PEC`s Japan strategy

Transcription

PEC’s Japan strategy
ASIA
Through the Looking-Glass
Whilst the BOJ introduced negative interest rates on a sliver of banking
industry current deposits kept at the BOJ, on 29 January 2016, the JGB market
at the end of that day offered guaranteed losses, negative yields, out to eight
years, below. The 10-year JGB yield went negative on 9 February 2016.
Japanese yields (negative yields highlighted in pale red)
3m
6m
1y
2y
3y
4y
5y
6y
7y
8y
-0.03
-0.03
0.01
0.06
0.11
-0.08
-0.09
-0.01
0.06
0.11
-0.07
-0.05
-0.02
0.09
0.10
-0.07
-0.01
-0.02
0.09
0.10
-0.07
-0.01
-0.02
0.10
0.10
-0.06
0.00
-0.01
0.18
0.12
-0.07
0.03
0.03
0.25
0.19
-0.08
0.03
0.03
0.30
0.25
-0.05
0.07
0.10
0.46
0.39
-0.02
0.11
0.16
0.56
0.53
“The time has come,” the Walrus said,
01/2016
12/2015
12/2014
12/2013
12/2012
“To talk of many things:
Of shoes-and ships-and sealing waxOf cabbages-and kings-
9y 10y 20y 30yr
0.03
0.18
0.23
0.65
0.67
0.10
0.27
0.33
0.74
0.79
0.81
1.00
1.06
1.59
1.75
1.20
1.28
1.27
1.73
1.97
Source: Bloomberg, Macquarie Research, February 2016
And why the sea is boiling hotAnd whether pigs have wings”
Lewis Carroll, Through the Looking-Glass
TOPIX and MSCI AC Asia-ex (in US$,
indexed to 100 as of start 2011)
130
(Jan'11=100)
MSCI AC Asia ex JP
Investor confusion is widespread. With the BOJ increasing its JGB holdings
by ¥80tr a year, and Japan’s fiscal deficit being around ¥35tr (= the annual net
JGB issuance), then existing JGB holders are selling ¥45tr a year at very high
bond prices. Effectively, the only net buyer at the current extraordinary low yields
is the BOJ. The BOJ is targeting the whole yield curve, seeking an average
remaining maturity on its holdings of 7-12 years.
The BOJ is inducing a portfolio rebalancing. For the banking system, the
incentives are to a) increase lending such that excess reserves become required
reserves, and the bank has more earning assets, b) grow overseas to dilute the
Japanese operations, c) consolidate at home to realise cost efficiencies.
TOPIX
120
110
100
90
80
01/16
07/15
01/15
07/14
01/14
07/13
01/13
07/12
01/12
07/11
01/11
70
Source: FactSet, Macquarie Research, February 2016
Our TOPIX 12-month target is 1670, 15.0
times earnings to December 2017 (111).
TOPIX at 1350 is on 13.2 times our
FY3/16E EPS of 102.
Analyst(s)
Peter Eadon-Clarke
+81 3 3512 7850 [email protected]
Nara Song
+81 3 3512 7878
[email protected]
10 February 2016
Macquarie Capital Securities (Japan)
Limited
For the non-bank private sector, the JGB market is indicating that the BOJ will
go beyond its existing policy, and the BOJ has stated its willingness to do so if
necessary. Broadly, we would expect the banking industry to start passing on
negative interest rates to institutional/corporate deposits if the BOJ reaches
-50bp, and to retail deposits if the BOJ reaches -100bp. To avoid losses in both
real and nominal terms, the non-bank private sector is incentivised to switch to
other assets. We believe all of the categories below will benefit, and that land,
property & infrastructure assets could see the largest flows. For more, please
see the 3 February 2016 PEC’s Japan strategy: The BOJ & Reflation winners.
Japan’s non-bank private sector’s need to take more risk
Overseas bonds
Currency risk increasing, we forecast a mild trend appreciation of the yen,
Credit risk increasing in emerging market and corporate markets
MNCs (global
equities)
Diversified earnings stream, 2-3% dividend yield, dominant brands,
technology leaders, strong balance sheets. Nonetheless, in addition to
currency valuation risk, global equities are a volatile asset class
Land, property &
infrastructure
assets
Land values in Japan are opaque, but are a leveraged beneficiary of falling
property cap rates. Investment properties/infrastructure offer secure running
yield, and have increasing domestic regulatory support
Overseas M&A
Corporate Japan’s top choice: 9 December 2015 Corporate behaviours
Source: Macquarie Research, February 2016
Follow the Money: inside, we look at investor flows within the Japanese equity
market. We expect a diversity of willing domestic buyers to support the market.
Please refer to page 67 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
Macquarie Research
Follow the Money
This is our regular examination of bottom-up investor flows, attempting to provide insights into
the behavioural drivers for each major investor category.
Page 6: A diversity of foreign investors
Page 17: The BOJ, GPIF, Japan Post
Page 28: Individual activity & IPOs, NISAs
Page 46: Secondary activity
Page 53: Banks and their cross-shareholdings
Page 56: Other domestic institutions
Page 62: Summary and conclusions
We suspect that the
current very low
market share of TSE
turnover by
individuals is a
cause for concern at
the BOJ
In January,
individual activity
averaged 17.5%
(blue line in the
chart), the lowest
monthly level since
2012
As we wrote last week in the 3 February 2016 PEC’s Japan strategy: The BOJ & reflation
winners, we suspect that the current very low market share of TSE turnover by individuals is a
cause for concern at the BOJ.
In January, this averaged 17.5% (excluding broker proprietary activity, the blue line in Fig 1
below), the lowest monthly level since 2012. Please see Fig 4 for the underlying data.
Whilst there has to be a buyer for every seller, so a domestic seller when foreigners are net
buyers, and vice versa, the market share of individual investors tends to be the most volatile
of all the investor groups. As Fig 1 shows, back in the June 2005 through June 2006 reflationstructural reform expectations market, individual activity as a percentage of total market
activity (excluding broker prop trading) was sustained at 35-45%.
Fig 1 Individual activity, 1998-2015
50
(%)
40
30
20
10
Individual turnover as % of brokerage (excl. proprietary)
Individual turnover as % of total
0
Source: TSE, FactSet, Macquarie Research, February 2016
Fig.2 puts the recent net selling by foreigners into the context of the last year, and the AugustSeptember 2015 market air-pocket/plunge. It has been less severe so far.
Foreigners’ net buy/sell (weekly data), Start 2015 to latest
01/16
12/15
11/15
10/15
08/15
07/15
06/15
05/15
05/15
04/15
Foreigners' net buy/sell
03/15
01/15
¥bn
09/15
900
600
300
0
-300
-600
-900
-1,200
02/15
Fig 2
Source: TSE, Macquarie Research, February 2016
10 February 2016
2
Macquarie Research
Japan’s fourth plunge in three years
The first three plunges are covered in detail in case studies #4 and #5 on pages 13-15.
Here, we look at all four together. In Fig 3, we present the market air-pocket/plunge months,
shaded in grey, and the two prior months in each case.
One common characteristic is the reaction by individuals, who in all cases reduce their activity
in the market. In all four periods of market air-pockets/plunges, the individual share of total
brokerage (this measure excludes broker proprietary activities) fell (far right column).
Fig 3 Fund flows for Japanese equities/net buy and sell
Individuals
Foreigners
Inv trusts
Business/
corporations Life/NL
Banks
Trust
banks
Other
inst
Avg daily
transaction
Proprietary
value
Individual buy &
sell /Brokerage
(%)
Monthly net buy/sell (¥bn)
Apr-13
May-13
Jun-13
Jul-13
-1,682.8
-153.7
-447.6
-894.4
2,682.7
1,222.5
670.8
942.1
23.0
222.8
157.3
79.2
-110.4
67.6
123.1
88.6
-129.4
-78.4
-3.7
-55.7
-49.7
-48.4
-10.3
-2.1
-729.3
-752.7
-95.5
-163.9
4.1
-1.8
53.6
-31.4
222.1
-356.5
-404.9
161.6
3,453.1
4,041.9
2,911.3
2,546.2
34.0
36.1
28.1
33.5
Dec-13
Jan-14
Feb-14
Mar-14
-1,931.9
1,427.0
-109.8
37.5
2,178.9
-1,169.6
-82.9
-580.7
60.6
34.5
127.7
-50.9
70.3
3.9
170.2
139.0
-69.7
-24.5
-53.0
-103.5
9.7
7.5
6.9
-19.2
196.2
-18.5
162.7
-178.7
94.1
41.4
-142.5
10.7
-369.9
-444.0
-169.3
712.3
2,723.3
2,995.8
2,712.2
2,485.8
32.9
29.3
25.5
23.5
2,980.8
2,989.2
2,832.8
2,992.2
24.6
25.2
23.1
19.0
Jun-15
Jul-15
Aug -15
Sept-15
53.3
120.6
585.2
462.4
-171.3
-347.6
-1,158.2
-2,378.3
-119.2
193.1
85.4
176.8
262.9
104.1
476.2
704.7
-25.9
-17.8
18.8
-7.7
-4.8
-8.0
-2.0
-10.6
67.6
99.3
270.0
527.0
56.4
107.5
36.4
32.5
-140.3
-287.3
-390.5
341.1
Nov-15
Dec-15
Jan-16
-915.1
-141.3
797.4
677.7
33.0
-1,055.6
-87.4
274.1
96.7
113.0
874.4
114.0
-94.4
-39.2
23.3
-28.0
-72.6
-7.8
-450.6
742.7
607.6
24.2
-589.8
55.6
816.7
-1,116.5
-763.8
2,824.6
2,656.9
2,535.3
23.1%
21.3%
18.3%
Note: FYTD data is not annualized
Source: TSE, MRE, Datastream, Reuters, Macquarie Research, February 2016
The individual category includes both high-frequency intra-day traders as well as the buy-andhold activity of individual investors saving for retirement. The former are often momentum
players utilizing margin debt. Market air-pockets/plunges will trigger stop-loss positions and
crystallize losses. This appears to result in a period of risk aversion, reduced activity.
A de-leveraging led
by individuals
Plunge one: After a surge in TOPIX from November 2012, exuberance appears to have led
to a de-leveraging led by individuals over June-July 2013. Foreigners bought into this decline,
other participants were relatively unimportant, including the Trust Banks category.
Care has to be taken when examining the net selling by individuals, as IPOs will appear here
if they involve the selling of stakes by individuals.
A de-leveraging led
by foreigners, by the
macro-traders in
particular
Plunge two: The February-March 2014 plunge appears to have been a de-leveraging led by
foreigners, an unwinding of positions by the macro-traders in particular (page 13).
A de-leveraging led
by foreigners, but
this time by private
client complexes
Plunge three: The August-September 2015 plunge appears to be another de-leveraging led
by foreigners, but this time by private client complexes (page 15).
Macro traders will be utilising futures, structured and synthetic products in combination with
leverage available as a by-product of easy US monetary policy.
Private client complexes are run with capital preservation as a major objective, implying strict
stop-loss levels, and also use synthetic/structured products and leverage. Often, the strategy
pursued is thematic.
The market air-pockets/plunges, we believe, are attributable to the relative prominence of
investors pursuing momentum strategies with leverage, relative to more traditional individual
stock buying/selling strategies.
Plunge four: As the data continues to come in for January-February 2016, we expect deleveraging to be an important part of the story again, though this time it has been a global
phenomenon.
10 February 2016
3
Macquarie Research
Net buy/sell by investor category
Fig 4 Fund flows for Japanese equities/net buy and sell
Individuals
Foreigners
Inv trusts
Business/
corporations Life/NL
Banks
Trust
banks
Other
inst
Proprietary
Avg daily
transaction Foreign buy & sell
value
/Brokerage (%)
Net buy/sell (¥bn)
FY3/05
FY3/06
FY3/07
FY3/08
FY3/09
FY3/10
FY3/11
FY3/12
FY3/13
FY3/14
FY3/15
-2,836.0
-3,906.7
-4,496.8
-2,221.6
729.3
-2,286.1
-1,406.8
-623.0
-1,381.6
-7,143.1
-6,582.7
6,356.3
10,057.3
6,159.8
721.5
-4,221.5
6,599.7
3,997.0
215.6
5,281.1
9,545.1
2,547.6
526.3
1,350.8
777.9
78.4
295.2
-154.7
-50.0
-187.5
-64.9
835.0
-505.6
323.3
1,747.9
1,921.2
2,030.7
1,067.2
-522.5
-16.5
825.8
434.9
686.1
1,014.6
-598.2
-348.1
-134.3
135.0
-343.4
-597.1
-726.5
-709.7
-743.1
-797.0
-541.0
-829.7
-363.1
16.7
-60.9
-67.3
-419.3
-109.6
-142.1
-263.5
-140.9
-149.0
-2,897.6
-5,325.2
-2,141.5
413.3
6,151.6
-1,491.3
395.0
907.2
-2,386.7
-1,792.8
3,502.0
-28.1
-482.7
-92.4
493.4
375.8
601.3
584.1
227.6
239.1
120.8
210.4
656.9
-1,661.1
-1,093.9
-1,564.5
-3,853.2
-1,385.0
-2,722.5
-546.7
-669.0
-491.2
1,487.6
1,269.0
2,199.7
2,513.0
2,724.3
1,872.6
1,413.0
1,475.2
1,266.0
1,470.5
2,762.8
2,530.2
47.4
46.2
57.3
62.9
60.7
53.8
64.2
65.7
63.0
59.8
64.6
FY3/16TD
-2,877.3
-1,088.0
584.3
2,859.8
-342.0
-292.1
1,930.6
-218.0
-533.8
2,674.8
68.6
Monthly net buy/sell (¥bn)
Jan-15
Feb-15
Mar-15
352.2
-1,652.9
-106.3
-893.2
201.5
530.6
43.2
-112.0
-125.5
161.9
63.1
-0.8
-32.3
-82.2
-104.3
18.0
-27.5
-15.7
526.2
280.9
-122.6
30.9
13.5
30.8
-225.2
1,552.4
-31.1
2,633.0
2,992.1
2,974.7
68.1
66.4
66.0
Apr-15
May-15
Jun-15
Jul-15
Aug -15
Sept-15
Oct-15
Nov-15
Dec-15
Jan-16
-1,604.9
-1,283.1
53.3
120.6
585.2
462.4
-951.8
-915.1
-141.3
797.4
2,052.7
995.6
-171.3
-347.6
-1,158.2
-2,378.3
264.1
677.7
33.0
-1,055.6
-77.0
21.7
-119.2
193.1
85.4
176.8
19.9
-87.4
274.1
96.7
-54.9
107.2
262.9
104.1
476.2
704.7
158.3
113.0
874.4
114.0
-115.4
-32.6
-25.9
-17.8
18.8
-7.7
-51.1
-94.4
-39.2
23.3
-65.5
-36.9
-4.8
-8.0
-2.0
-10.6
-55.9
-28.0
-72.6
-7.8
-430.7
-43.6
67.6
99.3
270.0
527.0
541.3
-450.6
742.7
607.6
34.5
5.9
56.4
107.5
36.4
32.5
18.8
24.2
-589.8
55.6
459.6
466.4
-140.3
-287.3
-390.5
341.1
80.8
816.7
-1,116.5
-763.8
2,899.0
3,198.0
2,980.8
2,989.2
2,832.8
2,992.2
2,763.7
2,824.6
2,656.9
2,535.3
66.2
66.0
66.2
66.5
68.4
73.0
70.8
67.8
67.7
74.2
-447.1
-210.9
-190.2
-207.3
27.2
17.7
58.0
-6.2
60.8
37.9
23.9
-8.6
17.0
6.1
-3.7
3.9
8.0
10.8
-14.4
-12.2
34.6
120.1
182.2
270.8
21.3
12.8
7.0
14.5
-376.5
-291.6
-116.5
20.8
0.0
0.0
2,988.9
3,180.8
72.8
74.9
75.3
74.1
Weekly net buy/sell (¥bn)
Jan-8
581.5
Jan-15
256.7
Jan-22
27.8
Jan-29
-68.6
Note: FYTD data is not annualized
Trust Banks
1) The Trust Banks category includes the activity of pension funds, both private and public, as
well as the BOJ ETF purchases. Led by BOJ and GPIF net buying, in FY3/15 this category
was a major net buyer (shaded in olive green). FY3/16TD has been less intense.
Life/Non-Life
Insurance
2) Overall, Life/Non-Life Insurance companies have continued to sell positions into market
strength, FY3/15 in aggregate and FY3/16TD. Japan Post Life’s decisions could change this
later this year. Please note that the August-September 2015 TOPIX air pocket was only
sufficient to make insurance companies fractional net buyers in August. The January 2016
air-pocket again has led to another month of only fractional net buying.
Corporations
3) Business/Corporations have stepped up their share buy-back activity, net buying FYTD
¥2.8tr versus FY3/15 ¥1.0tr (pale orange highlights). We expect a further increase in FY3/17.
Please see the 9 December 2015 Corporate behaviours.
