Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<div>
<p>The BOJ's buying of ETFs continues but the pace has slowed in recent months. This does not mean we don't get ETF news, comments, etc. </p>
<p>BOJ Governor Kuroda was in front of parliament a week ago and talked about the BOJ's ETF-buying programmes. There are questions from former BOJ executives out in the wild about what the BOJ will do to a) stop buying, b) reduce its holdings in ETFs, etc. </p>
<p>Mr Kuroda was quite clear with his answer. From a Reuters <a href="https://www.reuters.com/article/japan-economy-kuroda-etf-idUST9N2GT02I" target="_blank" rel="noopener">note</a> last week...</p>
</div><div><blockquote>
<p>The BOJ already buys ETFs “quite flexibly” and can reduce purchases when the market risk premium is not rising, Kuroda told parliament.</p>
<p>“If inflation hits our 2% target and an exit from our massive stimulus programme comes into sight, there will certainly be debate on how to end our ETF buying. But it’s premature to do so at this stage.”</p>
</blockquote></div><div>The proof is in the pudding.</div><div></div><div>Historically, the pattern based on analysis of the data was that if the AM session close of the market was lower than the previous full-day close, the BOJ would be in buying in the PM session. First it was when the market was down more than 100bp. Then it was 50bp. Then 25bp, then even when it was down at all. </div><div></div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/173/908/original/Screenshot%202020-11-25%20at%2012.09.11%20PM.png?1606277380" class="editor-image img-responsive" data-smartkarma-image-id="173908"></figure></section><p>As the chart shows, the rolling 3mo and 6mo purchase total annualises out to ¥4.5 trillion and ¥5.0 trillion, respectively.  The BOJ has substantially lowered how much it is buying, mostly because the market is well-behaved. The buying they did the few times they were involved in January and February was ¥70bn a day. When risk went bad in March, they upped it to ¥100bn, then ¥120bn, and by mid-March had lifted the annual total limit to ¥11.7trln, buying ¥200bn on many days, and effectively in April, there were only two days where the market fell in the morning session and the BOJ was not in buying. Things looked up in markets as they were looking down fundamentally and the BOJ lowered its involvement as the risk premium wasn't rising when earnings projections were falling sharply. </p>
<div>
<p>However, I expect this lull is temporary. They are effectively building up a very large buffer so they can go in at a higher rate when necessary. With the market up 12% month-to-date, and US stocks seemingly on a tear of vaccine-related hope, and month-end globally looking very much like a sell of stocks to buy bonds from an allocator or risk-parity perspective, they may be back in before you think. </p>
<p>More discussion below the fold. </p>
</div>
</div>


The BOJ's buying of ETFs continues but the pace has slowed in recent months. This does not mean we don't get ETF news, comments, etc. 
BOJ Governor Kuroda was in front of parliament a week ago and talked about the BOJ's ETF-buying programmes. There are questions from former BOJ executives out in the wild about what the BOJ will do to a) stop buying, b) reduce its holdings in ETFs, etc. 
Mr Kuroda was quite clear with his answer. From a Reuters note last week...

The BOJ already buys ETFs “quite flexibly” and can reduce purchases when the market risk premium is not rising, Kuroda told parliament.
“If inflation hits our 2% target and an exit from our massive stimulus programme comes into sight, there will certainly be debate on how to end our ETF buying. But it’s premature to do so at this stage.”
The proof is in the pudding.Historically, the pattern based on analysis of the data was that if the AM session close of the market was lower than the previous full-day close, the BOJ would be in buying in the PM session. First it was when the market was down more than 100bp. Then it was 50bp. Then 25bp, then even when it was down at all. 
As the chart shows, the rolling 3mo and 6mo purchase total annualises out to ¥4.5 trillion and ¥5.0 trillion, respectively.  The BOJ has substantially lowered how much it is buying, mostly because the market is well-behaved. The buying they did the few times they were involved in January and February was ¥70bn a day. When risk went bad in March, they upped it to ¥100bn, then ¥120bn, and by mid-March had lifted the annual total limit to ¥11.7trln, buying ¥200bn on many days, and effectively in April, there were only two days where the market fell in the morning session and the BOJ was not in buying. Things looked up in markets as they were looking down fundamentally and the BOJ lowered its involvement as the risk premium wasn't rising when earnings projections were falling sharply. 

