Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
This past week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
Singapore’s Urban Redevelopment Authority (URA) today released the data on property developers’ private home sales for the month of June 2019.
A total of 670 non-land private residential units were launched for sale in June. This was 51% fewer than the number of units launched in the preceding month and 5% fewer year-on-year.
A total of 803 non-landed private residential units were sold in June. This was 14% fewer than the number of new units sold in the previous month.
10 new projects received their sales approval in June, adding a substantial 4,731 units to the launch pipeline. 2 mega-launches to watch out for in the coming months are Parc Clematis and Avenue South Residence.
Total developers’ inventory available for immediate launch jumped by 22.3% MoM in June to 20,531 units. This is the highest level since Jan 2015. Rising inventory is within expectation and will continue to affect the pricing power of developers.
In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.
MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today.
If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia.
US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.
In the credit space, corporate bonds are expensive, and leveraged loans unattractive.
As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.
We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.
European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.
We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.
Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Singapore’s Urban Redevelopment Authority (URA) today released the data on property developers’ private home sales for the month of June 2019.
A total of 670 non-land private residential units were launched for sale in June. This was 51% fewer than the number of units launched in the preceding month and 5% fewer year-on-year.
A total of 803 non-landed private residential units were sold in June. This was 14% fewer than the number of new units sold in the previous month.
10 new projects received their sales approval in June, adding a substantial 4,731 units to the launch pipeline. 2 mega-launches to watch out for in the coming months are Parc Clematis and Avenue South Residence.
Total developers’ inventory available for immediate launch jumped by 22.3% MoM in June to 20,531 units. This is the highest level since Jan 2015. Rising inventory is within expectation and will continue to affect the pricing power of developers.
In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.
MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today.
If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia.
US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.
In the credit space, corporate bonds are expensive, and leveraged loans unattractive.
As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.
We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.
European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.
We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.
Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.
MOVING AVERAGE BREAKOUT – Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the ‘gap’ that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
Source: Japan Analytics
VALUE TRADED RATIO – The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked”▲”above) have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more ‘legs’.
Source: Japan Analytics
TORAKU INDEX – Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 ‘overbought’ line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.
Source: Japan Analytics
VOLUME SCORE TIMELINE – The lull in market turnover is confirmed in the greener ‘bias’ in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the ‘go-to’ defensive Sector while the Information Technology and Internet Sectors are the ‘tema-du-jour‘ – to mix language metaphors. The ‘untouchables’ are Metals, Banks, UtilitiesTransportation, and Multi-Industry.
SECTOR SCORE MATRIX – Arranging our cap-weighted Sector Relative Price Scores and Results & Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking ‘trap’, however, the Metals Sector may offer some ‘crumbs’ of comfort for those in need of a deep value ‘fix’ (Nippon Steel & Sumitomo Metal (5401 JP))
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.
MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today.
If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia.
US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.
In the credit space, corporate bonds are expensive, and leveraged loans unattractive.
As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.
We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.
European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.
We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.
Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.
MOVING AVERAGE BREAKOUT – Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the ‘gap’ that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
Source: Japan Analytics
VALUE TRADED RATIO – The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked”▲”above) have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more ‘legs’.
Source: Japan Analytics
TORAKU INDEX – Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 ‘overbought’ line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.
Source: Japan Analytics
VOLUME SCORE TIMELINE – The lull in market turnover is confirmed in the greener ‘bias’ in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the ‘go-to’ defensive Sector while the Information Technology and Internet Sectors are the ‘tema-du-jour‘ – to mix language metaphors. The ‘untouchables’ are Metals, Banks, UtilitiesTransportation, and Multi-Industry.
SECTOR SCORE MATRIX – Arranging our cap-weighted Sector Relative Price Scores and Results & Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking ‘trap’, however, the Metals Sector may offer some ‘crumbs’ of comfort for those in need of a deep value ‘fix’ (Nippon Steel & Sumitomo Metal (5401 JP))
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.
In the credit space, corporate bonds are expensive, and leveraged loans unattractive.
As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.
We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.
European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.
We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.
Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.
MOVING AVERAGE BREAKOUT – Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the ‘gap’ that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
Source: Japan Analytics
VALUE TRADED RATIO – The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked”▲”above) have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more ‘legs’.
Source: Japan Analytics
TORAKU INDEX – Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 ‘overbought’ line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.
Source: Japan Analytics
VOLUME SCORE TIMELINE – The lull in market turnover is confirmed in the greener ‘bias’ in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the ‘go-to’ defensive Sector while the Information Technology and Internet Sectors are the ‘tema-du-jour‘ – to mix language metaphors. The ‘untouchables’ are Metals, Banks, UtilitiesTransportation, and Multi-Industry.