Foreigners
Banks
Individuals
Investment trusts
10 February 2016
4) Foreigners’ net buying was less aggressive in FY3/15 at ¥2.5tr versus ¥9.5tr in FY3/14 and
¥5.3tr in FY3/13. FY3/16TD has seen net selling of ¥1.1tr.
5) Banks remain generally inactive, i.e. the unwinding of bank’s cross-shareholdings has
slowed, and the need to offset investment losses elsewhere is quiescent.
6) Individual net selling has been material, despite the NISA initiative. Individual net selling is
typically heavy in bull markets (e.g. FY3/05-08) as the pace of IPOs picks up, and the selling
of stakes by founder entrepreneurs is included here.
7) Investment trust activity is perhaps surprising, having been net sellers in FY3/15, despite
strong sales of publically offered investment trust products, Fig 43.There has been mild net
buying in FY3/16TD.
4
Share of equity market turnover by investor group
Date
Annual
FY3/04
FY3/05
FY3/06
FY3/07
FY3/08
FY3/09
FY3/10
FY3/11
FY3/12
FY3/13
FY3/14
FY3/15
FY3/16 FYTD
Monthly
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sept-15
Oct-15
Nov-15
Dec-15
Jan-16
Weekly
Jan-8
Jan-15
Jan-22
Jan-29
Share in Total
Proprietary Brokerage
(Institution)
Individuals Foreigners Sec Co Inv Trusts
Share in Brokerage
Businesses Other Inst
Fin Inst
Life/NL Banks Trust Banks Other Fin Inst
(Financial Institutions)
30.6%
29.2%
25.6%
26.5%
26.6%
26.9%
26.2%
22.4%
18.6%
16.3%
12.2%
13.3%
13.3%
69.4%
70.8%
74.4%
73.5%
73.4%
73.1%
73.8%
77.6%
81.4%
83.7%
87.8%
86.7%
86.7%
20.5%
17.4%
14.1%
12.3%
11.5%
12.9%
13.1%
11.1%
10.6%
9.3%
6.9%
7.8%
7.6%
29.2%
33.0%
38.5%
29.6%
24.0%
24.1%
29.1%
22.5%
21.7%
25.2%
30.8%
26.0%
24.3%
46.2%
47.4%
46.2%
57.3%
62.9%
60.7%
53.8%
64.2%
65.7%
63.0%
59.8%
64.6%
66.7%
4.1%
2.1%
1.3%
0.9%
1.6%
2.3%
4.0%
2.1%
2.0%
2.4%
2.5%
1.6%
1.4%
2.0%
2.5%
2.4%
2.4%
2.5%
2.9%
3.2%
2.5%
2.3%
2.0%
1.7%
2.1%
2.2%
2.9%
2.5%
2.2%
2.0%
1.5%
1.4%
1.6%
1.2%
1.2%
1.2%
1.1%
1.1%
1.1%
0.4%
0.5%
0.5%
0.3%
0.2%
0.4%
0.3%
0.3%
0.4%
0.3%
0.2%
0.2%
0.2%
15.2%
11.9%
8.9%
7.5%
7.3%
8.2%
8.0%
7.1%
6.7%
5.8%
3.8%
4.3%
4.2%
0.8%
0.4%
0.2%
0.2%
0.2%
0.4%
0.5%
0.5%
0.5%
0.4%
0.2%
0.2%
0.2%
12.3%
13.6%
13.8%
13.6%
12.7%
14.4%
13.1%
12.9%
14.6%
14.8%
14.2%
16.4%
14.1%
87.7%
86.4%
86.2%
86.4%
87.3%
85.6%
86.9%
87.1%
85.4%
85.2%
85.8%
83.6%
85.9%
6.9%
8.3%
7.4%
7.8%
7.8%
7.8%
7.4%
7.2%
6.9%
8.1%
7.8%
9.5%
6.4%
23.6%
23.9%
25.2%
24.6%
24.7%
24.6%
25.2%
23.1%
19.0%
19.9%
23.1%
21.3%
18.3%
68.1%
66.4%
66.0%
66.2%
66.0%
66.2%
66.0%
68.4%
73.0%
70.8%
67.8%
68.0%
74.2%
1.4%
1.4%
1.4%
1.4%
1.5%
1.4%
1.5%
1.3%
1.1%
1.2%
1.3%
1.2%
1.1%
2.0%
2.3%
1.9%
2.6%
2.3%
2.3%
2.0%
2.0%
1.8%
2.0%
2.1%
2.0%
2.1%
1.0%
1.4%
1.2%
0.9%
1.2%
1.2%
1.1%
1.2%
1.5%
0.9%
1.3%
1.9%
0.7%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.2%
0.2%
1.1%
0.2%
3.8%
4.4%
4.1%
4.9%
4.2%
4.1%
4.0%
3.9%
3.5%
5.1%
4.2%
4.5%
3.4%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.2%
0.2%
0.2%
0.3%
0.2%
0.2%
14.5%
14.2%
13.6%
14.3%
85.5%
85.8%
86.4%
85.7%
6.1%
6.2%
6.1%
6.8%
19.9%
17.8%
17.5%
17.9%
72.8%
74.9%
75.3%
74.1%
1.1%
1.0%
1.1%
1.1%
2.0%
2.2%
1.9%
2.2%
0.8%
0.7%
0.7%
0.6%
0.2%
0.1%
0.1%
0.2%
3.2%
3.2%
3.4%
3.8%
0.3%
0.2%
0.2%
0.2%
0.7%
13.4%
0.4%
10.7%
0.2%
8.1%
0.2%
6.9%
0.1%
6.7%
0.2%
7.4%
0.2%
7.2%
0.2%
6.3%
0.2%
6.0%
0.2%
5.0%
0.1%
3.4%
0.1%
3.8%
0.1%
3.7%
0.1%
3.3%
0.2%
3.8%
0.2%
3.5%
0.2%
4.2%
0.1%
3.7%
0.1%
3.7%
0.1%
3.7%
0.1%
3.4%
0.1%
3.0%
0.1%
4.6%
0.1%
3.6%
0.2%
4.0%
0.1%
2.9%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.2%
0.2%
0.2%
2.7%
2.7%
2.9%
3.3%
Macquarie Research
10 February 2016
Fig 5
0.2%
0.2%
0.2%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.2%
Note: Individual and foreign investor activity is regularly over 90% of daily brokerage (pale red highlights). Daily brokerage is regularly 80%+ of total market activity, with the balance being stockbroker
proprietary trading. In terms of daily market turnover, domestic financial institutions (pale blue highlights) have been becoming less important over time.
5
Macquarie Research
A diversity of foreign investors
In the absence of strong domestic participation amid Japan’s 20 years of mild deflation,
TOPIX has tended to rise and fall with the net purchases by foreigners, as shown in Fig 6.
Since January 1998, the probability of TOPIX rising in a month when foreigners were net
buyers has been 69% (101 out of 146 months). Since January 1998, the probability of TOPIX
falling in a month when foreigners were net sellers has been 80% (52 out of 65 months).
Whilst this is slowly changing with the return of a diversity of willing domestic buyers, the
activity of foreigners still remains a key driver of market direction.
Foreigners’ net purchases relative to TOPIX, 1998 to latest, monthly
2,500
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
-2,000
-2,500
Foreigners' net purchase (LHS)
¥bn
TOPIX (RHS)
01/98
07/98
01/99
07/99
01/00
07/00
01/01
07/01
01/02
07/02
01/03
07/03
01/04
07/04
01/05
07/05
01/06
07/06
01/07
07/07
01/08
07/08
01/09
07/09
01/10
07/10
01/11
07/11
01/12
07/12
01/13
07/13
01/14
07/14
01/15
07/15
01/16
Fig 6
The activity of
foreigners still
remains a key driver
of market direction
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
Shifts within foreign investor activity
The following draws on the data and insights from the 3 May 2012 The Herd: Can the Japan
love continue? The EPFR database comes directly from fund managers or their advisors, and
these are mainly pension funds and insurance companies. The difference between the TSE
foreigner net buy/sell statistics and those of the EPFR gives an indication of the move into
hedge funds and bundled-product structures (e.g. ETFs, OTC synthetic structures).
The shifts have been sustained and significant (far right column of Fig 7) with 2003-06 and
2013 being especially strong years (red highlights). 2008, 2014, 2015 and 2016 YTD (blue
highlights) have seen mild or material reversals in this trend.
Fig 7 Japan Fund Flow by foreigners – three categories
Foreigners data
CY 2001
CY 2002
CY 2003
CY 2004
CY 2005
CY2006
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012
CY2013
CY2014
CY2015
CY2016 YTD
TSE
TSE/OSE/NSE
EPFR
Net (US$bn)
EPFR
JPY/USD
ann ave
Net (¥bn)
Net (¥bn)
2,404
887.6
8,228.5
7,552.0
10,400.5
5,641.1
5,471.4
-3,721.7
1,817.6
3,116.0
2,023.2
3,036.2
15,376.7
1,090.0
1,362.4
155.0
2,321
759.8
8,213.5
7,652.2
10,321.9
5,550.7
5,423.5
-3,708.5
1,777.5
3,210.5
1,996.7
2,823.2
15,064.7
936.8
-195.0
-1,055.6
-0.1
-0.8
3.7
7.2
13.1
-0.2
-17.4
-8.7
-5.5
-0.8
1.9
7.6
43.6
14.7
58.1
5.9
121.6
125.1
115.9
108.2
110.2
116.3
117.8
103.4
93.6
87.7
79.7
79.8
97.7
105.8
121.1
118.4
EPFR
Net (¥bn)
Difference
TSE TSE/OSE/NSE
Difference
TSE - EPFR
-14.5
-95.6
426.0
780.7
1,440.8
-21.6
-2,049.8
-899.2
-510.8
-73.7
149.2
608.4
4,257.7
1,552.0
7,036.4
704.4
82.5
127.8
15.0
-100.3
78.6
90.4
47.9
-13.1
40.1
-94.5
26.5
213.0
312.0
153.2
1,557.3
1,210.6
2,403.6
983.2
7,802.5
6,771.3
8,959.6
5,662.7
7,521.2
-2,822.4
2,328.4
3,189.7
1,874.0
2,427.8
11,118.9
-462.0
-5,674.1
-549.4
Note: 1) TSE results from Trading participant with capital of over JPY3bn, and excluding foreign stocks, 2) TSE/OSE/NSE results are based on 3 major
stock exchanges, 3) EPFR results for equity fund flows, US$ millions as a default (converted by using annual average JPYUSD), 4) Latest data 1/2016
Source: TSE, EPFR, Datastream, Macquarie Research, February 2016
10 February 2016
6
Macquarie Research
2015 was a banner
year for those that
buy and sell
individual stocks
We divide foreign participants into three groups:
1)
Those who buy and sell individual stocks
2)
Macro traders who use bundled-product structures (e.g. ETFs, OTC synthetic
structures), and are often hedge funds based in New York state
3)
Private bankers, often based in Europe, investing thematically who use bundledproduct structures (e.g. ETFs, OTC synthetic structures) to execute their strategies
The EPFR data in Fig 7 is a proxy indicator for the activities of category 1) those that buy and
sell individual stocks. Please note that on this indicator 2015 was a banner year, the highest
year of net buying since at least 2001, exceeding the net buying of 2013 by 50%.
For 2) macro traders, we recommend the CFTC Nikkei 225 Futures net speculative position,
and Fig 8 and Fig 9.
The “Abenomics”
macro trade
A“governance”
trade
Buying into
weakness
The “Abenomics” macro trade of long Japanese equities/short the Yen put on in early 2013
was unwound in late 2014. The dramatic reappearance of a net long from March 2015 was,
we believe, a currency un-hedged “governance” trade. This appears to have been unwound
in June 2015.
More recently a new long position appeared into the August TOPIX air-pocket sell-off, but it
has subsequently been reversed. Our proxy for Macro traders is indicating that they have
done the same thing into the January 2016 market air-pocket/plunge and have gone long into
the falling market.
Fig 8 CFTC Nikkei 225 Futures, net speculative positions, Start 2012 to latest
20
('000s)
Net long
15
10
5
0
-5
CFTC Nikkei 225 net non-commercial futures positions
-10
Net short
-15
Jan/12
Jul/12
Jan/13
Jul/13
Jan/14
Jul/14
Jan/15
Jul/15
Jan/16
Fig 9 CFTC Nikkei 225 Futures, net speculative positions, Start 1993 to latest
20
('000s)
10
0
-10
-20
-30
CFTC Nikkei 225 net non-commercial futures positions
-40
10 February 2016
7
Macquarie Research
The two largest Japanese equity ETFs listed in the US are: 1) the Blackrock-sponsored
iShares MSCI Japan fund (not currency hedged), and 2) the WisdomTree Investments’
WisdomTree Japan Hedged equity Fund (currency hedged).
For 3) Private bankers often based in Europe investing thematically, we use the TSE data
on net buying activity by region.
European investors were 60.7% of total foreign trading over FY3/13-14, highlighted in grey in
Fig 10. Foreigners were around 61.4% of total market activity in FY3/13-14, Fig 4; European
investors alone were 37.3% of total market activity.
European investors
were 37.3% of total
market activity in
FY3/13-14...
For FY3/15 the ratio was 74.5% times 66.1% = 49.2%.
...and 49.2% in
FY3/15
Europeans are particularly trading-activity oriented, with, we believe, extensive use of
bundled-product structures (ETFs, OTC synthetic structures). In contrast, please note the
significant net buy activity from Asia-based foreigners, and the relatively low share of turnover
(light blue shading).
Over the FY3/04–FY3/15 eleven-year period inclusive:
Fig 10
1)
US-based investors bought some ¥24.5tr of Japanese equities,
2)
European investors bought roughly ¥21.5tr
3)
Asian-based investors bought ¥11.3tr.
Fund flows for Japanese equities by geography: A notable divergence in December (red highlights)
(Net buy/sell ¥ bn)
Europe
Asia
Other
US
5,646.4
2,797.5
5,089.3
785.1
1,680.5
-1,665.0
2,052.2
2,664.2
-371.4
1,850.7
3,669.7
400.4
4,414.4
3,257.0
2,562.9
2,456.7
-921.2
-1,335.9
3,548.1
1,514.1
733.7
2,077.2
3,447.9
3,198.9
1,289.2
141.1
2,281.8
2,699.9
-155.1
-1,225.3
841.1
487.7
-23.3
1,409.6
2,832.1
1,291.5
211.2
197.4
265.6
323.2
3.0
-87.2
28.7
32.2
31.2
-19.1
156.2
-19.2
29.4%
28.3%
27.1%
24.9%
25.1%
26.0%
24.5%
22.8%
21.5%
26.3%
31.8%
17.4%
-156.3
348.2
-297.5
-511.4
199.0
308.0
482.0
13.0
-179.0
28.0
-193.0
-330.0
58.0
-39.0
-5.0
-154.7
753.4
443.1
-231.5
-16.9
211.0
758.0
797.0
0.0
-282.0
-477.0
-1,132.0
631.0
479.0
240.0
-64.5
165.1
69.2
-158.5
25.0
345.0
453.0
264.0
77.0
96.0
-58.0
-214.0
75.0
-8.0
-81.0
5.5
-7.2
1.1
3.7
-5.0
1.0
0.0
-20.0
4.0
-7.0
3.0
4.0
-2.0
-14.0
1.0
13.8%
14.5%
14.8%
13.9%
15.3%
14.4%
15.4%
15.6%
14.3%
16.8%
17.1%
16.8%
16.9%
16.0%
15.2%
US
Fiscal year
FY3/04
FY3/05
FY3/06
FY3/07
FY3/08
FY3/09
FY3/10
FY3/11
FY3/12
FY3/13
FY3/14
FY3/15
Monthly
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
(Total trading %)
Europe
Asia
Other
48.2%
47.2%
48.2%
52.0%
47.4%
51.4%
61.0%
65.8%
67.8%
62.9%
58.6%
74.5%
19.7%
22.9%
23.5%
22.3%
27.1%
22.3%
14.0%
11.0%
10.4%
10.6%
9.1%
10.2%
2.7%
1.6%
1.2%
0.8%
0.4%
0.3%
0.4%
0.3%
0.2%
0.3%
0.4%
0.3%
76.9%
75.1%
74.6%
75.4%
74.3%
74.3%
74.4%
73.8%
73.8%
70.8%
69.8%
70.8%
70.0%
70.3%
71.3%
9.1%
10.1%
10.4%
10.4%
10.2%
11.1%
9.9%
10.4%
11.2%
11.9%
12.8%
12.1%
12.8%
13.3%
13.1%
0.2%
0.2%
0.3%
0.2%
0.2%
0.2%
0.2%
0.3%
0.3%
0.5%
0.4%
0.3%
0.3%
0.3%
0.4%
Recent activity
Going into January
2016, the data for
October-December
2015 indicates that
European-based
investors had again
built up significant
positions
10 February 2016
During May and June 2015, highlighted in pale red above, European-based investors were
substantially bigger buyers than US-based investors (¥0.8tr versus -¥0.2tr), suggesting that
thematic investors pursued an opportunity in Japan. This mismatch has been reversed and
more since. Over July-September 2015, US-based investors sold ¥0.5tr, whilst Europeanbased investors sold ¥1.9tr.
