What Worked Japan - 03 Jun 2016 - Value continues to underperform - PE worst factor over the last 6 months

What Worked – Value continued to get beaten up this week. In the Value category, over the last 6 months only Dividend Yield has a positive IC and FY1 PE is the overall worst performing factor over the same period. This week Nippon Steel & Sumitomo was down 8%, Unipres Corp was down 8% and Mitsubishi Gas Chemical was down 8%. There was also a slight selloff in high Beta names and names with a high % of Institutional Investors. High Beta names that were hurt this week were Shinsei Bank down 7%, Cosmo Energy down 6% and T&D Holdings down 6%. On the positive side, there was a slight move into Quality this week. High ROIC names that did well this week were Park24 was up 10%, Pilot Corp was up 8% and Sugi Holdings was up 7%.

Who Moved – 27 names moved on volume this week. On the positive side, Itochu Techno-Solutions was up 6%, Gunma Bank was up 5% and Sega Sammy was up 3%. On the other side, Nishi Nippon Railroad was down 8%, Asahi Glass was down 7% and Seven Bank was down 5%.


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State of Origin - Tokyo vs. Osaka - Osaka clearly wins....

With Australia’s State of Origin Rugby Match this evening, we thought it would be fun to compare historical price performance of Tokyo-based companies  vs. Osaka-based companies and then all the other city outside of Tokyo. Now we looked back over the last 15 years and Osaka-based companies have clearly done better. Osaka-based companies are up 84% compared to Tokyo-based companies that are only up 14% over the last 15 years. Other-based companies also did well and are up 60% since 2001.

Now our first thought was that there was a small-cap bias. However when we limit all the universes to between 100 and 400 ¥bn mkt-cap, Osaka still does better. Tokyo-based companies are down 2% over the 15 years. Osaka-based companies are up 58% and other-based companies are up 40%. We then thought that maybe the Fundamentals are better in companies outside of Tokyo. This is not the fact. We compared aggregate Sales growth for Tokyo-based companies and Osaka-based companies and there is not a significant difference. The same holds true for aggregate OP Margins.

Right now we do not have a good explanation of why on average Osaka-based companies have done better. However, if you are looking at similar companies with one in Osaka and one it Tokyo, it might be worth looking hard the Osaka one. 

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What Worked Asia - 27 May 2016 - Large Cap names in Asia did well this week

What Worked – In China there was a clear move into large cap names and a slight move into quality. China Maple Leaf Educational System was up 14% and Biostime International was up 14%. Hong Kong also saw the same move in the large cap space but without the positive boast in quality names. China Minsheng Financial was up 15% and Man Wah Holdings was up 14%. In South Korea, Dividend Yield was the strongest factor this week. Mando Corp was up 15% and Innovation Corp was up 9%.

In Singapore, PE was really the only factor that stood out this week. Olam International was up 7% and China Aviation Oil was up 6%. Taiwan saw a huge move in high beta and to a lesser degree value names. High beta names that did well this week were HTC Corp was up 30% and Advanced Semiconductor Engineering was up 25%. In India, large-cap names and Value outperformed this week. Bharat Heavy Electricals  was up 8% and Union Bank of India was up 7%.

Who Moved – Only 83 names moved on volume in Asia this week. Half of the volume spikes came in China/HK and India. On the positive side, CMG Pharma was up 34%, Advanced Semiconductor Engineering was up 25% and Jeil Pharma was up 21%. On the other side, REX Global Entertainment Holdings was down 26%, Beijing Enterprises Clean Energy Group was down 13% Cummins India was down 9%.


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What Worked Japan - 27 May 2016 - Nothing really this week

What Worked – Wow this is one of those weeks when really nothing stands out. There was a slight move towards low PE names, but the move was not that strong. Low PE names that did well this week were NOK Corp up 7%, T&D Holdings up 6% and Mitsubishi Motors up 6%. There was also a slight sell off in names with high Sales growth. ONO Pharma was down 7%, Trend Micro was down 5% and Rakuten was down 4%. But really nothing stood out this week.