SECTOR SCORE MATRIX – Arranging our cap-weighted Sector Relative Price Scores and Results & Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking ‘trap’, however, the Metals Sector may offer some ‘crumbs’ of comfort for those in need of a deep value ‘fix’ (Nippon Steel & Sumitomo Metal (5401 JP))
Hong Kong is headline news for all the wrong reasons these days. An out-of-touch, appointed government of civil servants (all of the business people approached to serve in high office after the last chief executive “election” refused positions) has been forced to withdraw a bill – the Extradition Law – that no-one in Hong Kong wanted and no-one in Beijing demanded. It is an utter mess but the inevitable consequence of having the head of government elected by 1200 appointees who have no interest in anything except ingratiating themselves with their masters in Beijing and whose choice of candidates is defined by pliability, not ability.
Get Straight to the Source on Smartkarma
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As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.
A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.
Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?
We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.
We take a look at a sample of European banks at Q119, and score them by financial strength (FUN), by trends and value-quality (PH Score) and by valuation (VAL).
We do not include a number of French and UK lenders on account of incomplete quarterly data but include some restated Italian financials. Where we have sufficient data, we carry out this ranking process and try to give a broad feel for opportunity and risk in the region. There are many others that we could have included.
Our individual VFM rankings are not included here. But they show that a number of European banks feature in the top decile globally such as Spanish lenders, Erste Bank (not included here), and CS. From a valuation and technical (oversold) viewpoint, low growth Europe cannot be dismissed out of hand if the price is deeply below intrinsic value.
Corporate activity continues to be a hot topic in Europe as well as negative rates and general Japanification scenarios. It would be instructive to hear Japanese guru, J. Brian Waterhouse‘s views on this. Corporate activity is a response to a generally low NIM, subpar profitability, quite high LDRs and CIRs, elevated NPLs, and a stagnant monetary policy situation all within a framework of stricter capital rules and tighter regulations. However, the merging of weak entities, such as the once proposed DB-Commerzbank tie-up, would not add value. Deutsche Bank Ag Registered (DBK GR) remains the canary in the coal mine or the elephant in the room. Its fate will impact and influence the European Banking System to a large degree. The German lender certainly casts a shadow over the region’s sector. Even now it has assets of $1.54 trillion, almost half Germany’s $3.4 trillion GDP. Not “too big to fail” but “far too big to fail”. I wonder when someone out there in the analyst community will actually say that its too cheap to ignore…such a career bet may just be too risky.
Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech ‘bubble’. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS ‘ten-baggers’ since that time.
This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
Source: Japan Analytics
STATISTICS – Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are ‘Overbought’, and 131 are ‘Oversold’ – 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 ‘Overbought’ and 18 ‘Oversold’ companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000.
• RELATIVE PRICE SCORE TOPS •
Source: Japan Analytics
RPS ‘TOPS’ – In the last two years, 444 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP), Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 372 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2. For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&O Energy (1663 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
We take a look at a sample of European banks at Q119, and score them by financial strength (FUN), by trends and value-quality (PH Score) and by valuation (VAL).
We do not include a number of French and UK lenders on account of incomplete quarterly data but include some restated Italian financials. Where we have sufficient data, we carry out this ranking process and try to give a broad feel for opportunity and risk in the region. There are many others that we could have included.
Our individual VFM rankings are not included here. But they show that a number of European banks feature in the top decile globally such as Spanish lenders, Erste Bank (not included here), and CS. From a valuation and technical (oversold) viewpoint, low growth Europe cannot be dismissed out of hand if the price is deeply below intrinsic value.
Corporate activity continues to be a hot topic in Europe as well as negative rates and general Japanification scenarios. It would be instructive to hear Japanese guru, J. Brian Waterhouse‘s views on this. Corporate activity is a response to a generally low NIM, subpar profitability, quite high LDRs and CIRs, elevated NPLs, and a stagnant monetary policy situation all within a framework of stricter capital rules and tighter regulations. However, the merging of weak entities, such as the once proposed DB-Commerzbank tie-up, would not add value. Deutsche Bank Ag Registered (DBK GR) remains the canary in the coal mine or the elephant in the room. Its fate will impact and influence the European Banking System to a large degree. The German lender certainly casts a shadow over the region’s sector. Even now it has assets of $1.54 trillion, almost half Germany’s $3.4 trillion GDP. Not “too big to fail” but “far too big to fail”. I wonder when someone out there in the analyst community will actually say that its too cheap to ignore…such a career bet may just be too risky.
Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech ‘bubble’. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS ‘ten-baggers’ since that time.