Going into January 2016, the data for October-December 2015 indicates that Europeanbased investors had again built up significant positions, pale red highlights.
8
Macquarie Research
Foreign investors and overall share ownership
At end FY3/13, on
BOJ data, foreigners
owned 26.3% of
listed shares
Since FY3/93, the active buyers of Japanese equities have been foreign investors and the
general government. At end FY3/13, on BOJ data, foreigners owned 26.3%. The increase in
holdings by the general government over this period has been a by-product of stabilising the
financial sector. Financial institutions, non-financial corporations and households have all
seen their share-ownership ratios decline. In a period of protracted mild deflation, both cash
and bonds have been successful investments.
Fig 11
Share ownership by investor type
Date
Financial
institutions
Non-financial
corporations
General
government
Households
Overseas
40.6%
40.2%
40.0%
38.6%
33.1%
25.9%
23.9%
25.8%
34.3%
30.0%
25.0%
23.3%
22.6%
21.4%
0.4%
0.8%
2.3%
3.4%
4.8%
5.4%
6.2%
25.6%
20.5%
21.2%
19.6%
21.2%
18.4%
20.0%
7.4%
4.2%
6.4%
13.3%
17.6%
27.7%
26.3%
1982FY
1987FY
1992FY
1997FY
2002FY
2007FY
2012FY
Note: The TSE estimates that foreigners held 31.7% of all stocks as of 31 March 2015
Source: BOJ, Macquarie Research, February 2016
Fig 12 Foreigners’ cumulative net purchases since 1998
85
75
65
55
45
35
25
15
5
-5
¥tr
Foreigners' cumulative net purchases since 1998
2005–06 is
memorable for
reform expectations
Global investors
returned to Japan
in 2013
The strong net buying by foreigners from 2003 to mid-2007 was mirrored by an increase in
Japan’s share of world stock market turnover, Fig 13. 2005-06 is memorable for reform
expectations. Global investors returned to Japan in 2013.
Fig 13 TOPIX share in world total turnover by value
14
% of TOPIX in world's total turnover by value
(%)
12
10.2
10
8.8
7.3
8
11.6
10.7
8.7
7.7
7.8
8.6
7.2
7.3
8.7
7.4
6
4
3.7
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014
Source: Datastream, Macquarie Research, February 2016
The heavy involvement of foreigners has led to many Japanese companies having substantial
ownership by foreigners, Fig 14.
10 February 2016
9
Macquarie Research
Fig 14
Companies with high foreign shareholdings, over 40%, market cap >¥700bn
Code
Company Name
3659
4519
7201
7741
8591
6273
6758
1878
8035
8801
6954
4503
7269
7974
8316
4452
6861
6645
4689
6762
8802
1605
8601
8308
6501
9735
9984
6301
6981
7267
8309
8766
6988
4063
8630
7309
5802
7733
7261
6702
7272
4901
6586
8795
NEXON (*)
Chugai Pharmaceutical (*)
Nissan Motor (*)
HOYA
ORIX
SMC
Sony
Daito Trust Construction
Tokyo Electron Ltd.
Mitsui Fudosan
Fanuc
Astellas Pharma
Suzuki Motor (*)
Nintendo
Sumitomo Mitsui Financial
Kao
Keyence
OMRON
Yahoo Japan
TDK
Mitsubishi Estate Company
Inpex
Daiwa Securities Group
Resona
Hitachi.
Secom
SoftBank Group
Komatsu Ltd.
Murata Manufacturing
Honda Motor
Sumitomo Mitsui Trust
Tokio Marine
Nitto Denko
Shin-Etsu Chemical
Sompo Japan Nipponkoa
Shimano
Sumitomo Electric Industries
Olympus
Mazda Motor
Fujitsu Limited
Yamaha Motor
Fujifilm Holdings
Makita
T&D
Market Cap
(¥bn)
806.6
2006.5
4853.0
1763.5
2340.3
1689.3
3301.2
1028.4
1122.9
3370.8
3264.2
3658.2
1808.3
2414.0
6600.8
2898.5
3498.5
645.1
2813.4
807.3
3583.7
1500.3
1460.6
1460.9
2469.4
1775.8
6053.7
1697.5
3116.5
5648.0
1771.0
3417.2
1073.3
2519.6
1574.2
1736.6
1202.4
1566.0
1105.3
1196.9
735.1
2353.9
898.9
1056.3
Average 6m
% trading value
Foreign
(¥mn)
92.9
75.5
74.2
60.0
59.4
57.1
56.7
56.3
54.4
54.1
53.0
52.7
50.9
49.8
48.7
48.4
48.2
47.6
47.0
46.9
46.7
45.8
45.4
45.3
45.2
45.0
44.3
44.2
43.8
43.7
43.4
43.3
43.1
43.1
43.0
43.0
42.9
42.6
42.3
41.8
41.0
40.2
40.1
40.0
2773.9
5219.8
15251.1
7111.5
12835.6
7543.0
28986.2
4933.1
10342.8
15577.5
25831.8
13491.9
8175.4
17947.8
45313.3
11383.4
12983.1
6453.9
7278.0
10725.9
14754.8
7538.4
7979.7
7685.2
17307.6
6229.4
51017.2
10176.0
22439.5
18760.8
10304.8
12109.2
12082.5
8460.1
7298.3
5661.6
5141.9
7238.2
17932.3
10181.0
5637.9
10905.2
3814.2
5280.0
P/BV
PER
FY1
PER
FY2
Div Yield
FY1
ROE
FY0
Perf Rel
TOPIX start
CY2012
1.4
3.7
1.1
3.5
1.1
2.6
1.6
4.3
2.3
1.8
3.7
3.3
1.4
1.8
0.7
4.4
4.4
2.4
3.9
1.5
2.4
0.6
1.2
0.9
1.4
2.1
2.9
1.5
3.1
1.0
0.8
1.0
2.2
1.7
0.8
4.4
0.9
4.3
1.7
1.5
1.9
0.9
1.7
0.8
13.6
35.4
7.9
17.7
8.9
15.6
17.9
15.7
14.9
30.2
19.3
19.8
11.8
54.7
8.1
31.8
24.2
12.7
20.6
11.2
46.6
25.6
10.6
7.9
8.0
20.3
10.0
12.1
13.3
9.7
9.7
13.3
11.5
17.2
9.4
22.0
12.3
25.1
6.7
11.2
11.1
17.3
19.6
11.9
13.2
30.3
7.0
16.4
8.8
15.1
13.1
14.8
13.8
27.2
20.2
17.0
12.1
39.6
8.0
26.1
21.5
11.8
18.8
10.3
42.1
20.6
10.5
8.1
6.9
19.2
10.0
12.2
12.3
8.6
9.1
11.8
11.1
16.2
8.8
24.3
10.1
20.3
6.1
8.8
7.4
15.2
16.9
11.2
0.5
1.5
3.9
1.8
2.5
0.8
0.8
3.1
3.2
0.8
3.1
1.9
1.0
0.9
3.2
1.3
0.3
2.3
1.8
1.9
0.5
1.8
3.6
2.7
2.3
1.8
0.8
3.3
1.4
2.8
2.9
2.3
2.3
1.9
2.1
0.8
2.3
0.4
1.6
1.4
2.1
1.4
1.6
1.6
8.3
9.8
9.4
15.7
11.5
11.9
-5.6
24.7
11.4
6.4
15.4
10.2
6.6
3.5
8.4
12.4
13.2
12.6
19.8
6.8
5.2
2.6
12.8
13.2
8.4
9.9
25.1
10.0
15.1
7.8
6.6
7.9
12.9
6.6
3.4
16.0
8.4
-2.5
18.4
20.6
14.9
5.3
9.3
8.0
-15.1
49.5
-14.1
39.1
33.5
2.1
-3.1
0.8
-9.1
40.2
-29.2
42.3
2.7
-18.2
10.5
34.3
68.8
1.7
-6.7
-4.1
2.4
-56.1
75.9
-6.2
-33.6
4.6
13.6
-47.4
82.5
-28.5
-0.5
29.5
19.3
-19.3
27.4
155.7
-4.7
121.8
34.7
-32.0
12.8
32.7
35.7
4.4
Note: (*) As with all mechanistic screens, care needs to be taken. Some companies have high foreign shareholdings, partially reflecting overseas
corporate shareholders or foreign founder shareholders (Nexon, Chugai, Nissan, Suzuki – Suzuki is being unwound). Prices as of 5 February 2016.
The Ministry of Finance (MOF) produces ‘International transactions in securities’ data both
weekly and monthly.
The website address is as follows:
http://www.mof.go.jp/english/international_policy/reference/itn_transactions_in_securities/inde
x.htm
10 February 2016
10
Macquarie Research
Case study #1: The 2008-09 OECD LI down-cycle and recovery
From September 2008, after the Lehman bankruptcy, to March 2009, foreign investors were
heavy sellers, selling ¥6tr (some 3% of the market at that time) as the global financial crisis
ricocheted around the system, forcing de-leveraging redemption selling.
Whilst someone has to be the buyer, these participants do not have to do it with much
enthusiasm.
Typically, when foreigners are heavy sellers, the buyers have been the trust banks and
individuals. Trust banks (including the GPIF, the activities of which appear in this category)
operate on fixed-asset allocations, enabling buying into falling markets.
Fig 15 Foreigners and trust banks’ activity, May 2008 to March 2009
Net buying (¥ tr) May-08
Foreigners
Trust Banks
1.13
-0.07
Jun-08
Jul-08 Aug-08
0.49
-0.29
-0.68
0.22
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
-0.58
0.07
-1.07
1.19
-1.05
1.17
-0.77
0.98
-0.83
0.94
-0.82
0.83
-0.88
0.78
0.03
0.05
Source: MOF, Macquarie Research, February 2016
We look at the last 12 OECD LI trough examples back to 1980, Fig 16. We prefer to exclude
data related to the April 2005 trough, as 2005 saw persistent buying by foreign investors
through the year, driven by PM Koizumi’s domestic reflation and reform theme.
We look at the last
12 examples back
to 1980
Foreigners sell heavily in months five, four and three prior to the trough month,
become net flat through the trough, before buying aggressively when the new up-cycle
is confirmed.
This heavy foreign buying is the foundation for the expression “Japan’s six months every two
to three years” and picks up the impact of the global business cycle on the heavy
representation of global cyclical companies in the TOPIX. In the case of the 2009 recovery,
sustained foreign buying began from three months after the OECD LI trough month,
highlighted in pale red Fig 16.
Japan’s six months
every two to three
years
Fig 16
Foreigners’ net buying (¥ bn) around OECD LI trough months
Trough
Apr-1980
May-1982
Oct-1984
Dec-1990
Sep-1992
May-1995
Aug-1998
Mar-2001
Feb-2003
Apr-2005
Oct-2006
Jan-2009
Total
Excluding Apr 2005
-5
-4
-3
-2
-1
Trough
+1
+2
+3
+4
+5
+6
-9.0
15.2
29.6
12.7
-450.4
-201.6
103.3
-409.0
121.5
21.8
83.2
-179.8
-91.1
-351.9
-191.1
-201.1
-597.9
-193.5
941.4
586.7
-268.2
-289.4
31.4
-576.4
-297.4 -1,766.3
-1,238.7 -2,352.9
43.4
-59.0
-202.9
-193.9
-284.9
-1.7
-433.6
34.4
164.4
717.7
132.2
-1,069.6
-1,153.6
-1,871.3
42.0
-107.8
37.8
-204.8
60.3
330.7
-507.7
904.5
31.1
764.2
599.6
-1,050.0
899.7
135.5
-1.8
-27.0
-95.4
194.8
90.0
136.6
741.0
169.6
452.3
850.8
416.4
-774.7
2,152.5
1,301.8
35.4
-15.6
-41.2
188.8
-251.0
97.2
-392.6
235.8
-13.5
92.2
999.7
-830.3
104.9
12.7
73.6
-73.7
-84.8
378.8
61.7
220.1
-758.8
1,090.2
-238.3
132.4
221.1
-824.0
198.3
65.9
71.6
-1.2
-153.8
914.4
-226.3
593.4
88.3
802.6
51.6
82.5
1,466.6
-883.5
2,806.2
2,723.7
94.9
-6.0
56.3
594.3
167.8
986.1
599.2
-493.6
866.8
1,113.4
1,512.7
410.1
5,902.0
4,788.5
193.5
46.9
37.5
42.2
-64.9
586.3
113.5
-22.2
1,084.4
1,962.5
1,152.0
374.0
5,505.6
3,543.1
227.4
82.3
1.0
67.2
7.0
66.2
76.5
295.6
1,689.8
1,515.5
12.4
4.5
4,045.3
2,529.8
79.7
203.5
-195.5
162.8
453.2
108.1
475.1
-552.7
1,426.0
1,063.3
1,453.5
1,010.1
5,687.2
4,623.9
Note: For the OECD leading indicator, we use the derived 6-month annualised OECD amplitude adjusted leading indicator, which rescales the averaged
CLI to match the amplitudes of the de-trended reference series to allow for output-gap type interpretations.
Case study #2: Activity around the 11 March 2011 disasters
As we noted in the 29 March 2011 Follow the Money: Foreigners step up their net buying,
there were aggressive domestic sellers driving the TOPIX lower following the March 2011
Japanese disaster. Unusually, the strong foreign cash buying did not drive the market higher.
The market plunge no doubt triggered risk control limits at both brokerage houses and among
individuals, particularly those in the latter group trading on margin.
As the numbers below show, individuals were only modest sellers the week of 14–18 March
2011, after the earthquake. Nonetheless, the heavy selling was driven by a general
deleveraging by brokers and retail individuals.
10 February 2016
11
Macquarie Research
Fig 17 Net buy/sell by investor type – Tokyo, Osaka and Nagoya exchanges
¥ billions
Foreigners
Individuals
Brokerage proprietary transactions
68.3
955.2
340.4
-199.9
-292.5
-728.2
7 - 11 March 2011
14 - 18 March 2011
Deleveraging by
certain foreign
participants through
the futures market
Foreigners were
heavy sellers of
Japanese equity
futures in
March 2011
Another important development to be aware of is the deleveraging by certain foreign
participants through the futures market.
The rise in measures of equity market volatility, which impact risk calculations, deterred
domestic financial institutions from upping their target allocations to Japanese equities.
Activity in the futures markets: Foreigners were heavy sellers of Japanese equity futures in
March 2011, selling some ¥0.9tr (total of TOPIX futures, mini TOPIX futures, Nikkei futures
and Nikkei 225 mini futures). What type of investors were these sellers of futures?
For context, foreigners were net buyers of futures positions in 2010 (¥0.6tr), 2009 (¥0.7tr),
and 2008 (¥0.4tr). In 2007, they were net sellers of ¥1.5tr of positions.
While there is a buyer for every seller in the futures market, some participants hedge
exposure in the cash equities market, fully, partially or dynamically, while other participants
run naked long or short positions.
Hedged. It seems probable that brokers were carrying large stat arb/quant/long stock-short
futures positions going into the 11 March 2011 Japanese earthquake. As they closed down
positions, they sold cash equities and bought back/covered their short futures positions.
As we all learned in 2008, market participants often herd into the same strategies. Scott
Patterson's The Quants: How a new breed of math whizzes conquered Wall Street and
almost destroyed it (2010) detailed this for the stat arb community.
To the extent that there is still a sizeable foreigner stat arb community out there, it is probable
that they too would have been shutting down positions, i.e., SELLING cash equities, and
covering their future shorts, i.e., BUYING futures.
This closing down of positions is supported by the pattern of open interest in the Nikkei
futures, Fig 18, with open interest peaking around the earthquake and diminishing thereafter.
However, the indicator has considerable volatility, limiting its usefulness.
Fig 18 Open interest Nikkei 225 futures, over 2011: early March 2011 highlighted
in grey (¥)
90,000
CFTC SME Nikkei Stock Average Yen Denom. Total Open Interest/Futures
80,000
12mma
70,000
60,000
50,000
40,000
30,000
11/11
09/11
07/11
05/11
03/11
01/11
20,000
Naked longs were, we believe, the heavy foreign sellers of Nikkei futures in March.
Brokerage proprietary transactions in cash equities were negative through April (i.e., they
were still net sellers); open interest in Nikkei futures contracted through April as global "riskoff" appeared ongoing. It is unlikely that foreigner stat arb was rebuilding positions
aggressively during this period (buying cash, selling futures).
10 February 2016
12
Macquarie Research
Critically, after strong futures selling in March, foreigners became net fractional buyers of
futures in April (¥0.1tr). So who were these foreign sellers of futures positions? We need
another major market participant.
