Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<div>JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.</div><div>
A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. 
Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio based on March-end data. 
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JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.
A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. 
Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio based on March-end data. 


JPX-Nikkei 400 Rebalance: Pre-Event Basket Adjustments for March-End

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

Equity Bottom-Up

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate).

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate). 

Credit Suisse Group – Hit Parade Continues

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Our sceptical position on the elevated multiples for tech stocks has been relatively consistent over time. As with all bubbles, despite valuations clearly being out of touch with reality, markets have continued to trend upwards, and in many cases the least attractive stocks have done the best. We would argue that signs of liquidity issues at Ark and the rapid implosion of Archegos herald the beginning of the end.

Our sceptical position on the elevated multiples for tech stocks has been relatively consistent over time. As with all bubbles, despite valuations clearly being out of touch with reality, markets have continued to trend upwards, and in many cases the least attractive stocks have done the best. We would argue that signs of liquidity issues at Ark and the rapid implosion of Archegos herald the beginning of the end.

Softbank – Is Archegos the Bear Stearns CDO Funds in the Coalmine?

Telco/Internet specialist

Kirk Boodry

Redex Research

WeWork and Bow Capital SPAC (BOWX US) announced agreement on a SPAC merger that would allow WeWork to reach public markets in Q3 21 at a suggested post-money enterprise value of $9bn. Expectations for a deal of this magnitude have been well-telegraphed so the announcement is not a surprise whilst, since it is a SPAC deal, a lack of financial statements/history isn’t either. We do know how the $9bn value is being justified and it is a bit of a stretch: markets need to believe WeWork can double its in-office user base and triple overall users, even as ARPUs rise and the absolute level of operating costs declines. Meanwhile, the only public comparable <a href="https://www.smartkarma.com/entities/iwg-plc" target="_blank" data-smartkarma-citation="entities:28219:1" rel="noopener">IWG PLC (IWG LN)</a>  is roughly the same size with the same resources but has yet to recover value lost to the pandemic.

WeWork and Bow Capital SPAC (BOWX US) announced agreement on a SPAC merger that would allow WeWork to reach public markets in Q3 21 at a suggested post-money enterprise value of $9bn. Expectations for a deal of this magnitude have been well-telegraphed so the announcement is not a surprise whilst, since it is a SPAC deal, a lack of financial statements/history isn’t either. We do know how the $9bn value is being justified and it is a bit of a stretch: markets need to believe WeWork can double its in-office user base and triple overall users, even as ARPUs rise and the absolute level of operating costs declines. Meanwhile, the only public comparable IWG PLC (IWG LN)  is roughly the same size with the same resources but has yet to recover value lost to the pandemic.

WeWork - Still Asking for Way More than They Are Worth

*US Greensill Arm Declares BK: On March 25, 2021, Greensill filed for Chapter 11 bankruptcy protection for its US subsidiary, Greensill Capital Inc. (GCI), in the Southern District of New York. GCI sold Greensill products in the US with revenue passing directly through to the Greensill in London; and*Watch Your Risk: Greensill allegedly has USD 5 bn in risk outstanding to GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this entire debacle. Credit Suisse, GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst many others are likely to be further impacted given the growing uncertainties of Greensill and GFG Alliance.

*US Greensill Arm Declares BK: On March 25, 2021, Greensill filed for Chapter 11 bankruptcy protection for its US subsidiary, Greensill Capital Inc. (GCI), in the Southern District of New York. GCI sold Greensill products in the US with revenue passing directly through to the Greensill in London; and*Watch Your Risk: Greensill allegedly has USD 5 bn in risk outstanding to GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this entire debacle. Credit Suisse, GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst many others are likely to be further impacted given the growing uncertainties of Greensill and GFG Alliance. 

Japan

SoftBank Group Corp provides telecommunication services.  The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

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Softbank Group (ADR) (SFTBY US)

JPX-Nikkei 400 Rebalance: Pre-Event Basket Adjustments for March-End

JPX Nikkei 400 Pre-Event Basket Bets - Every month-end we publish updated estimates for the August 2021 JPX Nikkei 400 Rebalance based on updated...

Janaghan Jeyakumar, CFA

Credit Suisse Group – Hit Parade Continues

CREDIT SUISSE GROUP: S&P Global Ratings has finally downgraded its outlook on all Credit Suisse entities to negative resultant over its exposure to...

Thomas J. Monaco

Softbank – Is Archegos the Bear Stearns CDO Funds in the Coalmine?

With a lot of signs of market stress emerging following a truly bubbly run up in 2020 we examine the prospects for a stock that has traditionally...

Mio Kato

WeWork - Still Asking for Way More than They Are Worth

WeWork's SPAC deal values it at $9bn but predictably that is too high. We look at fundamental reasons why although as a SPAC merger, values depend...

Kirk Boodry

Credit Suisse – Another Shoe Drops

CREDIT SUISSE GROUP: Greensill has filed for Chapter 11 bankruptcy protection for its US subsidiary in New York. The subsidiary sold Greensill...

Thomas J. Monaco

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