Who Moved – Only 13 names moved on volume this week. On the positive side, Sankyu Inc was up 10%, Ushio Inc was up 3% and Hikari Tsushin was up 2%. On the other side, Kyoritsu was down 6%, Lion Corp was down 6% and Seven Bank was down 3%.


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FY2016 Earnings Summary and Company Specific Factors

Aggregate Earnings Summary
In this report we breakdown the just finished Earning Season by each sector and look at the new aggregate guidance for FY3/17. However, we are using two of our products that some of you may not be familiar with. So we want to give a brief explanation about them.

Specific Company Factor Analysis
Instead of looking across a universe of Companies to find which factor drive that universe, we use a time series for a specific company to see which factor drives that company. For example, if PBR is high, does the company underperform or does it not matter. Toho Gas is a great example. As you see in the chart below, PBR has a 29% IC, which means that when PBR is low, price rebounds, and when it is high it tends underperform.

Portfolio Analyser
The Portfolio Analyser breaks down the exposure to all the different factors. For this report we are using it to understand attributes of the different sectors. However, the main use is to verify that you have the desired exposures in your portfolio and do not have any unwanted exposures. For example you may have a Value strategy, but in fact the portfolio is more geared to growth. As an example, we screened for names with high Sales Growth and Low PBR. As you can see, this mock-portfolio has huge exposure to Sales yield growth and Book Yield. Happy to discuss the calculations, but this report is not the place to go into detail.

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What Worked Asia - 20 May 2016 - Value stood out in HK and Singapore / Nothing really worked in China and India

What Worked – High Dividend Yield and low FY1 PE names dominated in Hong Kong this week. Dah Chong Hong Holdings was up 10% and Digital China Holding was up 11%. Dividend Yield has been one of the strongest factors in Hong Kong over the last 6 months. In China really nothing stood out this week. There was a slight move into high Beta names but not really that strong. Low PE names also did well in Singapore this week. Sembcorp was up 7% and Olam International was up 6%.

Taiwan was all about Sales Growth this week and to a lesser degree Debt to Equity. OBI Pharma was up 31% and Hermes Microvision was up 17%. After a good selloff in value in South Korea last week, there was a slight bounce in high Dividend Yield names this week. LG Display was up 4% and Industrial Bank of Korea was up 3%.

In Malaysia there was a selloff in PBR and a rotation into Quality names. Hong Leong Industries was up 8% and Hartalega Holdings was up 8%. In India nothing really stood out this week. There was a big sell off in high Beta names in the Philippines.

Who Moved – 157 names moved on volume this week. 86 names moved up and 71 names moved down on strong volume. South Korea and India saw a good portion of the volume spikes. At the sector level, the Financial sector dominated the volume spikes. On the positive side, OCL India was up 19%, Huarong International Financial was up 17% and Thai Beverage Public was up 17%. On the other side, Regina Miracle International was down 17%, Beijing Enterprises Clean Energy was down 20% and Cuckoo Electronics was down 16%.


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What Worked Japan - 20 May 2016 - PBR and Beta worked / Hopefully they will continue to work

What Worked – With Earnings basically over this week, we got back to traditional factors driving the Japan market. Low PBR and PE names did well this week. However, PBR has only had two consecutive positive weeks once since last September. Low PBR names that did well this week were Sumitomo Bakelite up 19%, Sumitomo Electric Industries up 18% and Chugoku Bank up 14%. High Beta names also did well this week.

Beta has also had a hard time since last October. Beta really has only worked 5 times since then. High Beta names that outperformed this week were Alps Electric was up 11%, Fukuoka Financial was up 11% and Taiyo Yuden was up 10%. On the other side, we saw a selloff in high ROE names this week. Toyo Tire & Rubber was down 20%, Sohgo Security Services was down 11% and CALBEE was down 8%.