We believe there
was a major naked
long Nikkei futures
position going into
the 11 March
earthquake that was
largely shut down in
March
We believe there was a major naked long Nikkei futures position going into the 11 March
earthquake that was largely shut down in March. The chief likely key player is the private
client community in Europe. Europeans have been averaging around 40% of TSE daily
transaction values. They appear to be utilising ETFs, perhaps for very active intra-month
trading, a variety of private synthetic structures generating frequent basket rebalancing and,
perhaps, naked long futures positions to effect leveraged country allocation strategies. Their
turnover activity is the "smoking gun", in our view.
In summary: We believe a substantial foreigner naked long position in Nikkei futures going
into the earthquake was largely shut down, probably under the premise of capital preservation,
given rising market volatility, and the jump in uncertainty in markets.
Case study #3: The October 2011 OECD LI trough
Fig 19 OECD Leading Indicator, OECD total, YoY %
6
(%)
OECD LI YoY
4
2
0
-2
-4
-6
Source: OECD, Macquarie Research, February 2016
The OECD LI troughed in October 2011 (derived 6-month annualised measure). Foreign
activity around the trough is shown below.
In this OECD LI trough example, heavy net foreign selling occurred a little late, highlighted in
grey, and subsequent sustained net foreign buying was also a little late.
The uncertainty surrounding the fall-out from the March 2011 disasters is one explanation.
Fig 20
Foreigners’ net buying (¥ bn) around OECD LI trough months
Trough
12 prior troughs
Excluding Apr 2005
Oct-11 trough
-5
-4
-3
-2
-1
Trough
+1
+2
+3
+4
+5
+6
-297.4
-1,238.7
-1,766.3
-2,352.9
-1,153.6
-1,871.3
899.7
135.5
2,152.5
1,301.8
104.9
12.7
198.3
65.9
2,806.2
2,723.7
5,902.0
4,788.5
5,505.6
3,543.1
4,045.3
2,529.8
5,687.2
4,623.9
283.1
46.8
169.5
-1,065.6
-752.6
165.5
-170.4
-376.4
459.8
587.4
242.6
95.0
Note: Please see Fig 16 for the data of the 12 years included in the “Total”. For the OECD leading indicator, we use the derived 6-month annualised
OECD amplitude adjusted leading indicator, which rescales the averaged CLI to match the amplitudes of the de-trended reference series to allow for
output-gap type interpretations.
10 February 2016
13
Macquarie Research
Case #4: Japan’s great unwind examined Jan-March 2014
A TOPIX air-pocket, May 2013 redux: The 26 February 2014 PEC’s strategy weekly: Bad role
models: 1997, 2006 & 2011 detailed how the unwinding of the Japan macro trade (long largecap equities, short the Yen) had resulted in the sharp market down-draft from TOPIX 1306
(8/1/14) to 1139 (4/2/14).
A proxy for the
Japan macro trade
Fig 21 shows the expansion of the net short Yen position November 2013 to January 2014,
and its subsequent reversal. We use this indicator as one proxy for the Japan macro trade.
Fig 21 CFTC CME Japan Yen net long/short non-commercial futures positions
(000s)
100
Bloomberg CFTC CME Japanese Yen Net Non-Commercial Futures Positions
50
0
-50
-100
01/16
01/15
01/14
01/13
01/12
01/11
01/10
01/09
01/08
01/07
01/06
01/05
01/04
01/03
01/02
01/01
-200
01/00
-150
The above proxy indicator is available weekly and is therefore timely in fast-moving markets.
We use a variety of other indicators from this document to build up a picture of positions in
the market.
Momentum strategy
positions have been
largely unwound
As noted earlier, European-based investors alone account for around 40% of total market
activity. As the pale red highlights below show, European-based investors were particularly
aggressive net buyers in November and December 2013, and then heavy sellers during
January, February and March 2014.
This supports our belief that momentum strategies (often with leverage, nearly always with
strict stop-loss positions) are widely followed by European-based investors. The numbers in
Fig 22 are also suggestive that the momentum strategy positions were largely unwound by
April 2014.
June 2013 was another example of a TOPIX air-pocket. Comparing the US and European net
buying activity, please also note the relatively heavy buying in March-April 2013 by Europeanbased investors, and their relative lack of buying in May and June.
Fig 22
Fund flows for Japanese equities by geography, March 2013 to March 2014
US
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
576.4
846.0
630.2
501.1
255.9
74.7
117.0
363.3
419.2
457.4
-96.6
213.7
-112.2
Europe
Asia
847.8
1,326.9
74.6
-92.0
373.5
-180.7
612.1
275.8
1,602.4
1,441.1
-1,156.3
-414.8
-414.7
351.9
587.5
490.5
258.8
196.6
212.8
44.8
141.4
332.3
268.7
85.0
119.7
93.8
Other
US
3.3
3.2
55.8
2.3
1.8
7.3
-4.3
-0.1
4.6
81.4
1.6
1.0
1.6
29.9%
29.7%
27.4%
27.6%
31.6%
31.6%
34.6%
34.3%
35.1%
32.9%
32.3%
34.7%
34.0%
(Total trading %)
Europe
58.9%
60.4%
62.8%
63.8%
59.0%
59.1%
55.2%
55.8%
55.2%
57.3%
58.3%
56.3%
56.5%
Asia
Other
10.5%
9.5%
9.2%
8.1%
9.0%
8.9%
9.8%
9.5%
9.4%
9.5%
9.1%
8.7%
9.1%
0.7%
0.5%
0.6%
0.4%
0.4%
0.3%
0.4%
0.3%
0.3%
0.5%
0.3%
0.2%
0.3%
10 February 2016
14
Macquarie Research
Another useful indicator is shown below. The EPFR database comes directly from fund
managers or their advisors, and these are mainly pension funds and insurance companies.
The difference between the TSE foreigner net buy/sell statistics and those of the EPFR gives
an indication of the move into hedge funds and bundled-product structures (e.g. ETFs, OTC
synthetic structures).
The shifts have been sustained and significant (far right column of Fig 23). After ¥11.1tr of net
buying in 2013, our proxy for bundled-product structures saw ¥2.7tr of net selling 2014 to end
March. In contrast, the EPFR database has seen ¥1.0tr of net buying, 2014 to end March.
We believe foreign institutional fundamental investors have been steadily accumulating
Japanese equities, including during “the great unwind” of January-March 2014.
Fig 23
Japan Fund Flow by foreigners – contrasting 2013 with 2014 through to end March 2014
Foreigners data
CY2013
CY2014 to end March
TSE
TSE/OSE/NSE
EPFR
Net (US$bn)
EPFR
JPY/USD
ann ave
Net (¥bn)
Net (¥bn)
15,376.7
-1,678.1
15,064.7
-1,833.3
43.6
9.9
97.7
102.7
EPFR
Net (¥bn)
Difference
TSE TSE/OSE/NSE
Difference
TSE - EPFR
4,257.7
1,016.7
312.0
155.2
11,118.9
-2,694.8
Note: 1) TSE results from Trading participant with capital of over JPY3bn, and excluding foreign stocks, 2) TSE/OSE/NSE results are based on 3 major
stock exchanges, 3) EPFR results for equity fund flows, US$ millions as a default (converted by using annual average JPYUSD)
Source: TSE, EPFR, Datastream, Macquarie Research, February 2016
From an investor flow perspective, individual activity retreated in February-March 2014, as it
had done in June 2013 (Fig 24). Individuals are also believed to follow momentum strategies
(often on margin, almost always with stop-loss/margin calls). Their activity is also subject,
therefore, to mechanistic cascade selling as the market corrects.
Individuals tend to buy small cap stocks, whilst the “macro trade” needs the liquidity of the
TOPIX core 30, or the TOPIX 100.
Individuals tend to
buy small cap
stocks, whilst the
“macro trade”
needs the liquidity
of the TOPIX core
30, or the TOPIX 100
Fig 24 Individual activity retreats into market corrections, April-July 2013 &
December 2013-March 2014
% of daily T/O (brokerage)
Individuals
Foreigners
2013 April
May
June
July
34.0
36.1
28.1
33.5
56.0
54.6
63.6
57.1
December
2014 January
February
March
32.9
29.3
25.5
23.5
57.6
61.9
66.2
66.2
Source: TSE, Datastream, Macquarie Research, January 2016
This time, rather than buying into the correction as they did during the May 2013 TOPIX airpocket, foreigners overall were net sellers, Fig 25.
Fig 25 Net buy/sell (¥bn) April-July 2013 & December 2013-March 2014
Individuals
Life/NL
Trust banks
Foreigners
2013 April
May
June
July
-1,682.8
-153.7
-447.6
-894.4
-129.4
-78.4
-3.7
-55.7
-729.3
-752.7
-95.5
-163.9
2682.7
1,222.5
670.8
942.1
December
2014 January
February
March
-1931.9
1,427.0
-109.8
37.5
-69.7
-24.5
-53.0
-103.5
196.2
-18.5
162.7
-178.7
2178.9
-1,169.6
-82.9
-580.7
Source: TSE, Datastream, Macquarie Research, January 2016
Business/corporations, investment trusts and broker proprietary were the major buyers over
February-March 2014.
10 February 2016
15
Macquarie Research
Case study #5: The third deleveraging in 3 years
The first two episodes are compared and discussed on pages 14-15.
1)
May 2013
2)
February 2014
To simplify, both episodes appeared to involve stop-loss cascade selling by foreign investors,
both macro traders and private client complexes managing mandates with capital
preservation requirements. The current August 2015 episode appears to have been a little
different.
Episode 3: August-September 2015
As shown in Fig 4, page 4, foreigners sold ¥1.2tr in August 2015, with individuals and trust
banks fulfilling their traditional role of buying into weakness, buying ¥0.6tr and ¥0.3tr
respectively. Companies bought ¥0.5tr.
In September, foreigners sold ¥2.4tr, whilst individuals bought ¥0.5tr; trust banks ¥0.5tr and
companies ¥1.0tr.
Over the two
months, we believe
that macro traders
were not particularly
important this time
The macro traders, (we use the net speculative position in the CTC Nikkei 225 futures as a
proxy, Fig 8), closed out what we believe was a governance trade put on in March 2015, in
June 2015. Subsequently, they appear to have initially bought into the August TOPIX airpocket sell-off, but then reversed this position in September. Over the two months, we believe
that macro traders were not particularly important this time.
As we have presented regularly in these reports, private client complexes tend to be
European-based. We believe a large thematic trading position was put on over May-June,
2015, and this was subsequently aggressively unwound over July-September 2015, Fig 26.
During May and June 2015, highlighted in pale red below, European-based investors were
substantially bigger buyers than US-based investors (¥0.8tr versus -¥0.2tr), suggesting that
thematic investors pursued an opportunity in Japan.
The June unwinding of net long Japanese equity positions of the macro traders (the proxy
shown in Fig 8) is visible in Fig 26: the ¥179bn net selling by US-based investors in June
2015.
Assuming London-based hedge funds were similarly taking off positions, then it is probable,
we believe, that private client complexes were still increasing positions in June.
This mismatch has been reversed and more since.
Over July-September 2015 US-based investors sold ¥0.5tr, whilst European-based investors
sold ¥1.9tr, orange highlights below.
Fig 26 Fund flows for Japanese equities by geography, March to September 2015: A notable divergence in
May/June (red highlights) is reversed over July/August/September (orange highlights)
US
Monthly
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
308.0
482.0
13.0
-179.0
28.0
-193.0
-330.0
Europe
Asia
211.0
758.0
797.0
0.0
-282.0
-477.0
-1,132.0
345.0
453.0
264.0
77.0
96.0
-58.0
-214.0
Other
US
1.0
0.0
-20.0
4.0
-7.0
3.0
4.0
14.4%
15.4%
15.6%
14.3%
16.8%
17.1%
16.8%
(Total trading %)
Europe
74.3%
74.4%
73.8%
73.8%
70.8%
69.8%
70.8%
Asia
Other
11.1%
9.9%
10.4%
11.2%
11.9%
12.8%
12.1%
0.2%
0.2%
0.3%
0.3%
0.5%
0.4%
0.3%
Source: TSE, MRE, Datastream, Reuters, Macquarie Research, January 2016
Thus, we believe selling by European-based investors was the main driver of the third
deleveraging, TOPIX air pocket/plunge.
10 February 2016
16
Macquarie Research
The BOJ, GPIF, Japan Post
The three main public entities that regularly buy equities are the Bank of Japan (BOJ), the
Government Pension Investment Fund (GPIF) and the Bank Share Purchase Corporation
(BSPC). The target of the BSPC is to ease the equity cross-shareholding unwinding of the
banking sector, and therefore is covered in the “Banks and their cross-shareholdings” section.
Philosophically, we
prefer private sector
ownership of
corporate assets
Philosophically, we prefer private sector ownership of corporate assets. As reported as long
ago as 23 September 2014 by Nikkei, the BOJ’s total Japanese equity holdings are as large
as those of Nippon Life.
The BOJ: a brief history of its equity market involvement
For the last two decades, the government has been concerned about the linkage between a
falling TOPIX and the need for the financial system to raise more capital (because of
substantial equity cross-shareholdings).
The purchases of equities directly from the banks by both the BOJ and the BSPC have
historically bypassed the stock market and are thus not reflected in the TSE values. Sales of
stocks through the exchange by the BOJ and the BSPC are reflected as a transaction via
trust banks. We believe the BOJ’s equity ETF purchases also appear as Trust Bank buying.
1) BOJ purchases of stocks (2002-04, 2009-10)
These price-keeping
operations by the
BOJ appear to have
worked
The BOJ has undertaken a series of market-stabilising operations. The first extended period
of 22 months was between November 2002 and September 2004, and the BOJ repurchased
a total of ¥2.02tr. The BOJ restarted bank stock purchases in February 2009. These pricekeeping operations by the BOJ appear to have worked.
Fig 27 BOJ purchases of stocks (amount is cumulative), 2002-10
¥bn
2500
BOJ Purchases (Gross, ¥'bn)
2000
1500
1000
500
10/10
04/10
10/09
04/09
10/08
04/08
10/07
04/07
10/06
04/06
10/05
04/05
10/04
04/04
10/03
04/03
10/02
0
On purchases made earlier in the decade, the BOJ made capital gains of ¥0.63tr on what it
sold (including dividends, ¥0.77tr). We estimate that the balance has an average TOPIX level
purchase price of about 875. The BOJ bought directly from the banks.
Early in 2009, BOJ Governor Masaaki Shirakawa, at an Upper House fiscal and financial
affairs committee, stated: “The BOJ is giving priority to stabilising financial markets over
everything else…We will keep thinking what (other extra steps) we can take.” On 2 February
2009, the BOJ announced that it would purchase up to ¥1tr of bank-held equity holdings
through April 2010, of listed companies with BBB- or higher credit ratings.
On 18 December
2015, the BOJ
announced that it
would resume
selling the above
positions from April
2016
10 February 2016
On 18 December 2015, the BOJ announced that it would resume selling the above positions
from April 2016. A new equity ETF buying program of ¥0.3tr a year “to support firms’
investment in physical and human capital” is being established to offset the selling.
2) The BOJ asset-purchase program (APP) of 2010 through 4/2013
The BOJ acted in both 2002–04 and 2009-10 to preserve the integrity of the financial
markets. 2010 saw a major expansion in support, as detailed in the 5 October 2010 The BOJ
moves again: More creative, but not very radical. Of a new ¥5tr fund (1% of GDP), ¥1.5tr was
to be used to acquire private sector assets.
17
Macquarie Research
SM Trust (8309)
The latter included ¥0.5tr for equity ETFs and JREIT equity, split between ¥450bn of ETFs
tracking the TOPIX or the Nikkei Stock Average and ¥50bn for REITs rated AA or higher.
Execution was through its designated trustee Sumitomo Mitsui Trust Holdings (8309 JP,
¥454, Outperform, TP: ¥580).
3) Quantitative and Qualitative Easing (QQE)
The APP program continued through 4 April 2013, when the BOJ restructured its market
activities. As of the end of March 2013, the BOJ had purchased ¥1.54tr of equity ETFs and
¥0.12tr of JREITs. The new BOJ targets for end-2013 and end-2014 are shown below:
Fig 28 Monetary base targets and BOJ balance sheet projections of April 2013
¥tr
End 2012
End 2013
End 2014
Monetary base
JGBs
CP
Corporate bonds
ETFs
J-REITs
Loan Support Programme
Total
138
89
2.1
2.9
1.5
0.11
3.3
158
200
140
2.2
3.2
2.5
0.14
13
220
270
190
2.2
3.2
3.5
0.17
18
290
Banknotes
Current deposits
Total liabilities and net assets
87
47
158
88
107
220
90
175
290
Source: Bank of Japan, Macquarie Research, February 2016
The absolute amounts of Japanese equity ETF and J-REIT buying are small, but symbolically
very powerful. It is one thing for a central bank to support the financial system in a systemic
crisis, but an altogether different matter when the equity market had rallied nearly 100% off its
lows of late 2012 (TOPIX was 696 on 4 June 2012 and 714 on 11 October 2012).
