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

Index Rebalance

<ul>
<li>KKR and KSP Kokusai will offer 52.51m-60.38m shares (US$1.76bn-2bn) of <a href="https://www.smartkarma.com/entities/kokusai-electric-corp" target="_blank" data-smartkarma-citation="entities:40152:1" rel="noopener">Kokusai Electric (6525 JP)</a> in a secondary offering that will likely be priced on 22 July.</li>
<li>
<a href="https://www.smartkarma.com/entities/kokusai-electric-corp" target="_blank" data-smartkarma-citation="entities:40152:1" rel="noopener">Kokusai Electric (6525 JP)</a> will also buy back up to JPY 18bn of its shares. At the last close, that is 3.33m shares (1.2x ADV).</li>
<li>Trackers of one global index will buy stock at the time of settlement of the shares. The (much) bigger buying will come at the end of August.</li>
</ul>


KKR and KSP Kokusai will offer 52.51m-60.38m shares (US$1.76bn-2bn) of Kokusai Electric (6525 JP) in a secondary offering that will likely be priced on 22 July.

Kokusai Electric (6525 JP) will also buy back up to JPY 18bn of its shares. At the last close, that is 3.33m shares (1.2x ADV).
Trackers of one global index will buy stock at the time of settlement of the shares. The (much) bigger buying will come at the end of August.


Kokusai Electric (6525 JP): Placement, Buyback & Index Flows

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>Now that the defensive wall of cross-shareholdings has been lowered, the strategies of activist investors are beginning to work, as companies are forced to listen to demands of their shareholders.</li>
<li>Many companies continued to be reappointed at shareholder meetings without fulfilling the role of management in maximizing shareholder interests and carrying out sustainable expansion.</li>
<li>For faster management improvement, further increasing the sense of tension in management requires the elimination of further cross-shareholdings and a change in the mindset of domestic investors, including individual investors.</li>
</ul>


Now that the defensive wall of cross-shareholdings has been lowered, the strategies of activist investors are beginning to work, as companies are forced to listen to demands of their shareholders.
Many companies continued to be reappointed at shareholder meetings without fulfilling the role of management in maximizing shareholder interests and carrying out sustainable expansion.
For faster management improvement, further increasing the sense of tension in management requires the elimination of further cross-shareholdings and a change in the mindset of domestic investors, including individual investors.


Faster Management Improvement Requires a Sense of Tension in Management

<ul>
<li>Since TSE's request, more companies have used ROE or ROIC as KPIs in mid-term management plans, but even now, more companies only indicate targets for sales, operating profit, etc.</li>
<li>Larger companies have been the first to raise ROE; the key will be for smaller companies, which have been slower to improve their ROE, to raise their ROE.</li>
<li>Many companies have only just begun to reduce their policy shareholdings and strengthen shareholder returns, and are still in the process of addressing the core issue of increasing profit margins.</li>
</ul>


Since TSE's request, more companies have used ROE or ROIC as KPIs in mid-term management plans, but even now, more companies only indicate targets for sales, operating profit, etc.
Larger companies have been the first to raise ROE; the key will be for smaller companies, which have been slower to improve their ROE, to raise their ROE.
Many companies have only just begun to reduce their policy shareholdings and strengthen shareholder returns, and are still in the process of addressing the core issue of increasing profit margins.


The Key to Higher ROE Is Higher Profit Margins and Faster Efforts by Smaller Companies

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

TSE Tokyo Price Index TOPIX / Event-Driven

<ul>
<li>Last year, the GPIF as a whole returned 22.67% in yen terms. As a whole, GPIF outperformed its benchmarks by 0.04% after paying 0.02% in fees and costs.</li>
<li>GPIF traded ¥30trln of assets - relatively high turnover for a fund which espouses very low turnover - but there's a reason for that. There were also sharp active/passive moves.</li>
<li>This year is the last year in the "cycle" of the "old" Policy Allocation Framework. A new one is likely to be introduced this year.</li>
</ul>


Last year, the GPIF as a whole returned 22.67% in yen terms. As a whole, GPIF outperformed its benchmarks by 0.04% after paying 0.02% in fees and costs.
GPIF traded ¥30trln of assets - relatively high turnover for a fund which espouses very low turnover - but there's a reason for that. There were also sharp active/passive moves.
This year is the last year in the "cycle" of the "old" Policy Allocation Framework. A new one is likely to be introduced this year.


Fy23 GPIF Results and Portfolio Changes - Outlook for FY24

<ul>
<li>If a company hasn't improved its return such as ROE, it's difficult to buy its shares until the plan is more certain that cash flow will expand in the future.</li>
<li>Since cash flow margin must be raised to increase cash flow, the ultimate goal is to achieve sales growth while raising the profit margin on sales.</li>
<li>Cutting costs alone isn't enough; cash must be used for investments that will lead to future growth, so cash must be used for growth investments as well as stock repurchases.</li>
</ul>


If a company hasn't improved its return such as ROE, it's difficult to buy its shares until the plan is more certain that cash flow will expand in the future.
Since cash flow margin must be raised to increase cash flow, the ultimate goal is to achieve sales growth while raising the profit margin on sales.
Cutting costs alone isn't enough; cash must be used for investments that will lead to future growth, so cash must be used for growth investments as well as stock repurchases.


Whether Measures to Meet TSE's Request Increased Certainty Will Be Tested at 2Q Financial Reporting

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)

Kokusai Electric (6525 JP): Placement, Buyback & Index Flows

The Kokusai Electric placement will be a max of US$2bn. There is a buyback that will mop up some stock. There will be some passive buying late July...

Brian Freitas

Faster Management Improvement Requires a Sense of Tension in Management

I would like to discuss the issues on the June 7 Nikkei article, Shareholder Proposals Top 91 Companies, Including DNP, Rift on Shareholder Returns...

Metrical Inc

The Key to Higher ROE Is Higher Profit Margins and Faster Efforts by Smaller Companies

I would like to discuss the issues on the June 5 Nikkei Shimbun article, “Buy Companies on the Seriousness of ROIC Management: ROE of 10% within...

Metrical Inc

Fy23 GPIF Results and Portfolio Changes - Outlook for FY24

The GPIF reported its portfolio makeup Friday. Dom Bonds and Foreign Equities see ACTIVE weights up on outperformance. Allocs still middle of range...

Travis Lundy

Whether Measures to Meet TSE's Request Increased Certainty Will Be Tested at 2Q Financial Reporting

I would like to discuss the issues on the May 31 Nikkei article titled “Management Plan: ‘Both Profit and Capital Efficiency’: Screening Eyes on...

Metrical Inc