Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>Our long-term pre-event candidate <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> has moved to TSE Prime. There will be a TOPIX Inclusion event on 30-Oct-24. The stock has outperformed TOPIX by 43% since <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-july-2024" target="_blank" rel="noopener">July</a>.</li>
<li>
<a href="https://www.smartkarma.com/entities/pksha-technology-inc" target="_blank" data-smartkarma-citation="entities:26181:1" rel="noopener">PKSHA Technology (3993 JP)</a> and <a href="https://www.smartkarma.com/entities/genova-inc" target="_blank" data-smartkarma-citation="entities:43939:1" rel="noopener">GENOVA (9341 JP)</a> also moved to the TSE Prime market in September and will be having TOPIX Inclusion events at the end of October 2024.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
Our long-term pre-event candidate CELSYS (3663 JP) has moved to TSE Prime. There will be a TOPIX Inclusion event on 30-Oct-24. The stock has outperformed TOPIX by 43% since July.

PKSHA Technology (3993 JP) and GENOVA (9341 JP) also moved to the TSE Prime market in September and will be having TOPIX Inclusion events at the end of October 2024.


TOPIX Inclusions: Who Is Ready (Oct 2024)

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>In response to TSE's request, more than 80% of the prime market listed companies disclosed their targets, but 3/4 of the companies have yet to disclose specific measures.</li>
<li>While a few companies (with high foreign ownership) have started to create value autonomously, 3/4 of prime market companies do not fit the concept of a prime market listed company.</li>
<li>The fact that managers who cannot think for themselves are gradually beginning to opt for MBOs indicates the potential for investors to be relieved of further patience.</li>
</ul>


In response to TSE's request, more than 80% of the prime market listed companies disclosed their targets, but 3/4 of the companies have yet to disclose specific measures.
While a few companies (with high foreign ownership) have started to create value autonomously, 3/4 of prime market companies do not fit the concept of a prime market listed company.
The fact that managers who cannot think for themselves are gradually beginning to opt for MBOs indicates the potential for investors to be relieved of further patience.


3/4 of Prime Market Companies Have yet to Disclose Specific Measures to Respond to “TSE's Request"

<ul>
<li>As overseas investors continue to account for 30% of shareholdings in the TSE, domestic institutional investors are the main reliance for listed companies to secure voting rights.</li>
<li>Companies with immature management kaizen activities are eager to avoid a change of mind in voting by domestic institutional investors until they are able to generate sufficient corporate value.</li>
<li>By investing 95% of its domestic equity assets in passive funds, the GPIF has not required many companies to make tough management improvements</li>
</ul>


As overseas investors continue to account for 30% of shareholdings in the TSE, domestic institutional investors are the main reliance for listed companies to secure voting rights.
Companies with immature management kaizen activities are eager to avoid a change of mind in voting by domestic institutional investors until they are able to generate sufficient corporate value.
By investing 95% of its domestic equity assets in passive funds, the GPIF has not required many companies to make tough management improvements


Will the Strategy of Trying to Buy Time by Negotiating Directly with Asset Owners Work?

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Cross Asset Strategy

<ul>
<li>A review of recent events/data impacting our investment themes or outlook</li>
<li>While it may not be what investors are clamouring for - China follows through with its policies.</li>
<li>The broad Japanese indices continue to struggle despite JPY weakness</li>
</ul>


A review of recent events/data impacting our investment themes or outlook
While it may not be what investors are clamouring for - China follows through with its policies.
The broad Japanese indices continue to struggle despite JPY weakness


Overview #11 – China Follows Through While Japan Dithers and India Feeds the Ducks

<ul>
<li>The timing of disclosures by companies reviewed by audit firms has changed little from the previous year, but over the past five years it has gradually become earlier.</li>
<li>Although quarterly reports are unified into the disclosure of quarterly financial statements without mandatory reviews, many large companies disclose their financial statements with reviews, so the administrative burden doesn't decrease.</li>
<li>Many smaller companies that disclosed without review experienced a reduced burden, but their financial statements are relatively less reliable than those of larger companies that do have review.</li>
</ul>


The timing of disclosures by companies reviewed by audit firms has changed little from the previous year, but over the past five years it has gradually become earlier.
Although quarterly reports are unified into the disclosure of quarterly financial statements without mandatory reviews, many large companies disclose their financial statements with reviews, so the administrative burden doesn't decrease.
Many smaller companies that disclosed without review experienced a reduced burden, but their financial statements are relatively less reliable than those of larger companies that do have review.


Quarterly Reporting Review Results in Reliability in F/S Between Larger and Smaller Companies

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

TOPIX Inclusions: Who Is Ready (Oct 2024)

The LONGs (Basket A) have outperformed the SHORTs (Basket B) modestly by 0.62% from 7th October to 30th October. On average, the LONGs are down...

Janaghan Jeyakumar, CFA

3/4 of Prime Market Companies Have yet to Disclose Specific Measures to Respond to “TSE's Request"

I have considered the issues on the September 18 Nikkei article, “Companies' P/B Improvement: Less than 30% Disclose Specific Measures, According...

Metrical Inc

Will the Strategy of Trying to Buy Time by Negotiating Directly with Asset Owners Work?

I would like to discuss the issues on the September 14 Nikkei Shimbun article, “GPIF and Other Public Pensions and Keidanren to Engage in Dialogue...

Metrical Inc

Overview #11 – China Follows Through While Japan Dithers and India Feeds the Ducks

A review of recent events/data impacting our investment themes and outlook. We look at the big kahunas in Asia - China, Japan and India

Rikki Malik

Quarterly Reporting Review Results in Reliability in F/S Between Larger and Smaller Companies

I would like to discuss the issues on the September 4 Nikkei Shimbun article, “Unification of Financial Statements, 20% of which are ‘Accountant...

Metrical Inc