This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
Source: Japan Analytics
STATISTICS – Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are ‘Overbought’, and 131 are ‘Oversold’ – 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 ‘Overbought’ and 18 ‘Oversold’ companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000.
• RELATIVE PRICE SCORE TOPS •
Source: Japan Analytics
RPS ‘TOPS’ – In the last two years, 444 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP), Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 372 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2. For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&O Energy (1663 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
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We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.
European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.
We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.
Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.
MOVING AVERAGE BREAKOUT – Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the ‘gap’ that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
Source: Japan Analytics
VALUE TRADED RATIO – The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked”▲”above) have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more ‘legs’.
Source: Japan Analytics
TORAKU INDEX – Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 ‘overbought’ line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.
Source: Japan Analytics
VOLUME SCORE TIMELINE – The lull in market turnover is confirmed in the greener ‘bias’ in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the ‘go-to’ defensive Sector while the Information Technology and Internet Sectors are the ‘tema-du-jour‘ – to mix language metaphors. The ‘untouchables’ are Metals, Banks, UtilitiesTransportation, and Multi-Industry.
SECTOR SCORE MATRIX – Arranging our cap-weighted Sector Relative Price Scores and Results & Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking ‘trap’, however, the Metals Sector may offer some ‘crumbs’ of comfort for those in need of a deep value ‘fix’ (Nippon Steel & Sumitomo Metal (5401 JP))
Hong Kong is headline news for all the wrong reasons these days. An out-of-touch, appointed government of civil servants (all of the business people approached to serve in high office after the last chief executive “election” refused positions) has been forced to withdraw a bill – the Extradition Law – that no-one in Hong Kong wanted and no-one in Beijing demanded. It is an utter mess but the inevitable consequence of having the head of government elected by 1200 appointees who have no interest in anything except ingratiating themselves with their masters in Beijing and whose choice of candidates is defined by pliability, not ability.
This morning, the South Korean government announced the minimum wages effective January 1st, 2020 which will be 8,590 won (US$7.30) (up 2.9% YoY). This will be the smallest hike in minimum wages in Korea since 2010 when they rose 2.8% YoY. The minimum wages in Korea were raised so much in the past two years (up 16.4% YoY in 2018 and up 10.9% YoY in 2019). This was the highest increase in minimum wages among the OECD countries in the past two years.
There were some fears that the minimum wages in Korea would be raised in the high single digits next year. The fact that the minimum wages growth has been capped at 2.9% will be viewed positively by the market. The incumbent administration has finally realized that the excessive minimum wage growth has negatively impacted the domestic economy and has reduced the minimum wage growth.
The following are the major companies among the top 100 market cap stocks in Korea that should be positively impacted by the 2.9% minimum wage hikes in 2020:
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Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech ‘bubble’. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS ‘ten-baggers’ since that time.
This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
Source: Japan Analytics
STATISTICS – Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are ‘Overbought’, and 131 are ‘Oversold’ – 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 ‘Overbought’ and 18 ‘Oversold’ companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000.
• RELATIVE PRICE SCORE TOPS •
Source: Japan Analytics
RPS ‘TOPS’ – In the last two years, 444 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP), Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 372 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2. For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&O Energy (1663 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech ‘bubble’. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS ‘ten-baggers’ since that time.
This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
Source: Japan Analytics
STATISTICS – Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are ‘Overbought’, and 131 are ‘Oversold’ – 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 ‘Overbought’ and 18 ‘Oversold’ companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000.
• RELATIVE PRICE SCORE TOPS •
Source: Japan Analytics
RPS ‘TOPS’ – In the last two years, 444 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP), Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 372 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2. For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&O Energy (1663 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
In this Insight, we bring you takeaways from our visits to Tractor dealers in Northern India (Jodhpur in Rajasthan) and Western India (Vadodara & Dahod in Gujarat). The visits included dealers of Mahindra & Mahindra (MM IN) , Escorts Ltd (ESC IN) , TAFE (which has a partnership with Agco Corp (AGCO US) , John Deere (part of the Deere & Co (DE US) ), Local village administrations (Panchayats) and some farmers. The purpose of the visits was to understand the current demand environment and evaluate the possibility of a turnaround in the sector.
Our visits seem to indicate the current slow down could be temporary and is nowhere a structural problem for the Industry. MSP hikes and water reservoir levels continue to be key determinants of demand. There are initial signs of a turn around in sentiment on the ground, with inventory slowly moving post elections. Water reservoir levels in August should help decide the trend for the current financial year. M&M trading at 13x (Consensus) forward, and Escorts at 11x (Consensus) forward could be attractive at current levels.
Get Straight to the Source on Smartkarma
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