However, I expect this lull is temporary. They are effectively building up a very large buffer so they can go in at a higher rate when necessary. With the market up 12% month-to-date, and US stocks seemingly on a tear of vaccine-related hope, and month-end globally looking very much like a sell of stocks to buy bonds from an allocator or risk-parity perspective, they may be back in before you think. 
More discussion below the fold. 



JAPAN FLOW:  BOJ ETF Exit Fretting Is A Thing But Shouldn't Be. BOJ Buys Slower But Still Bigly

'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.

<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

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Equity Bottom-Up

<p>Terumo reported its 1QFY03/2021 results on Thursday (06<sup>th</sup> August 2020) which saw both revenue and operating profit declining YoY by 14% and 38% respectively. Although revenues from the cardiac and vascular segment and general hospital segment declined, the blood and cell technology segment managed to grow its revenue by a marginal 2% YoY.</p><p>The reported revenue was 4.2% below consensus estimates, however, the company managed to beat consensus on operating profit by 4.2% during the quarter.</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 49.75pt;"><p style="text-align: center;"><strong>JPY (bn)</strong></p></td>
<td style="width: 72.9pt;"><p style="text-align: center;"><strong>1QFY03/2020</strong></p></td>
<td style="width: 72.9pt;"><p style="text-align: center;"><strong>1QFY03/2021</strong></p></td>
<td style="width: 44.95pt;"><p style="text-align: center;"><strong>% YoY</strong></p></td>
<td style="width: 58.95pt;"><p style="text-align: center;"><strong>Consensus</strong></p></td>
<td style="width: 75.7pt;"><p style="text-align: center;"><strong>Actual v Consensus</strong></p></td>
</tr>
<tr>
<td style="width: 49.75pt;"><p>Revenue</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">152.5</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">131.3</p></td>
<td style="width: 44.95pt;"><p style="text-align: right;">-13.9%</p></td>
<td style="width: 58.95pt;"><p style="text-align: right;">137.0</p></td>
<td style="width: 75.7pt;"><p style="text-align: right;">-4.2%</p></td>
</tr>
<tr>
<td style="width: 49.75pt;"><p>OP</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">29.2</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">18.1</p></td>
<td style="width: 44.95pt;"><p style="text-align: right;">-38.0%</p></td>
<td style="width: 58.95pt;"><p style="text-align: right;">17.4</p></td>
<td style="width: 75.7pt;"><p style="text-align: right;">4.2%</p></td>
</tr>
<tr>
<td style="width: 49.75pt;"><p>OPM</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">19.1%</p></td>
<td style="width: 72.9pt;"><p style="text-align: right;">13.8%</p></td>
<td style="width: 44.95pt;"><p> </p></td>
<td style="width: 58.95pt;"><p style="text-align: right;">12.7%</p></td>
<td style="width: 75.7pt;"><p> </p></td>
</tr>
</tbody></table><div class="content-caption"><em>Source: Company disclosures, CapIQ</em></div><p>The decline in revenue was mainly due to the sharp decline in Terumo’s largest segment, cardiac and vascular.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/551/original/image_21426346931596998931586.png?1596998934" class="editor-image img-responsive" data-smartkarma-image-id="151551"></figure><div class="content-caption"><em>Source: Company disclosures</em></div>

Terumo reported its 1QFY03/2021 results on Thursday (06th August 2020) which saw both revenue and operating profit declining YoY by 14% and 38% respectively. Although revenues from the cardiac and vascular segment and general hospital segment declined, the blood and cell technology segment managed to grow its revenue by a marginal 2% YoY.The reported revenue was 4.2% below consensus estimates, however, the company managed to beat consensus on operating profit by 4.2% during the quarter.

JPY (bn)
1QFY03/2020
1QFY03/2021
% YoY
Consensus
Actual v Consensus


Revenue
152.5
131.3
-13.9%
137.0
-4.2%


OP
29.2
18.1
-38.0%
17.4
4.2%


OPM
19.1%
13.8%
 
12.7%
 

Source: Company disclosures, CapIQThe decline in revenue was mainly due to the sharp decline in Terumo’s largest segment, cardiac and vascular.Source: Company disclosures

Terumo: Pandemic Impacts Q1 but Recovery Is Expected in the 2nd Half

<p>Three days ago I wrote <a href="https://www.smartkarma.com/insights/boj-etf-buying-update" target="_blank" data-smartkarma-citation="insights:38783" rel="noopener">BOJ ETF Buying Update</a> which described the impact of the BOJ buying ETFs on the underlying constituents. </p><p>This morning, the BOJ made a small clarification, or possibly amendment, to their purchasing plan. </p><p>This changes the daily purchasing constituent basket slightly, favouring the Nikkei 225 vs what the market <em>probably</em> thought it was doing since mid-March. </p><p>A quick refresher course on BOJ ETF buying constituency is below.</p>

