (7240 JP)</a> reduced.</p>

Source • IHS Markit/au Jibun Bank, Cabinet Office"GETTING WORSE RAPIDLY" - According to Japan's Cabinet Office in language that has not been used since May 2009, "the Japanese economy is getting worse rapidly in an extremely severe situation" and has dropped the word "recovering" for the first time in the Abenomics era. The IHS Markit Composite PMI data (sponsored by au Jibun Bank) shown above is already below the trough of 2009 and expectations suggest that the manufacturing output indicator will follow Services into the "20s" next month. The Bank of Japan is reported to be discussing 'unlimited' purchases of fixed income securities.  Source • NHKSIGNALLING - COVID-19 daily case counts remain above 300 and 100, respectively, although these are lagging indicators given that it takes up to one week to get a test result due to a lack of personnel and excessively fax-centric bureaucratic processes.  The central and local governments are stepping up their rhetoric to encourage more social distancing, especially over the upcoming Golden Week national holidays. They have asked companies to 'cease operations' from tomorrow until 6th May. Parking lots at tourist attractions are being closed, and flower buds are being culled in parks and nature reserves. The closure of national highway routes is also being discussed. Many pachinko parlours are defying the government's request to cease operations. They may now be subjected to 'naming and shaming' - a tactic complicated by the over-representation of Korean ethnic minorities in the industry. Japan's current strategy risks falling between its twin objectives of limiting the damage to the economy while avoiding 'overshoot' in the medical system. We continue to expect the 'states of emergency' to be extended beyond 6th May.Source • Japan AnalyticsINTERIM FORECASTS - Many companies issue forecasts for the interim as well as the annual period ahead. The former forecasts are often prepared and reviewed at a lower 'level' in the company than the latter, which are seen as 'targets' set by the CEO. As a result and as seen last year, the interim forecasts provide better forward guidance, a pattern that is beginning to repeat this year as seen in our scoring above. In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the 16 results was 9:0:7; and for the 17 revisions/forecasts, the split was 12:0:5, with three of the twelve 'positives' being in the Information Technology Sector. Of the eleven companies reporting annual results, only five made a forecast for the current year. Canon (7751 JP)became the largest company so far by market cap to withdraw its year-end forecasts. One company withdrew its dividend forecast; two increased their payouts, while NOK (7240 JP) reduced.

🇯🇵 JAPAN • Revisions & Results 23rd April - "Getting Worse Rapidly" + OBICs, TGas, Canon, Omron

Japan

OBIC Co., Ltd. provides computer system integration, office automation, consultation, and system support services primarily for small and medium size companies.  The Company sells, leases, and maintains computers, peripherals, and related systems.  OBIC also develops and sells customized software and network systems.

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OBIC Co Ltd (4684 JP)

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

• RELATIVE PRICE SCORE • RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX...

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One "Better" Quality Pick to Consider to Participate in the Future of Japan

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🇯🇵 JAPAN • Results & Revisions 22nd July - OBIC, CyberAgent, Tokyo Steel & The Deep Freeze

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Battleground Spot For Global Equities

The risk of a pullback remains very real, however at this point the weight of the evidence suggests a meaningful pullback is not imminent. We recap...

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🇯🇵 JAPAN • Revisions & Results 23rd April - "Getting Worse Rapidly" + OBICs, TGas, Canon, Omron

"GETTING WORSE RAPIDLY" - According to Japan's Cabinet Office in language that has not been used since May 2009, "the Japanese economy is getting...

Campbell Gunn

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