Who Moved – Very good volume this week with 31 names spiking up and 23 names spiking down on strong volume. On the positive side, Sumitomo Bakelite spike up 19%, Sumitomo Electric Industries spiked up 18% and Shiseido Company spiked up 14%. On the other side,  Toyo Tire & Rubber spiked down 20%, Sohgo Security Service spiked down 11% and Marui spiked down 11%. All on strong volume.


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What Worked Asia - 13 May - Quality, particularly ROE, did well in most regions this week

What Worked  Hong Kong saw a slight selloff in high Beta names and a move into high ROE and positive EPS revision names. BEP International Holdings was down 11% and Yuexiu Property was down 11% this week. China was the same with a selloff in high Beta names, but in China there was a move into quality and also large cap. Large-cap names in China that did well were AAC Technology up 14% and Biostime International up 9%.

In South Korea there was a clear selloff in Value, Size and Beta and a move into Quality. Low PBR names that were hurt were Lotte Shopping down 10% and Doosan Infracore down 11%. In Singapore there was a slight selloff in high Beta names. Super Group was down 7% and Global Logistic Properties was down 5%.

Unlike most of the region, Quality took a good hit in Thailand this week. Pruksa Real Estate Public was down 6% and Unique Engineering & Construction was down 7%.

Who Moved – 98 names moved on volume this week in Asia ex. Looking at the Sector level a good number of those names were in the Process Industries and Financial Sectors. At the Country level a good portion of volume spikes were in India and Taiwan. On the positive side, Kyungnam Energy was up 70%, Monsanto India was up 37% and Taokaenoi Foods & Marketing was up 36%. On the other side, Beijing Enterprises Clean Energy was down 41%, Tung Thih Electronics was down 23% and Eclat Textiles was down 17%.


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What Worked Japan - 13May 2016 - Move in to ROE/ROIC and PBR continues to underperform

What Worked – Earnings Season is always fun as you have no idea what will drive the market. This week was all about ROE and ROIC. ROE performance has continued to get stronger over the last two week. This week high ROE names that did well were Lion Corp up 24%, Kyowa Exeo up 22% and NEXON up 18%. Debt to Equity has also done well in the last 3 week, but to a lesser degree. Pilot Corp was up 22% and Sumitomo Heavy Industries was up 16%.

Low PBR names continued to get hurt. In fact, PBR (Japan’s historically strongest factor) has not consistently worked since last August. Low PBR names that were hurt this week were Tokyo Ohka Kogyo down 17%, Nippon Kayaku down 11% and Ushio down 9%. Also looking at momentum, names that were up over the last year continued to go up this week.  Meiji Holdings was up 16% and Sysmex was up 15%.

Who Moved – 44 names moved on volume this week. A pretty good volume week for Japan. On the positive side, Lion Corp was up 24%, Kyowa Exeo was up 22% and Pilot was up 22% all on strong volume. On the other side, Benesse Holdings was down 20%, Tokyo Ohka Kogyo was down 17% and Casio Computer was down 14%.


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Big differences in new Company Guidance and FY3/17 Consensus estimates - 10 May 2016

Here are the names that reported yesterday with largest gaps in new Company Guidance vs FY3/17 Consensus Estimates.

Positive Side

  • Kitz Corp’s new OP guidance is 36% above FY3/17 consensus OP
  • Sojitz’s new OP guidance is 24% above FY3/17 consensus OP
  • Doshisha’s new OP guidance is 12% above FY3/17 consensus OP

Negative Side

  • LIXIL’s new OP guidance is 40% below FY3/17 consensus OP
  • NGK SPARK PLUG’s new OP guidance is 34% below FY3/17 consensus OP
  • Wacoal Holdings new OP guidance is 33% below FY3/17 consensus OP

Please take a look and let me know if we can do anything else. We back tested Guidance vs. Consensus and sent out the results yesterday. There is a clear difference in performance in names that come out with good guidance and ones that come out with guidance significantly below consensus….