Three days ago I wrote BOJ ETF Buying Update which described the impact of the BOJ buying ETFs on the underlying constituents. This morning, the BOJ made a small clarification, or possibly amendment, to their purchasing plan. This changes the daily purchasing constituent basket slightly, favouring the Nikkei 225 vs what the market probably thought it was doing since mid-March. A quick refresher course on BOJ ETF buying constituency is below.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/terumo-corp" target="_blank" data-smartkarma-citation="entities:6708:1" rel="noopener">Terumo Corp (4543 JP)</a> provides innovative medical solutions through its extensive business portfolio which ranges from vascular intervention and cardio-surgical solutions, blood transfusion and cell therapy technology and other medical products essential for daily clinical practice.</li>
<li>It was reported by several news media outlets that Terumo’s blood purification and oxygenation system has been approved by the US FDA to treat patients with COVID-19.</li>
<li>Nikkei also reported that the Japanese government has decided to provide subsidies to companies that increase production of these heart-lung machines used to treat severe pneumonia in coronavirus infected patients.</li>
<li>In this insight, we discuss the company’s ECMO business alongside its other business segments, outlook and the valuation of the company.</li>
<li>We expect the company’s largest business segment, Cardiac and Vascular to see strong growth over the next couple of years driven by steady growth in demand for cardiac and vascular products globally. At the same time, we expect Terumo’s continued launch of new products to further support the growth of the segment.</li>
<li>We expect Terumo’s other two businesses, Hospital and Blood Company to continue to perform steadily over the forecast period.</li>
</ul>



Terumo Corp (4543 JP) provides innovative medical solutions through its extensive business portfolio which ranges from vascular intervention and cardio-surgical solutions, blood transfusion and cell therapy technology and other medical products essential for daily clinical practice.
It was reported by several news media outlets that Terumo’s blood purification and oxygenation system has been approved by the US FDA to treat patients with COVID-19.
Nikkei also reported that the Japanese government has decided to provide subsidies to companies that increase production of these heart-lung machines used to treat severe pneumonia in coronavirus infected patients.
In this insight, we discuss the company’s ECMO business alongside its other business segments, outlook and the valuation of the company.
We expect the company’s largest business segment, Cardiac and Vascular to see strong growth over the next couple of years driven by steady growth in demand for cardiac and vascular products globally. At the same time, we expect Terumo’s continued launch of new products to further support the growth of the segment.
We expect Terumo’s other two businesses, Hospital and Blood Company to continue to perform steadily over the forecast period.


Terumo: Not Just an Opportune COVID Play but a Business with Solid Long-Term Prospects

Japan

TERUMO CORPORATION is a manufacturer and supplier of pharmaceuticals and medical tools and equipment.  The Company's products include health foods, transfusion and infusion equipment, disposable medical supply, clinical testing systems, artificial organs, and electronic thermometers.  Terumo markets the products through its subsidiaries and sales offices in the US, Europe, and Asia.

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Terumo Corp (4543 JP)

JAPAN FLOW: BOJ ETF Exit Fretting Is A Thing But Shouldn't Be. BOJ Buys Slower But Still Bigly

The BOJ is still buying, and Kuroda-san says it will continue, despite a new wave of questions about the policy, and eventual exiting. Exit is...

Travis Lundy

🇯🇵 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...

Campbell Gunn

Terumo: Pandemic Impacts Q1 but Recovery Is Expected in the 2nd Half

Terumo reported its 1QFY03/2021 results on Thursday (06th August 2020) which saw both revenue and operating profit declining YoY by 14% and 38%...

Shifara Samsudeen, FCMA, CGMA

BOJ ETF Buying Composition Clarified

Three days ago I wrote BOJ ETF Buying Update which described the impact of the BOJ buying ETFs on the underlying constituents. This morning, the...

Travis Lundy

Terumo: Not Just an Opportune COVID Play but a Business with Solid Long-Term Prospects

Terumo Corp (4543 JP) provides innovative medical solutions through its extensive business portfolio which ranges from vascular intervention and...

Shifara Samsudeen, FCMA, CGMA

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