4) QQE #2
The BOJ’s Shock & Awe #2 announcements of 31 October 2014 are available in full at:
http://www.boj.or.jp/en/announcements/release_2014/k141031a.pdf. They involved a trebling
of the equity ETF target. Please note that the new annual targets are open-ended.
Fig 29 The 31 October 2014 BOJ announcements
Expansion of Quantitative and Qualitative monetary easing (QQE)
(1) Accelerating the pace of increase in the monetary base
The monetary base will increase at an annual pace of ¥80tr, (an addition of ¥10-20tr
compared with the past). End 2014 projected monetary base is ¥275tr, 80/275 = +29%
(2) Increasing asset purchases, extending maturity of JGB purchases
(a) Amount of outstanding JGBs will increase at an annual rate of about ¥80tr (versus ¥50tr)
(b) The average remaining maturity of the Bank’s JGB purchases will be extended to 7-10
years (versus around 7 years before)
(c) Equity ETFs purchases, annual rate to ¥3tr (from ¥1tr)
(d) J-REITs purchases, annual rate to ¥90bn (from ¥30bn)
(e) CP and corporate bonds held outstanding will remain at current levels
Vote
5 to 4
5 to 4
Note 1: “The Bank will continue with the QQE aiming to achieve the price stability target of
2% as long as it is necessary for maintaining that target in a stable manner” (versus 2 years)
Note 2: In both cases, the policy board members voting against the above expansion
(Morimoto, Ishida, Sato and Kiuichi) wished to continue with existing policies
The BOJ is strongly
encouraging risktaking
Recent totals (31/01/2016) were as follows: 1) Equity ETFs, ¥7.2tr (end October 2014 ¥3.4tr),
2) J-REITs, ¥279bn (end October 2014 ¥165bn).The simplest source of the latest data on the
cumulative Japanese equities and JREITs purchased by the BOJ is their balance sheet,
which is released every 10 days:
http://www.boj.or.jp/en/statistics/boj/other/acmai/index.htm/
5)
10 February 2016
QQE with a Negative Interest Rate, announced on 29 January 2016, did not
change any of the QQE #2 annual purchase targets.
18
Macquarie Research
GPIF
GPIF’s ¥33tr of Japanese equity holdings (30/09/15) are around 7-8% of the market.
On Friday, 31 October 2014, the GPIF announced the adoption of a new policy asset mix:
http://www.gpif.go.jp/en/fund/pdf/adoption_of_new_policy_asset_mix.pdf
Fig 30
GPIF’s Adoption of New Policy Asset Mix, 31 October 2014, with page references
Page
1
2
4
6
7
GPIF has reviewed its policy asset mix for the third medium-term plan, which starts from April 2015.
Domestic bonds 35% ±10%
Domestic stocks 25% ± 9%
International bonds 15% ± 4%
International stocks 25% ± 8%
Alternative investments will be made within a maximum 5% of the total portfolio. Infrastructure, private equities, real estate are classified into
one of the above four categories depending on their risk and return profiles.
There will be Tactical Asset Allocation within the above approved ranges.
Must achieve a 1.7% “Real Investment Return” (nominal investment return less nominal wage increases) with the lowest risk while
maintaining liquidity necessary for the pension benefits.
Assumed investment horizon: according to the actuarial valuation, the reserve asset level is to decrease for 10 years (payout is larger than
contributions) which is followed by 15 years of increase (payout is smaller than contribution). Subsequently, the reserve asset level will
decrease again. Hence, the assumed investment horizon was set at 25 years.
Preservation of liquidity for pension benefits: As mentioned above, the reserve asset is expected to be paid out (“payout”) for 10 years to come.
During this period, sufficient liquidity is very important for pensioners. Therefore, not only did we revise our policy asset mix, but also
expanded a special fund for expected payouts between 2015 and 2019 (approximately ¥20 trillion, assumed in the Actuarial Valuation). In
this fund, some of the domestic bonds are held to maturity so that their redemptions and coupon payments meet payout for the pensioners.
GPIF presents an Upside scenario and a Downside scenario. Here the numbers are presented in brackets after a simple average.
Wage increases: 2.5% (Upside scenario 2.8%, Downside scenario 2.1%)
Implied required nominal return assuming a 1.7% Real Investment Return (above): 4.2%
Expected nominal returns:
Domestic bonds: 2.3% (Upside scenario 2.6%, Downside scenario 2.0%)
Domestic stocks: 5.6% (Upside scenario 6.0%, Downside scenario 5.2%)
International bonds: 3.6% (3.7%, 3.5%)
International stocks: 6.3% (6.4%, 6.2%)
Future real long-term interest rates are set to be 2.7% in the Upside Scenario and 1.9% in Downside Scenario respectively (Future inflation
rates are set to be 1.2% in Upside scenario and 0.9% in Downside scenario respectively). (These inflation forecasts look like GDP deflator
forecasts, with the CPI likely to be approximately 100bp higher than these numbers.)
Source: GPIF, Macquarie Research, February 2016
GPIF’s website is here: http://www.gpif.go.jp/eng/index.html. As of end 2Q FY3/16 (end
September 2015), the main allocations were as follows.
Fig 31 The breakout of the GPIF portfolio, 30 June 2015
Domestic bonds
Domestic stocks
International bonds
International stocks
Short-term assets
Total
¥tr
% of total
52.6
28.8
18.4
29.2
6.0
135.1
38.95
21.35
13.60
21.64
4.46
100.00
Recent activity
As shown above, GPIF’s Japanese equity allocation was 21.35% as of 30 September 2015,
still comfortably beneath the new policy asset mix of 25%.
In addition, since the end of September 2015 TOPIX is down approximately 4% (TOPIX 1350
versus 1411 as of 30/09/15). This implies that GPIF has the capacity to add up to ¥5tr to its
Japanese equity holdings, though some of this buying might have already have occurred.
For context, Fig 4, over FY3/05-FY3/14 (10 years), net foreign buying averaged ¥3.6tr pa,
¥0.9tr a quarter.
10 February 2016
19
Macquarie Research
Fig 32 GPIF total fund assets and Japanese exposure, by quarter
1Q FY3/10
2Q
3Q
4Q
1Q FY3/11
2Q
3Q
4Q
1Q FY3/12
2Q
3Q
4Q
1Q FY3/13
2Q
3Q
4Q
1Q FY3/14
2Q
3Q
4Q
1Q FY3/15
2Q
3Q
4Q
1Q FY3/16
2Q
Total fund assets (¥tr)
of which Japanese equities (¥tr)
(% of total)
121.9
122.1
122.5
122.8
116.8
117.6
116.3
116.3
113.7
108.8
108.1
113.6
108.2
107.7
111.9
120.5
121.0
123.9
128.6
126.6
127.3
130.9
137.0
144.0
141.1
135.1
13.7
13.6
13.6
14.7
12.7
12.6
13.7
13.4
13.1
12.4
12.0
14.2
12.8
12.3
14.4
17.6
19.0
20.2
22.1
20.9
22.0
23.9
27.1
31.7
33.0
28.8
11.2
11.1
11.1
12.0
10.9
10.7
11.8
11.5
11.5
11.4
11.1
12.5
11.8
11.5
12.9
14.6
15.2
16.3
17.2
16.5
17.3
18.2
19.8
22.0
23.4
21.4
Governance
“We shall never use
reserve assets to
influence equity
markets or to
implement
economic policies.”
GPIF’s investment principles and code of conduct are available here:
“We are committed
to making
investments solely
for the benefit of
pension recipients.”
We shall never use reserve assets to influence equity markets or to implement economic
policies. We are committed to making investments solely for the benefit of pension recipients.
http://www.gpif.go.jp/en/about/index.html
The following quote is from the “Description for investment principles” sub-link:
http://www.gpif.go.jp/en/about/pdf/description_for_investment_principles.pdf
GPIF has signed the United Nations Principles for Responsible Investment. GPIF’s first report
on its Stewardship activities is here:
http://www.gpif.go.jp/en/topics/pdf/20160129_stewardship_code_voting.pdf
Signalling effects
In addition, the moves by GPIF should be expected to have a signalling effect. The endMarch 2015 PFA allocations are shown in Fig 79. At that time, the PFA Japanese equities
and international equities allocations were 17.2% and 28.5%, respectively (versus GPIF
active portfolio targets of 25% and 25%).
Three other public sector pension funds
As reported in the Nikkei, 26 February 2015, “Civil service pension funds to mirror GPIF at
25% Japan stocks”, up from 8%, the Federation of National Public Service Personnel Mutual
Aid associations (KKR) will reduce its Japanese bond holdings from 74% to 35%, in line with
GPIF’s new policy asset mix. At end March 2014, KKR had ¥7.6tr of assets.
The article indicated that both the Pension Fund association for Local Government Officials
(¥18.9tr of assets) and the Promotion and Mutual Aid association for private schools of Japan
(¥3.8tr of assets) are likely to follow suit, converging their allocations on GPIFs. In
combination, these three funds are expected to generate ¥5tr of new Japanese equity buying.
An estimated ¥3.65tr of new Japanese
equity buying
10 February 2016
A Reuters article, 19 March 2015, “Japan public pensions to follow GPIF into stocks from
JGBs”, calculated that the Pension Fund association for Local Government Officials (¥18.9tr
of assets), the Federation of National Public Service Personnel Mutual Aid associations, KKR
(¥7.6tr), and the Promotion and Mutual Aid association for private schools of Japan (¥3.8tr of
assets) would follow GPIF’s allocation shift, resulting in ¥3.6tr of Japanese equity buying.
20
Macquarie Research
The media often refers to the above three public sector pension funds and GPIF as “the four
whales”.
GPIF Japanese equity investment style & external asset managers
The following comes from GPIF’s investment results for fiscal 2014, available here:
http://www.gpif.go.jp/en/fund/pdf/2014_q4_correction.pdf
The prior year is available here:
http://www.gpif.go.jp/en/fund/pdf/2013_q4.pdf
At the back of each document there are details by asset class, by investment style, and by
asset manager.
The combined
market value of the
JPX-Nikkei index
400 mandates as of
31/3/2015 was
¥1,667bn. This is
equivalent to 5.3%
of the Japanese
equity portfolio of
¥31,670bn
For example, the new JPX index (the JPX-Nikkei index 400) was listed as the benchmark for
three mandates in the fiscal 2013 document, all passive, with DIAM Co Ltd, Sumitomo Mitsui
Trust Bank and Mitsubishi UFJ Trust and Banking the managers. It is the same in the fiscal
2014 document.
The combined market value of the JPX-Nikkei index 400 mandates as of 31/3/2015 was
¥1,667bn. This is equivalent to 5.3% of the Japanese equity portfolio of ¥31,670bn. This
compares to just 0.7% a year before.
In addition, GPIF appointed new external managers as announced here:
http://www.gpif.go.jp/en/topics/pdf/20150206_gpifs_selection.pdf
There is also an ongoing debate about whether GPIF will be permitted to manage its equity
holdings directly, e.g. be able to manage passive equity portfolios in-house, rather than subcontracting them to outside managers.
GPIF Background
The GPIF, an independent administrative institution overseeing public pensions on behalf of
the Ministry of Health, Labour and Welfare, manages its funds via an investment advisory
committee (members are experts in finance, economics and relevant fields) and an executive
committee with its members chosen by the Minister.
GPIF’s organization chart is here: http://www.gpif.go.jp/en/about/
The Executive Committee of four is made up of the President, CIO, Planning & General
affairs and the Head Auditor
President Mitani
As reported in the Nikkei, 25 March 2014, “Japan’s pension megafund to keep boss on”,
GPIF President Mitani will stay through FY2015 as a new board structure is established.
In a Nikkei article of 1 July 2015, Pension funds to make even bigger splash in Japan’s stock
market, Mitani was quoted as follows:
"The quarterly disclosures of our portfolio may be too frequent," GPIF President Takahiro
Mitani said recently, noting that they arouse "wild speculation" about the Japanese pension
giant's moves.
The new chairman of the investment advisory committee (Yasuhiro Yonezawa) served on
Professor Ito’s “advisory panel of experts”.
CIO Mizuno
In January 2015, GPIF created a Chief Investment Officer (CIO) position, and selected
Hiromichi Mizuno to fill it. Mizuno was on GPIFs investment committee and was a partner at
Coller Capital of the UK, having previously worked at Sumitomo Trust & Banking (now
Sumitomo Mitsui Trust Bank).
GPIF’s new policy asset mix, Fig 30, includes a commitment to a more active TAA (tactical
asset allocation).
In addition to Hiromichi Mizuno, a second executive managing director position was legislated
by the Diet in April 2015, a position to focus on general affairs (and likely to be appointed from
the Ministry of Health, Labour and Welfare).
10 February 2016
21
Macquarie Research
GPIF is set to shrink
Fig 33 Number of people paying pension contributions: declining
(,000)
80,000
Number of ppl paying pension
75,000
70,000
65,000
60,000
55,000
50,000
Source: MHLW, Macquarie Research, February 2016
Fig 34 Number of people receiving pension annuities: rising
(,000)
35,000
Number of ppl receiving annuities
30,000
25,000
20,000
15,000
10,000
5,000
-
Source: MHLW, Macquarie Research, February 2016
Fig 35 GPIF’s assets under management
(¥tr)
160
Domestic bonds
Domestic equity
Overseas bonds
Overseas equity
Short-term assets
140
120
100
80
60
40
20
06/02
09/02
12/02
03/03
06/03
09/03
12/03
03/04
06/04
09/04
12/04
03/05
06/05
09/05
12/05
03/06
06/06
09/06
12/06
03/07
06/07
09/07
12/07
03/08
06/08
09/08
12/08
03/09
06/09
09/09
12/09
03/10
06/10
09/10
12/10
03/11
06/11
09/11
12/11
03/12
06/12
09/12
12/12
03/13
06/13
09/13
12/13
03/14
06/14
09/14
12/14
3/15
0
Note: Includes special injections from the government
10 February 2016
22
Macquarie Research
Case study #6: GPIF activity after the Global Financial Crisis
The market crash of 2008, which led to exposures being significantly beneath the target rate,
triggered buying.
GPIF bought heavily into the TOPIX plunge in 2H FY3/09. The GPIF ended FY3/09 with
¥11.4tr in Japanese equities, 9.69% of the then ¥117.6tr of total fund assets.
With the market drop, the GPIF aggressively bought Japanese equities between endSeptember 2008 and end-March 2009. Total purchases were ¥1.13tr in the December-end
3Q and ¥1.37tr in the March-end 4Q. Total fiscal-year net purchases of Japanese equities
were ¥2.67tr. At the fiscal year-end, the GPIF was 1.31% beneath the portfolio allocation
target.
Case study #7: GPIF activity after the March 2011 disasters
The broad stability of the equity to total fund assets ratio masks the activity to keep it so,
given the underlying decline in the equity market in FY3/12.
GPIF bought around
¥0.6tr to ¥0.9tr over
the 2Q FY3/12
GPIF bought into the TOPIX weakness of 2Q FY3/12 (July–September 2011). Based on a
simple extrapolation from the end-March 2011 TOPIX close of 869, at TOPIX 750, and no
buying of Japanese equities, GPIF’s Japanese equity allocation would have been 10.6% at
the end of 2Q FY3/12 (750/869 times 116.3/108.8). The actual 11.4% at the end of 2Q
FY3/12 implies net equity buying.
This implies GPIF could have bought as much as ¥870bn of Japanese equities (11.4% minus
10.6% times 108.8). The Nikkei, in an article on 6 December 2011, estimated it at around
¥560bn. This was the first buying since the 2009 January-March quarter.
Case study #8: External pressure & GPIF activity in the 1Q 2014
January to March 2014 saw considerable external pressure on GPIF to increase its allocation
to Japanese equities. Policymakers have focussed on the investment policies of the
Government Pension Investment Fund as part of the campaign to end entrenched
deflationary expectations.
It was also a period when TOPIX corrected materially, by 6.9% in price terms, and by 5.9%
on a total return basis (including dividends).
The market value of GPIF’s equities fell 5.7%, suggesting no material new buying. As a
percentage of the total funds, the Japanese equity exposure fell to 16.5% in 4Q FY3/14 from
17.2% in 3Q.
Summary: Public sector buying of Japanese equities
A halo effect as
other investors step
up their buying
In whatever form it might take (BSPC, BOJ, new public fund pools), aggressive direct
government buying of equities changes the risk-return profile of the market and creates a halo
effect as other investors step up their buying.
2002-04
The purchases made in 2002–04 were significant and included ¥1.3tr by the BSPC and ¥1.9tr
by the BOJ, totalling ¥3.2tr. In addition, the GPIF bought a comparable amount of Japanese
equities over 2002–04. In total, some ¥6tr was bought by public sector institutions.
1Q 2009: the global financial crisis low
The government itself actively considered plans to boost stock prices in 2009 through the
creation of additional pools of public money: (please see the 5 March 2009 Japan strategy
weekly: Waiting for the cavalry to arrive for additional details).
2010 and on into the indefinite future
Over 2010-13, purchases made by public sector institutions were led by the BOJ, with the
GPIF remaining a buyer into periods of sharp equity price declines.
