Daily Brief Thematic (Sector/Industry): Japan Telecoms - Strong Dollar a Boon for NTT and Softbank Group and more

In today’s briefing:

Japan Telecoms – Strong Dollar a Boon for NTT and Softbank Group, Bad for Mercari
European Recession – 3 Japanese Stocks to BUY for a Rebound
PCAOB and CSRC‘s Agreement on Audit Terms Could Fail – The Real Test of China ADRs Lies Ahead

Japan Telecoms – Strong Dollar a Boon for NTT and Softbank Group, Bad for Mercari

Within our coverage, NTT and Softbank Group are the main beneficiaries of a stronger dollar. NTT benefits operationally as it generates c. $18-20bn in overseas revenue
Softbank benefits in valuation terms as c. 90% of the portfolio is dollar-linked. The forex move from ¥115 to ¥144 boosts asset value by ¥2.4trn or ¥1,500/share (net)
ECommerce play Mercari gets 30% of revenue from the US but that segment is losing money and a stronger dollar expands that on a yen P&L

The European economy is heading for a recession due to surging energy costs
We believe that equity markets have already discounted this severe situation to a large extent
As governments respond with aggressive fiscal measures, we believe 3 Japanese stocks will be key beneficiaries

The Statement of Protocol signed between PCAOB and CSRC/MOF is good for China concept stocks in the short term, but it doesn’t mean the risk of delisting is completely eliminated.
From the statements of the two sides, there are still some differences. What the US side emphasizes is “full authority”, but China requires “principle of reciprocity” of regulatory cooperation.
It’s difficult to reach final agreement.The trend of China concept stocks delisting from US and relisting on HKEX/A-share would not change. Investors are advised to prepare for Black Swan event.

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