In today’s briefing:
- Index Rebalance Strategy YTD Performance: Not Many Places to Hide in Asia
- The USTR’s New “Proposed Actions” For Section 301 Investigation on China’s Maritime/Shipping Sectors
- Daihatsu Diesel (6023) Buyback Tender Results Signal Overhang and Opportunity
- Significant Share Buybacks Are Key to Improving Profitability of Capital
- Nikkei Index Options Weekly (Mar 03–07): Implied Volatility Climbs as Market Extends Decline
Index Rebalance Strategy YTD Performance: Not Many Places to Hide in Asia
- We look at the performance of the index rebalance strategy over the year using weekly forecasts. In short, it has been a mixed bag for Asia.
- India and China have been among the worst performing markets in the region while Australia and Korea have been among the better performers.
- A lot of the outperformance appears to be front loaded, so getting the forecasts right early in the review period is of paramount importance.
The USTR’s New “Proposed Actions” For Section 301 Investigation on China’s Maritime/Shipping Sectors
- The USTR issued a Section 301 report in January 2025. The report suggests China has tried to achieve dominance in global shipping, to the detriment of US commerce.
- The report is flawed, in data (it somehow manages to make up data which is otherwise available from MARAD), analytics, and conclusions, but the Trump administration has run with it.
- In February, the USTR announced “Proposed Actions” – fees for Chinese liners and international liners with Chinese ships, and restrictions on future exports. US users lose. And there are loopholes.
Daihatsu Diesel (6023) Buyback Tender Results Signal Overhang and Opportunity
- In late January, Daihatsu Diesel Mfg (6023 JP) announced its once/former parent would sell all its shares; in part to a private company in the industry and a 20% buyback.
- The buyback – a below-market own-share tender offer – was priced low enough to be a big win. Accretion added to that.
- Buyback Tender Results and External Changes signal overhang and opportunity. Either way, it’s cheap, but good governance could make it even cheaper.
Significant Share Buybacks Are Key to Improving Profitability of Capital
- While the company’s attitude toward shareholder returns has been positive, the 11% dividend increase is not expected to reduce cash on hand by much.
- In a condition where so much cash has accumulated, it’s not a bad idea to use DOE as a guide to avoid accumulating cash on hand above a certain level.
- Since FY3/2025 profits will grow in non-manufacturers, which has relatively low profit margin, the overall profit margin of companies won’t increase. Therefore, unless assets are reduced significantly, ROE will soft.
Nikkei Index Options Weekly (Mar 03–07): Implied Volatility Climbs as Market Extends Decline
- Nikkei breaks lower, USD/JPY and trade tensions weighing on the market.
- Implied volatility rose as the market declined. We discuss implications of current spot levels that is dominated by Put open interest.
- Historic volatility continues to lag implied vol, we provide visuals on the extent of the lag.
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