The BOJ buying equity ETFs has become a regular feature of the market.
Following the announcements of 31 October 2014 by both the BOJ and the GPIF, the tempo
of public sector activity in Japan’s equity market has increased.
10 February 2016
23
Macquarie Research
Waiting for Japan Post Holdings
Japan Post Holdings has three subsidiaries: postal delivery, banking and insurance
subsidiaries. Japan Post Holdings, Japan Post Bank and Japan Post Insurance listed on 4
November 2015, raising ¥1.4tr (US$12bn) from the market.
The latest Japan Post Holdings financial highlights presentation link is available here:
https://www.japanpost.jp/en/ir/library/earnings/
Fig 36 Organization chart, 30 September 2015
Source: Japan Post Holdings financial highlights, Macquarie Research, February 2016
Upgrading the investment management team
Japan Post
Holdings
Japan Post Bank
Japan Post Holdings President Taizo Nishimuro announced at an 18 February 2015 press
conference that the company expects to establish a team for managing risk assets. The team
is expected to comprise 12 specialists.
In what we believe is an important announcement, Japan Post Bank has hired Tokihiko
Shimizu. He is an ex-Welfare Ministry bureaucrat who spent 7 years at GPIF driving the
diversification of that fund. (Source: Reuters, 24 September 2015, “Japan Post Bank to tap
former GPIF executive to boost returns”). He is known for his knowledge of alternative
investments.
Upgrading the investment team is one of five business strategies of the medium-term
business plan. To quote page 18 of the financial highlights document:
5) Sophistication of fund management with a view to greater earnings:
a) Expansion of globally diversified investment and investment in risk assets
b) Development and enhancement of the investment framework
c) Achievement of sophisticated risk management framework
Possible Japanese buying, summary
The following numbers are indicative only, with no formal announcements having been made.
+¥6.9tr
Japan Post Bank has assets of ¥208tr. A 5% allocation to Japanese equities would imply
potential buying of ¥6.9tr (¥208tr times 0.05 minus ¥3.5tr of existing stock holdings).
+¥4.9tr
Japan Post Insurance has assets of ¥87tr. A 6.6% allocation to Japanese equities (the life
insurance industry average in FY3/13) would imply potential buying of ¥4.9tr (¥87tr times
0.066 minus ¥0.8tr of existing holdings).
10 February 2016
24
Macquarie Research
1) Japan Post Bank
Taking on risk,
could potentially
increase ROA and
the overall
profitability of Japan
Post Bank and
Japan Post
Holdings
Japan Post bank is the largest deposit gatherer in Japan, through 24,000 post offices. The
bank is largely prohibited from making loans, and currently has a ¥10m deposit cap per
customer. The latter is under discussion to be raised – source, Financial Times, 19 May 2015.
Rather than loans, therefore, its assets include ¥110tr of JGBs, ¥11tr in corporate bonds,
¥30tr held at the BOJ, ¥30tr in foreign government bonds, and ¥3.3tr in stocks (all assumed
to be Japanese equities) – source, Wall Street Journal, 27 February 2015.
Activity this year has been from domestic bonds to foreign bonds and corporate bonds.
Fig 38 shows the Japan Post Bank balance sheet at 31/3/2015.
We believe that the Japanese equity assets are included in the “Money Held in Trust”
category (¥3.5tr). The footnotes to the accounts indicate that the “Japanese stocks” item is an
investment in an unlisted affiliate.
The above points are not clearly made in the latest Japan Post Holdings financial highlights
presentation, link above.
As of the 30 June 2015 non-consolidated accounts, “Money Held in Trust” was ¥3.6tr.
As of 30 September 2015, “Money Held in Trust” was back down to ¥3.5tr.
The Japan Post Bank web site in English is here:
http://www.jp-bank.japanpost.jp/en_index.html
2) Japan Post Insurance
Japan Post Insurance (Kampo), the life insurance operations of Japan Post, is reportedly
buying Japanese equities. The Nikkei, in an article entitled “Two ‘whales’ making big
splashes”, 11 February 2015, wrote:
Japan Post Insurance, a unit of Japan Post Holdings, is also boosting its exposure to stocks.
It owned 756.2 billion yen ($6.32 billion) worth of Japanese shares as of the end of 2014, the
insurer said Tuesday, more than double the amount a year earlier. Still, some 80% of its
assets are invested in Japanese bonds, and stocks represent a mere 1% or so of its huge
portfolio.
The above is not clearly visible below.
Fig 37 Japan Post Insurance assets (as of March 2014)
Currency & deposits
Loans
Securities
(of which: Held to maturity bonds)
(of which: Policy-reserve matching bonds)
(of which: Available-for-sale securities)
Others
Total
(¥tr)
Postal Life
(Kampo)
% of total
Postal Life
(Kampo)
1.7
11.0
69.4
45.3
17.9
6.0
5.0
87.1
2.0
12.6
79.7
52.0
20.6
6.9
5.7
100.0
* ‘Foreign Securities’ (Kampo), calculated as a subcategory of Securities; ‘Outward investments in Securities’ for
Private Life Insurers are listed as a separate category from Securities.
Source: Japan Post, Macquarie Research, February 2016
The link to the Japan Postal Insurance FY3/14 accounts is here: http://www.jplife.japanpost.jp/en/aboutus/financial/pdf/2014/07_p053_p085.pdf
Japan Post
Insurance’s most
recent balance
sheet is here
10 February 2016
Japan Post Insurance’s most recent balance sheet is here:
http://pdf.irpocket.com/C7181/ByiD/HiP5/ShLt.pdf
The balance sheet disclosure in the latest Japan Post Holdings financial highlights
presentation is on page 27.
25
Japan Post Bank Balance Sheet (March 2015)
Assets
(¥m)
Cash and due from banks
Cash
Due from banks
Call loans
Receivables under securities
borrowing transactions
monetary claims bought
Trading account securities
Trading Japanese Government Bonds
Money held in trust
Securities
Japanese Government Bonds
Japanese local government bonds
Commercial paper
Japanese corporate bonds
Japanese stocks (*)
Other securities
Loans
Loans on deeds
Overdrafts
Foreign exchanges
Due from foreign banks
Foreign bills bought and foreign exchanges purchased
Other assets
Domestic exchange settlement accounts-debit
Prepaid expenses
Accrued income
Derivatives other than that for trading assets
Deposits (to the fiscal loan fund)
Other securities
Tangible fixed assets
Buildings
Land
Construction in progress
Other
Intangible fixed assets
Software
Other
122,032
104
104
3,491,637
156,169,792
106,767,047
5,525,117
226,986
10,756,050
935
32,893,656
Deposits
Transfer deposits
Ordinary deposits
Savings deposits
Time deposits
Special deposits
TEIGAKU deposits
Other deposits
Payables under securities lending
transactions
Borrowed money
1,201,624
179,933
72,089
59,034
3911
44,897
47,971
39,526
8,444
95,000
-1,055
208,179,309
177,710,776
11,747,374
46,140,042
393,443
13,569,920
22,072,518
83,583,379
204,097
13,570,198
Borrowings
Foreign exchanges
Foreign bills sold
Foreign bills payable
Other liabilities
Domestic exchange settlement
accounts-credit
Income taxes payable
Accrued expenses
Unearned income
Derivatives other than that for
trading-liabilities
Asset Retirement Obligations
Other deposits
2,783,985
2,549,816
234,169
49,332
49,307
25
1,603,912
17,970
5,632
308,773
69,911
(¥m)
Reserve for employees' bonuses
Reserve for employees' retirement benefits
Reserve for directors' retirement benefits
Deferred tax liability
Acceptances and guarantees
Total liabilities
Net Assets
Common stock
Capital surplus
35,121
1,393,247
89
1,036,631
368
1,088,161
5,581
150,466
1,440,688
95,000
196,549,097
Legal capital surplus
Retained earnings
Other retained earnings
Retained earnings brought forward
Total shareholders’ equity
Net unrealised gains (losses) on availablefor-sale securities
Deferred gains (losses) on hedging
derivatives
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets
266
266
3,576,119
22,498
3,500,000
4,296,285
4,296,285
1,968,617
1,968,617
1,968,617
-1,299,999
8,464,904
-659,335
3,165,307
11,630,212
208,179,309
Note: (*) Japanese equity assets are included in the Money Held in Trust category (¥3.5tr). The footnotes to the accounts indicate that the Japanese stocks item is an investment in an unlisted affiliate.
We believe that the ¥33tr “Due from banks” asset is primarily held at the BOJ. Source: Japan Post Bank, Macquarie Research, February 2016
26
Customers' liabilities for
acceptances and guarantees
Reserve for possible loan losses
Total assets
33,301,050
136,469
33,164,580
1,961,526
8,374,084
Liabilities
Macquarie Research
10 February 2016
Fig 38
Macquarie Research
Fig 39 Japan Post Insurance (consolidated): status of investment assets
Source: Japan Post Holdings financial highlights, Macquarie Research, February 2016
We believe the
Japanese equities
owned are included
under the “Money
held in trust”
category
Again, we believe the Japanese equities owned are included under the “Money held in trust”
category.
The Columbia Business School Center on Japanese Economy and Business working paper
series #332, November 2013: Japan Post Insurance – Unjustified Favouritism by Edward
Lincoln examines Japan Postal Insurance versus its private sector competitors.
The report is available here: http://academiccommons.columbia.edu/catalog/ac%3A167206.
Japan Post Insurance is the clear market leader, below.
Fig 40 Life insurance company assets, 31 March 2013
Industry total
Japan Post Insurance
(JPI)
(Management organization)
Nippon Life Insurance
Dai-ichi Life
Sumitomo Life
Mitsui Life
Assets (¥tr)
Share (%)
358.6
104.1
90.5
13.6
54.9
35.7
26.5
7.2
100.0
29.0
25.2
3.8
15.3
10.0
7.4
2.0
Note: Post 2007 operations are labelled JPI, pre-2007 policies were transferred to the Management
Organization
Source: Japan Post Insurance – Unjustified Favouritism by Edward Lincoln, Macquarie Research, February
2016
The Japan Post Insurance – Unjustified Favouritism report also notes that as of 31 March
2013, the non-JPI life insurance assets were 6.6% invested in Japanese stocks.
Assuming current assets of around ¥87tr, very simple calculation of potential Japanese equity
buying by Japan Post Insurance is ¥4.9tr (¥87tr times 0.066 minus ¥0.8tr of existing holdings
as reported in the Nikkei on the previous page).
10 February 2016
27
Macquarie Research
Individual activity & IPOs, NISAs
The market share of
individual investors
tends to be the most
volatile of all the
investor groups
Whilst there has to be a buyer for every seller, so a domestic seller when foreigners are net
buyers, and vice versa, the market share of individual investors tends to be the most volatile
of all the investor groups.
This picked up from 18.5% in May 2012 to a high of 36.1% in May 2013, before falling back to
18.5% during January 2016.
Fig 41
Average TSE daily turnover by investor groups in 2013, an average year
Individuals
(momentum
investors)
32%
Foreigners through
structured products
(Synthetics, ETFs)
54%
Domestic
institutions (largely
Foreigners
passive)
buying/selling
8%
individual stocks
6%
Note: The above is our estimate of TSE daily turnover by investor groups in 2013. The share of foreigners
buying/selling individual stocks (shaded in red) is not believed to have changed materially since
As Fig 42 shows, back in the June 2005 through June 2006 reflation-structural reform
expectations market, individual activity as a percentage of total market activity (excluding
broker prop trading) was sustained at 35-45%.
Our belief is that while households maintain a very conservative portfolio of financial assets,
this allows them to take high-risk positions with 1–2% of their portfolios.
This also allows heavy participation in IPOs when the number of such issues surges.
Fig 42 Individual activity
50
(%)
40
30
20
10
0
Individual turnover as % of brokerage (excl. proprietary)
Individual turnover as % of total
Source: TSE, FactSet, Macquarie Research, February 2016
Households have about half of their financial assets in cash, some ¥800tr worth, equivalent to
just over 150% of GDP. The movement of just a few trillion yen would have a profound impact
on investor flows across the equity market. We believe that the government’s 2% CPI mantra
is targeted at eradicating entrenched deflationary expectations.
This should lead to, at the margin, money flowing from bank deposits into risk assets
(property and equities).
10 February 2016
28
Macquarie Research
We believe the 2005-06 experience is a useful benchmark. Fig 43 provides a monthly
indication as to whether the private sector is embracing more risk. The good news is that
investment trust sales quickly returned to the high levels of 2005-06. April and May 2013 were
record months. Investment trust sales continue to hold up well.
Investment trust
sales have quickly
returned to the high
levels of 2005-06
Investment trust
sales continue to
hold up well
Fig 43
14
Sales of publicly offered investment trusts
New sales
(¥tr)
12MMA
12
10
8
6
4
2
0
Source: Japan Investment Trust Association, Macquarie Research, February 2016
We believe shares bought on margin in 2005-06 are another useful benchmark, some ¥5-6tr.
Behind the chart of individual margin activity (value basis) below, is Fig 45, the ratio of shares
bought on margin to shares sold on margin.
We believe shares
bought on margin in
2005-06 are another
useful benchmark,
some ¥5-6tr
Fig 44 Individual margin activity (value): shares bought on margin in grey
7
(¥tr)
Shares sold short
Shares bought on margin
6
5
4
3
2
1
0
Fig 45 Long/short ratio (the ratio of shares bought on margin to shares sold on
margin), 08/2002 to latest
8
(x)
Individual margin (value base)
7
6
5
4
3
2
1
0
10 February 2016
29
Macquarie Research
One change in the cycle is that individuals are permitted to trade intra-day on the same
margin position. To quote the Nikkei, 6 February 2013: Under the previous rule, an investor
who bought shares with a deposit had to put up a fresh deposit if he or she wanted to make
another purchase before the shares were delivered, usually in about three business days. But
a change that took effect Jan. 1 allows the investor to reuse the deposit for the next purchase
as long as the shares are sold beforehand.
The IPO market is now reawakening, Fig 46.
The IPO market is
now reawakening
Fig 46
Monthly breakdown in number of IPOs
CY00
CY01
CY02
CY03
CY04
CY05
CY06
CY07
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
1
15
18
17
4
16
19
20
28
23
12
30
2
15
12
14
6
13
18
19
17
14
9
30
3
16
15
13
4
13
7
2
13
14
6
18
4
14
16
12
2
7
7
4
16
8
8
23
3
17
18
13
4
14
15
9
16
19
26
21
0
19
16
17
3
20
8
11
14
9
10
31
1
23
20
20
3
26
8
11
15
17
14
30
0
20
23
13
3
14
4
12
4
12
7
9
0
9
12
1
1
1
1
4
3
4
4
9
0
0
6
1
0
2
1
0
4
1
1
3
0
0
6
2
0
4
1
0
2
1
0
6
0
0
8
2
0
6
2
1
3
6
1
9
0
1
6
6
1
4
3
1
3
4
4
14
0
4
9
2
0
5
4
2
3
3
5
17
0
1
11
6
1
7
4
0
8
7
4
28
0
6
15
12
0
10
6
7
6
5
7
18
0
1*
5*
203
169
124
121
175
158
188
121
49
19
22
38
47
54
77
92
0
January
February
March
April
May
June
July
August
September
October
November
December
Total
There is the potential for a virtuous cycle of individuals making money on IPOs, investing into
the next and so on, with gains spilling over into the secondary market, and a bull market in
small/mid-cap companies.
Note: (*) includes planned IPOs
Source: Trader’s Net, Macquarie Research, February 2016
We highlighted the years when small caps have outperformed TOPIX in the table below:
Fig 47 TOPIX Annual Returns (%)
Annual Returns
12/2001
12/2002
12/2003
12/2004
12/2005
12/2006
12/2007
12/2008
12/2009
12/2010
12/2011
12/2012
12/2013
12/2014
12/2015
Since start Nov 2012 to latest
TOPIX 1st
Section
TOPIX
Core 30
TOPIX Small
TOPIX
Mid 400
TOPIX
Large 70
-19.6
-18.3
23.8
10.2
43.5
1.9
-12.2
-41.8
5.6
-1.0
-18.9
18.0
51.5
8.1
39.3
84.4
-24.2
-21.4
15.2
5.1
34.6
7.5
-12.9
-46.3
3.5
-4.2
-25.4
24.4
51.8
1.9
37.1
71.7
-8.7
-11.5
33.9
22.3
58.7
-12.2
-16.4
-32.0
2.6
2.0
-7.8
19.0
45.1
11.8
31.8
82.6
-13.8
-14.6
32.0
11.7
46.4
-2.2
-12.0
-37.1
3.6
-1.1
-12.7
14.2
52.8
11.2
40.8
98.0
-21.4
-20.1
22.8
9.0
43.9
6.0
-10.0
-43.4
12.2
2.8
-20.5
13.5
51.6
12.3
43.2
87.1
Note: Prices as of 5 February 2016
The IPO market was remarkably quiet over 2009 and 2010. The number of listings in 2009 at
19 was the lowest since 1978. The 10 November 2010 PEC’s strategy weekly: Venture
capital and the IPO market explained that, beneath a moribund IPO market, there was a
venture capital industry in distress.
The recovery in the number of annual IPOs since 2009-10 is still around half the number of
annual IPOs over 2001-07. Fig 59 details all Japanese IPOs since 2011.
10 February 2016
30
Macquarie Research
Fig 48
IPOs and secondary offers in value terms
¥tr
7
IPO
Secondary Offerings
6
5
4
3
2
1
0
Note: FY3/16 is not annualised
The following charts show the share price performance since the start of 2012 for companies
involved in the margin lending, venture capital, stock exchange and broking industries.
Fig 49
1,100
Japan Securities Finance (8511)
Fig 50 Daiko Clearing Services (8692)
1,400
(¥)
Japan Securities Finance
1,000
(¥)
Daiko Clearing Services
1,200
900
1,000
800
700
800
600
600
500
400
400
200
300
Fig 51
Fig 52
7,000
JAFCO (8595)
2,000
(¥)
SBI Holdings (8473)
(¥)
SBI Holdings
1,800
6,000
1,600
5,000
1,400
1,200
4,000
1,000
3,000
800
2,000
1,000
10 February 2016
JAFCO
600
400
31
Macquarie Research
Fig 53
2,500
Japan Exchange Group (8697)
Fig 54 Nomura Holdings (8604)
1,100
(¥)
Japan Exchange Group
(¥)
Nomura Holdings
1,000
900
2,000
800
1,500
700
600
1,000
500
400
500
300
200
0
Fig 55
Fig 56 Okasan Securities (8609)
1,100
Daiwa Securities Group (8601)
1,400
(¥)
(¥)
Okasan Securities
1,000
1,200
900
1,000
800
700
800
600
600
500
400
400
300
200
200
Fig 57
Fig 58 Monex Group (8698)
1,200
Tokai Tokyo Financial Holdings (8616)
600
(¥)
(¥)
Tokai Tokyo Financial Holdings
1,100
Monex Group
500
1,000
900
400
800
700
600
300
200
500
400
100
300
200
10 February 2016
0
32
Macquarie Research
Fig 59
IPO listings, 2011-2015: latest first. Companies with a market cap over ¥100bn highlighted in grey
IPO
date
Code Name
2015
12/25
12/24
12/24
12/22
12/22
12/21
12/21
12/18
12/18
12/18
12/17
12/17
12/16
12/15
12/11
12/09
12/04
12/03
11/27
11/20
11/19
11/19
11/04
11/04
11/04
10/28
10/27
10/23
10/22
10/15
09/17
9/15
9/14
9/08
9/02
9/02
8/31
8/28
8/28
8/26
8/11
8/05
8/04
7/30
7/29
7/16
7/10
7/8
7/7
6/29
6/25
6/25
6/25
6/24
6/24
6/18
6/17
6/16
6/16
4/30
4/30
4/28
4/28
4/28
4/24
4/22
6186
3465
3929
3464
6185
3928
9416
3419
3927
6238
3926
4595
6464
3925
3924
3923
6184
1435
3921
6183
6182
7183
6178
7181
7182
3418
6181
6180
4594
6177
6176
3920
3416
1434
1433
3415
6173
3139
6172
6171
3461
1431
3918
6049
4980
3917
7781
7812
3138
6239
3137
6167
7780
3136
6166
3916
3135
4593
9417
3915
6048
3914
6046
6047
6044
6040
ICHIKURA Co., Ltd.
KI-Star Real Estate Co., Ltd.
SocialWire Co., Ltd.
PROPERTY AGENT, Inc.
So-net Media Networks Corp.
Mynet, Inc.
Vision, Inc.
ArtGreen Co. Ltd.
Ahkun Co., Ltd.
FuRyu Corp.
Open Door, Inc.
Mizuho Medy Co., Ltd.
Tsubaki Nakashima Co., Ltd
Double Standard Inc.
R&D Computer Co. Ltd.
RAKUS Co., Ltd.
Kamakura Shinsho, Ltd.
Investors Cloud Co. Ltd.
NEOJAPAN Inc.
BELLSYSTEM24 Holdings, Inc.
Rozetta Corp.
Anshin Guarantor Service Co., Ltd.
Japan Post Holdings Co. Ltd.
Japan Post Insurance Co., Ltd.
Japan Post Bank Co., Ltd.
Balnibarbi Co., Ltd.
Partner Agent, Inc.
GMO Media, Inc.
GreenPeptide Co., Ltd.
AppBank, Inc.
Brangista, Inc.
Internetworking & Broadband Consulting
PIXTA, Inc.
JESCO Holdings, Inc.
Besterra Co., Ltd
STUDIOUS Co., Ltd.
Aqualine Ltd.
Lacto Japan Co., Ltd.
Metaps, Inc.
C.E.Management Integrated Laboratory
Palma Co., Ltd.
SK home Co.Ltd.
PCI Holdings Inc.
ItoKuro Inc.
Dexerials Corp.
iRidge, Inc.
HIRAYAMA Corp.
Crestec, Inc.
Fujisan Magazine Service Co.Ltd.
Nagaoka
Fundely Co.Ltd.
Fujilloy
Menicon Co.Ltd.
Eco-nos
Nakamura Choukou Co. Ltd
Digital Information Technologies Corp
MarketEnterprise Co.Ltd
Healios KK
Smartvalue Co.Ltd.
TerraSky Co., Ltd.
DesignOne
Jig-Saw
Linkbal
Gunosy
Sanki Service
Nippon Ski Resort Development
10 February 2016
Listing
Exchange
Tokyo 2nd
Tokyo 2nd
Mothers
JASDAQ
Mothers
Mothers
Mothers
Nagoya
Mothers
Tokyo 1st
Mothers
JASDAQ
Tokyo 1st
Mothers
Tokyo 2nd
Mothers
Mothers
Mothers
Mothers
Tokyo 1st
Mothers
Mothers
Tokyo 1st
Tokyo 1st
Tokyo 1st
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Tokyo 2nd
Mothers
Mothers
Mothers
Tokyo 2nd
Mothers
Tokyo 2nd
Mothers
JASDAQ
Mothers
Mothers
Mothers
Mothers
JASDAQ
JASDAQ
Mothers
JASDAQ
Mothers
Tokyo 2nd
Tokyo 1st
Mothers
JASDAQ
Mothers
Mothers
JASDAQ
Mothers
Mothers
Mothers
Mothers
Mothers
JASDAQ
Mothers
Market cap (¥bn)
IPO price (¥)
5.7
8.7
3.0
3.1
7.8
5.3
14.7
0.5
8.3
28.3
26.2
4.1
61.6
7.0
3.4
18.1
3.2
45.0
5.9
83.6
6.2
4.3
6,385.5
1,407.0
5,926.5
6.5
4.3
5.1
13.3
13.2
22.2
4.9
4.1
2.9
8.5
5.5
1.6
5.7
22.1
3.4
1.2
0.9
7.8
29.2
74.9
9.4
2.4
3.0
5.6
1.9
4.5
10.6
68.8
0.3
16.5
9.2
4.3
42.5
2.7
18.6
10.5
31.3
2.9
10.9
3.2
13.7
1210
1200
1600
1400
2300
1680
2000
420
1360
3200
3820
1100
1550
2190
1760
1080
1000
1870
2900
1555
695
1460
1400
2200
1450
2500
1260
2740
450
1200
450
1,870
540
2,500
2,870
1,250
1,400
4,400
1,250
1,350
2,430
800
2,530
1,930
1,600
1,200
2,130
960
2650
1,600
765
530
1,700
600
1,700
1,300
1,500
1,200
1,580
1,700
2,750
1,520
1,540
1,750
3,570
3,620
% change
One month
(from IPO to average daily
Close (¥)
the latest)
T/O
1210
1200
1600
1400
2300
1680
2000
420
1360
3200
5,000
1,736
1,523
2,263
1,725
1,530
1,600
5,890
1,663
1,098
1,307
2,149
1,392
2,283
1,302
1,508
1,332
2,730
410
1,938
1,443
913
1,810
457
3,070
2,391
850
1,175
1,686
1,025
887
764
4,350
2,528
1,156
3,370
1,388
903
3,450
923
709
533
3,815
440
3,940
2,405
840
1,023
1,200
12,810
1,550
4,640
870
483
565
1,681
1210
1200
1600
1400
2300
1680
2000
420
1360
3200
30.9
57.8
-1.7
3.3
-2.0
41.7
60.0
215.0
6.9
-29.4
88.1
47.2
-0.6
3.8
-10.2
-39.7
5.7
-0.4
-8.9
61.5
220.7
-51.2
235.2
-81.7
7.0
91.3
-39.3
-73.3
34.9
-24.1
-63.5
-4.5
71.9
31.0
-27.8
180.8
-34.8
-5.9
30.2
-42.3
-7.3
0.6
124.4
-26.7
131.8
85.0
-44.0
-14.8
-24.1
653.5
-43.6
205.3
-43.5
-72.4
-84.2
-53.6
1210
1200
1600
1400
2300
1680
2000
420
1360
3200
4.9
0.7
5.9
1.8
0.2
0.5
0.3
30.2
1.2
3.8
1.2
0.2
77.4
27.2
76.1
0.6
0.1
0.3
42.2
4.6
7.0
0.7
0.1
0.1
1.4
0.2
0.0
0.5
7.7
0.2
0.0
0.0
2.6
2.0
5.7
5.9
0.0
0.2
0.2
0.0
0.1
0.1
2.3
0.0
2.3
0.2
0.1
0.9
0.1
1.7
1.0
26.1
0.0
1.9
0.1
0.2
33
Macquarie Research
Fig 59
IPO
date
% change
One month
Close (¥)
the latest)
T/O
Code Name
Listing
Exchange
Market cap (¥bn)
IPO price (¥)
4/21
4/20
4/17
4/8
3/27
3/26
3/26
3/26
3/25
3/25
3/25
3/24
3/24
3/24
3/19
3/19
3/19
3/17
3/17
2/23
2/20
2/19
2/18
2/18
2/12
3458
3134
3133
4592
3913
6039
7813
3912
3131
3457
3911
1430
6038
3445
3224
3223
3909
3908
3910
3907
1384
3906
6037
3454
6036
CRE
Hamee
Kaihan
Sanbio
sMedio
JARMeC
Platz
Mobile Factory
Shinden Hightex Corporation
HouseDo
Aiming
First Corporation
iid
RS Technologies
Human Web
SLD Entertainment
Showcase
Collabos
MK System
Silicon Station
Hokuryo
Albert
Fast Logic
F Brothers
KeePer
Tokyo 2nd
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
JASDAQ
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
JASDAQ
Mothers
Mothers
JASDAQ
Mothers
Tokyo 2nd
Mothers
Mothers
Mothers
Mothers
12.6
4.5
2.2
40.6
2.4
3.4
1.8
4.5
3.2
11.0
19.4
11.7
3.5
12.8
3.9
2.3
4.6
2.6
3.9
6.1
6.5
3.6
17.4
9.4
10.6
2,530
1,020
2,000
2,520
1,410
1,130
3,260
1,410
2,740
3,600
920
1,600
1,400
2,750
1,800
1,650
1,800
3,620
3,500
4,900
460
2,800
1,770
2,040
2,120
2,150
2,350
1,204
900
1,243
1,401
1,910
1,826
1,700
2,493
532
957
703
2,350
2,514
1,810
2,850
3,560
1,359
2,400
880
1,603
3,100
1,260
1,508
-15.0
130.4
-39.8
-64.3
-11.8
24.0
-41.4
29.5
-38.0
-30.8
-42.2
-40.2
-49.8
-14.5
39.7
9.7
58.3
-1.7
-61.2
-51.0
91.3
-42.8
75.1
-38.2
-28.9
0.1
0.3
0.1
1.1
0.2
0.2
0.1
0.7
0.1
0.7
3.9
0.3
0.2
0.1
0.2
0.0
0.7
0.2
0.3
0.6
0.3
2.3
1.2
1.6
0.2
2014
12/26
12/25
12/25
12/25
12/24
12/24
12/24
12/22
12/22
12/19
12/19
12/18
12/18
12/18
12/17
12/17
12/17
12/16
12/16
12/16
12/16
12/16
12/15
12/12
12/11
12/11
12/11
12/11
11/27
11/26
11/13
11/7
10/30
10/22
10/22
10/21
10/16
10/9
10/8
9/30
9/30
6034
6033
7815
3904
3199
3905
3221
6032
9517
6031
9551
6030
3903
2883
2586
4248
7175
6029
3198
9418
3902
3901
6028
3900
3452
7816
6026
6027
3698
6025
3697
6099
9467
3694
3696
3695
6098
3197
6240
3196
3692
MRT
Extreme
Tokyo Board Industries
Kayac
Watahan &
Datasection
Yossix
Interowkrs
eRex
Scigineer
Metawater
Adventure
gumi
Dairei
Fruta Fruta
Takemoto Yohki
Imamura Securities
artra
SFP Dining
U-Next
Medical Data Vision
MarkLines
TechnoPro Holdings
CrowdWorks
B-Lot
Snow Peak
GMO Tech
Bengo4.com
CRI Middleware
Japan PC Service
Shift
Elan
Alphapolis
OPTiM
CERES
GMO Research
Recruit Holdings
SKYLARK
YAMASHIN-FILTER
HOTLAND
FFRI
Mothers
Mothers
Tokyo 2nd
Mothers
Tokyo 2nd
Mothers
JASDAQ
Mothers
Mothers
Mothers
Tokyo
Mothers
Tokyo
Tokyo 2nd
Mothers
Tokyo 2nd
JASDAQ
Mothers
Tokyo 2nd
Mothers
Mothers
JASDAQ
Tokyo
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Nagoya
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Tokyo
Tokyo
Tokyo 2nd
Mothers
Mothers
4.4
1.8
4.1
9.4
14.5
4.8
17.9
6.8
24.4
4.8
62.0
12.4
17.9
10.0
1.0
9.2
3.6
8.3
44.4
17.3
9.4
6.2
108.7
5.7
4.8
21.5
2.5
15.9
7.6
0.7
11.9
9.4
13.7
27.4
9.4
1.8
2,077.6
258.7
5.1
24.8
50.5
800
1,400
2,180
560
640
520
2,640
1,750
1,170
2,560
2,400
2,500
3,300
1,800
4,290
900
1,350
740
1,940
3,000
5,180
1,980
1,950
760
2,010
2,300
5,800
1,230
2,400
480
1,300
1,750
2,200
4,000
1,860
2,100
3,100
1,200
2,800
2,110
1,450
1,713
1,508
1,095
1,246
1,448
455
1,680
694
1,771
2,249
2,399
5,420
580
1,650
991
1,541
1,330
1,011
1,506
1,016
1,930
1,902
3,035
415
1,188
3,045
2,235
2,145
1,662
500
811
1,292
2,710
4,130
990
1,048
3,645
1,331
410
1,334
6,160
114.1
7.7
-49.8
122.5
126.3
-12.5
-36.4
-60.3
51.4
-12.1
0.0
116.8
-82.4
-8.3
-76.9
71.2
-1.5
36.6
-22.4
-66.1
-62.7
-3.9
55.6
-45.4
-40.9
32.4
-61.5
74.4
-30.8
4.2
-37.6
-26.2
23.2
3.3
-46.8
-50.1
17.6
10.9
-85.4
-36.8
324.8
0.1
0.1
0.0
0.3
1.9
1.2
0.4
0.2
12.7
0.3
3.8
1.0
4.1
0.1
0.0
0.2
0.0
0.4
0.8
1.3
1.1
0.3
9.2
0.2
0.4
0.8
0.1
0.5
0.7
0.0
0.9
0.2
0.5
0.8
15.5
0.0
58.9
6.7
0.1
0.7
18.4
10 February 2016
34
Macquarie Research
Fig 59
IPO
date
Code Name
Listing
Exchange
9/25
9/24
9/19
9/18
9/17
9/11
7/23
7/15
7/10
7/2
6/27
6/27
6/25
6/25
6/24
6/18
6/16
5/23
4/23
4/23
4/23
4/18
4/8
4/8
3/28
3/26
3/26
3/25
3/20
3/19
3/18
3/13
3/12
3/12
3/6
2/13
4591
3195
3300
3691
3690
7172
6097
3689
3193
3688
6096
6095
4979
4247
6094
3299
7169
3297
9024
3192
3687
3191
9090
6616
6093
7779
3686
3685
3190
6740
6810
4246
6092
9414
3683
4589
RIBOMIC
GENERATION PASS .
AMBITION
REALWORLD.
LOCKON
Japan Investment Adviser
NIPPON VIEW HOTEL
IGNIS
Torikizoku
VOYAGE GROUP
RareJob
MedPeer
OAT Agrio
POVAL KOGYO
FreakOut
Mugen Estate
Newton Financial Consulting
Toubu Jyuhan
Seibu Holdings
Shirohato
Fixstars
Joyful Honda
Maruwa Unyu Kikan
Torex Semiconductor
Escrow Agent Japan
Cyberdyne
DLE
Mina no Wedding
Hotman
JDI
Hitachi Maxell Ltd.
DNC
Enbio
BS11
Cyber L
Acucela
2013
12/24
12/19
12/19
12/19
12/19
12/18
12/18
12/18
12/18
12/17
12/13
12/11
12/11
12/10
12/9
12/6
12/3
11/29
11/22
11/20
11/20
11/19
10/22
10/8
10/4
9/25
9/20
9/13
8/29
8/13
6090
6089
7167
4245
6086
6088
6085
6087
3294
3293
1429
3682
6084
3681
3680
4588
6082
6081
3679
3678
6080
3189
3677
6079
6078
5698
3288
3187
6077
6076
HMT
Will Group
Ashikaga Holdings
Daiki Axis
Shin Pro Maint
SIGMAXYZ
Architects Studio Japan
ABIST
e'grand
AZUMA HOUSE
Nippon Aqua
Encourage Technologies
O-uccino
V-cube
Hotto Link
Oncolys BioPharma
Ride On Express
Allied Architects
Zigen
MEDIA DO
M&A Capital Partners
ANAP
System Information
ENERES
Value HR
Envipro
Open House
Sanwa Company
N field
Amaze
10 February 2016
% change
One month
Close (¥)
the latest)
T/O
Market cap (¥bn)
IPO price (¥)
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Tokyo 2nd
Mothers
JASDAQ
Mothers
Mothers
Mothers
Tokyo 2nd
Nagoya 2nd
Mothers
Mothers
JASDAQ
JASDAQ
Tokyo
JASDAQ
Mothers
Tokyo
Tokyo 2nd
JASDAQ
JASDAQ
Mothers
Mothers
Mothers
JASDAQ
Tokyo
Tokyo
Tokyo
Mothers
Tokyo 2nd
JASDAQ
Mothers
8.9
3.3
3.0
6.8
10.5
21.0
16.0
10.6
26.3
14.1
3.2
3.5
7.5
1.5
21.7
21.5
21.8
1.3
796.8
2.1
11.3
120.7
35.1
14.2
4.9
231.3
15.4
5.9
3.6
153.4
87.6
130.8
2.7
19.6
4.8
54.3
2,300
1,200
960
2,530
1,300
2,550
2,200
1,900
2,800
2,400
1,170
4,000
4,200
980
2,000
1,200
3,320
1,250
1,600
520
3,450
2,700
3,400
5,000
2,700
3,700
1,200
2,800
520
900
2,070
1,600
580
1,820
2,400
1,800
740
1,610
1,980
2,490
1,600
1,894
1,643
1,702
2,280
1,143
1,302
413
1,358
1,130
3,470
1,794
1,123
1,505
2,309
542
1,600
2,317
2,102
1,281
1,199
1,793
869
760
498
247
1,626
1,775
486
1,103
998
1,405
-67.8
34.2
106.3
-1.6
23.1
-25.7
-25.3
-10.4
-18.6
-52.4
11.3
-89.7
-67.7
15.3
73.5
49.5
-66.2
20.4
44.3
4.2
-53.6
-14.2
-38.2
-74.4
-55.6
-51.5
-27.6
-72.9
-4.2
-72.6
-21.4
10.9
-16.2
-39.4
-58.4
-21.9
1.4
0.1
2.3
5.9
12.3
1.8
0.6
0.4
1.0
5.1
0.1
0.1
0.3
0.0
2.1
3.0
0.1
0.1
20.3
0.0
0.5
2.2
1.1
0.6
0.9
40.6
1.2
0.2
0.0
21.9
6.1
3.5
0.1
0.6
#N/A
4.6
Mothers
Tokyo 2nd
Tokyo 1st
Tokyo 2nd
Mothers
Mothers
Mothers
JASDAQ
JASDAQ
JASDAQ
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
Mothers
JASDAQ
JASDAQ
Mothers
JASDAQ
Tokyo 2nd
Tokyo 1st
Mothers
Mothers
Fukuoka
4.6
7.6
119.3
5.2
2.5
8.9
2.5
8.7
4.9
6.3
14.1
7.1
1.3
16.9
5.5
4.4
22.0
2.0
30.0
10.5
24.4
1.1
3.8
15.4
5.2
4.3
111.1
6.4
12.5
11.8
1,400
2,870
420
1,300
950
3,010
2,050
3,450
3,300
1,600
1,650
1,730
3,500
3,300
2,700
2,600
2,000
1,700
600
3,300
3,000
1,000
740
280
2,000
700
1,780
950
1,500
730
850
841
354
831
1,380
425
1,605
2,174
765
1,570
393
1,960
984
881
493
471
2,151
440
564
1,056
1,689
486
613
315
1,811
658
1,876
399
951
761
-39.3
-70.7
-15.7
-36.1
45.3
-85.9
-21.7
-37.0
-76.8
-1.9
-76.2
13.3
-71.9
-73.3
-81.7
-81.9
7.5
-74.1
-6.0
-68.0
-43.7
-51.4
-17.2
12.5
-9.5
-6.0
5.4
-58.0
-36.6
4.2
0.2
0.3
3.5
0.1
0.2
0.5
0.0
0.4
#N/A
0.0
0.3
0.2
0.0
2.8
1.0
0.4
2.4
0.0
0.7
0.6
0.7
0.0
0.1
1.3
0.1
0.0
9.7
0.3
1.1
0.1
35
Macquarie Research
Fig 59
IPO
date
% change
One month
Close (¥)
the latest)
T/O
Code Name
Listing
Exchange
Market cap (¥bn)
IPO price (¥)
7/30
7/10
7/10
7/3
6/27
6/27
6/26
6/13
6/11
4/25
4/9
3/27
3/22
3/19
3/19
3/15
3/15
3/14
3/13
3/12
2/20
2/14
2/14
2/13
3186
3185
6075
2587
6074
3184
4978
6248
4587
3674
1420
1419
3673
7215
6073
9025
2588
3672
3182
3671
3670
3181
3180
4586
Nextage
Dream Vision
Photocreate
Suntory Beverage & Food
JSS
ICDA
ReproCELL
Yokota Manufacturing
PeptiDream
aucfan
Sanyo Homes
Tama Home
Broadleaf
Faltec
ASANTE INCORPORATED
Konoike Transport
Water Direct
AltPlusInc.
Oisix Inc.
Softmax
Kyoritsu Computer & Communication
Kaitori Okoku
Beauty Garage
Medrx
Mothers
Mothers
Mothers
Tokyo 1st
JASDAQ
JASDAQ
JASDAQ
JASDAQ
Mothers
Mothers
Tokyo 2nd
Tokyo 1st
Tokyo 1st
Tokyo 2nd
Tokyo 2nd
Tokyo 1st
Mothers
Mothers
Mothers
Mothers
JASDAQ
JASDAQ
Mothers
Mothers
6.2
3.7
1.6
1,668.6
1.8
2.9
21.2
1.6
197.0
6.2
6.0
12.3
28.1
13.0
18.9
82.3
4.1
3.1
11.7
2.4
2.1
1.0
4.6
3.2
1,700
2,600
1,670
3,100
950
1,900
3,200
720
2,500
2,600
700
980
1,080
3,940
930
1,020
1,200
1,500
1,200
1,300
1,500
900
2,300
1,000
583
689
1,165
5,350
877
1,389
367
850
3,770
626
475
408
1,106
1,390
1,525
1,441
502
332
1,911
1,180
1,763
531
768
463
-65.7
-73.5
-30.2
72.6
-7.7
-26.9
-88.5
18.1
50.8
-75.9
-32.1
-58.4
2.4
-64.7
64.0
41.3
-58.2
-77.9
59.3
-9.2
17.5
-41.0
-66.6
-53.7
0.4
0.1
0.0
35.3
0.0
0.0
7.3
0.0
31.8
0.3
0.2
0.2
1.0
0.1
0.2
1.3
0.0
0.8
0.2
0.0
0.0
0.0
0.1
0.2
2012
12/21
12/21
12/20
12/20
12/20
12/19
12/19
12/14
12/13
12/13
12/11
12/11
12/7
12/6
11/30
11/21
11/15
11/12
10/23
10/23
10/19
10/4
9/28
9/25
9/19
8/7
7/24
7/19
7/13
6/26
6/22
6/22
6/20
5/29
4/27
4/26
4/25
04/20
04/04
03/27
03/15
03/14
6072
3261
2931
6165
3179
3669
7164
3178
4929
3668
3667
4585
3666
6071
4584
3280
6070
3177
3896
3176
6069
9386
6067
3175
9201
6065
3665
9419
6064
3664
3174
6618
6063
2930
6062
6061
6060
6059
3662
6058
7157
3661
Jibannet
Grandes
Euglena
Punch Industry
Syuppin
Mobile Create
Zenkoku Hosho
Chimney
Adjuvant
COLOPL
Enish
UMN Pharma
Tecnos Japan
IBJ
Gene Techno Science
STrust
CAREERLINK
Arigatou Services
AWA Paper Mfg.
Sanyo Trading
Trenders Inc.
Nippon Concept
Media F
APC
JAL
Success HD
Enigmo
WirelessGate
ACTCALL
mobcast
Happiness & D
Ohizumi Mfg
Emergency Assistance Japan
Kitanotatsujin
Charm Care
Universal Engeisha
Cocolonet
Uchiyama Holdings
Ateam
VECTOR
Lifenet Insurance
m-up Inc
Mothers
Fukusho Q
Mothers
Tokyo 2nd
Mothers
Mothers
Tokyo 1st
Tokyo 2nd
Tokyo 2nd
Mothers
Mothers
Mothers
JASDAQ
JASDAQ
Mothers
Mothers
Mothers
JASDAQ
Tokyo 2nd
Tokyo 2nd
Mothers
JASDAQ
Mothers
Mothers
Tokyo 1st
JASDAQ
Mothers
Mothers
Mothers
Mothers
Mothers
JASDAQ
Mothers
Sapporo
JASDAQ
JASDAQ
JASDAQ
JASDAQ
Mothers
Mothers
Mothers
Mothers
7.1
1.0
129.7
8.6
14.6
9.1
258.9
52.5
7.8
256.0
4.0
17.5
14.6
15.5
5.1
3.8
9.5
2.8
6.7
18.6
1.5
11.8
2.1
9.8
1,478.4
6.5
15.1
15.7
2.0
4.9
1.8
2.3
2.9
6.0
2.5
4.4
3.1
10.6
31.0
34.2
19.4
4.2
720
360
1,700
560
330
3,000
980
1,000
1,250
3,000
800
1,300
1,540
1,450
1,200
1,350
420
1,170
370
460
2,550
1,020
900
2,350
3,790
2,050
1,750
1,200
1,700
800
1,900
350
1,100
1,100
950
1,310
945
1,480
1,080
1,000
1,000
1,130
304
830
1,572
779
1,222
386
3,530
2,645
975
2,004
539
1,787
2,739
419
1,719
617
1,508
3,005
651
1,326
400
903
442
1,325
4,068
1,220
688
1,498
1,601
333
720
292
1,150
530
1,496
1,740
803
488
1,573
2,213
388
548
-57.8
130.6
-7.5
39.1
270.3
-87.1
260.2
164.5
-22.0
-33.2
-32.6
37.5
77.9
-71.1
43.3
-54.3
259.0
156.8
75.9
188.3
-84.3
-11.5
-50.9
-43.6
7.3
-40.5
-60.7
24.8
-5.8
-58.4
-62.1
-16.6
4.5
-51.8
57.5
32.8
-15.0
-67.0
45.6
121.3
-61.2
-51.5
0.8
0.0
8.1
0.1
1.8
1.7
8.8
0.4
0.1
23.6
1.0
2.5
4.9
0.9
0.6
0.4
0.2
0.1
1.3
0.3
0.1
0.1
0.0
0.3
113.0
0.0
0.6
1.5
0.1
1.0
0.0
0.0
0.3
0.2
0.0
0.0
0.0
0.2
2.3
1.5
0.2
0.5
10 February 2016
36
Macquarie Research
Fig 59
IPO
date
Code Name
Listing
Exchange
03/09
03/08
03/06
02/22
3173
3660
3172
3171
Osaka Kohki
istyle inc.
Tea Life
MV Kyushu
JASDAQ
Mothers
JASDAQ
JASDAQ
2011
12/22
12/22
12/21
12/20
12/20
12/19
12/16
12/14
12/13
12/07
11/29
10/28
10/28
10/26
10/24
10/21
10/20
09/27
09/22
08/12
07/21
07/20
06/29
06/29
06/24
06/23
06/23
06/09
03/23
03/15
03/11
03/11
03/03
3169
3170
9206
4583
4977
6055
6619
3659
3277
6054
1383
3444
3658
3657
7777
3276
4582
3656
3655
3654
3653
4579
1909
6626
2882
3275
3652
3168
3649
7150
2229
3648
3646
Misawa & Co.
Aisei Pharmacy
Star Flyer
Chiome Bioscience
Nitta Gelatin
Japan Material
W-SCOPE
NEXON
Sansei Landic
Livesense
Berg Earth
Kikuchi Seisakusho
eBook Initiative Japan
Poletowin Pitcrew Holdings
3-D Matrix
Japan Property Management Center
SymBio Pharmaceuticals
KLab
BrainPad
Hito-Communications
Morpho
RaQualia Pharma
Nippon Dry Chemical
Semitec
Eat&
Housecom
Digital Media Professionals
Kurotani
PSC
Shimane Bank
Calbee
AGS
Ekitan
Mothers
JASDAQ
Tokyo 2nd
Mothers
Tokyo 2nd
Tokyo 2nd
Mothers
Tokyo 1st
JASDAQ
Mothers
JASDAQ
JASDAQ
Mothers
Mothers
JASDAQ
JASDAQ
JASDAQ
Mothers
Mothers
JASDAQ
Mothers
JASDAQ
Tokyo 2nd
JASDAQ
JASDAQ
JASDAQ
Mothers
Tokyo 2nd
JASDAQ
Tokyo 2nd
Tokyo 1st
Tokyo 2nd
Mothers
% change
One month
Close (¥)
the latest)
T/O
Market cap (¥bn)
IPO price (¥)
5.1
55.5
4.1
13.7
700
840
510
1,250
744
921
951
1,811
6.3
9.6
86.5
44.9
0.1
12.9
0.1
0.1
4.0
10.4
10.7
10.6
11.9
38.4
62.0
806.6
6.0
8.1
1.2
15.4
3.1
18.9
19.1
24.8
6.0
25.7
4.5
31.0
27.0
5.9
6.9
4.0
9.9
5.2
4.8
4.1
22.3
6.8
661.3
8.2
5.5
860
3,460
3,180
2,700
500
2,650
2,500
1,300
500
990
740
1,100
760
2,250
2,100
1,600
560
1,700
2,200
2,700
2,250
1,600
2,040
1,250
2,860
600
2,400
1,200
1,000
560
2,100
950
2,780
551.0
4,535.0
3,620.0
475.0
641.0
2,200.0
4,220.0
1,794.0
743.0
278.0
985.0
1,238.0
575.0
969.0
852.0
1,285.0
207.0
669.0
647.0
1,720.0
5,000.0
309.0
2,254.0
1,402.0
2,259.0
1,345.0
1,731.0
560.0
876.0
1,222.0
4,915.0
935.0
769.0
-35.9
31.1
13.8
-82.4
28.2
-17.0
68.8
38.0
48.6
-71.9
33.1
12.5
-24.3
-56.9
-59.4
-19.7
-63.0
-60.6
-70.6
-36.3
122.2
-80.7
10.5
12.2
-21.0
124.2
-27.9
-53.3
-12.4
118.2
134.0
-1.6
-72.3
0.1
0.4
2.8
5.5
0.1
1.4
17.6
20.9
0.6
0.3
0.0
0.8
0.1
3.1
2.2
1.5
1.8
9.0
6.1
3.1
25.3
1.4
0.1
0.0
0.1
0.1
1.1
0.0
1.2
0.1
30.2
0.0
0.2
Note: Prices are as of 8 February 2016.
10 February 2016
37
Macquarie Research
The history of the disengagement by individual shareholders
Julian Franks, Colin
Mayer and Hideaki
Miyajima: Evolution
of ownership: The
curious case of
Japan
Yishay Yafeh:
Corporate
governance in
Japan: Past
performance and
future prospects
There follows an exceptionally short summary of developments. For readers who wish for a
little bit more, a recommended place to start is the paper by Julian Franks, Colin Mayer and
Hideaki Miyajima entitled Evolution of ownership: The curious case of Japan1.
The American authorities, between 1945 and 1950, pursued the dissolution of the major
Zaibatsu corporate groups. The Holding Company Liquidation Commission originally called
for the dissolution of 325 firms. This number was first reduced to 100, and then to nine.
However, these nine were the most infamous sprawling empires with exceptional reach.
To quote Yishay Yafeh’s Corporate governance in Japan: Past performance and future
prospects2: “All holding companies were dismantled and prohibited by law, the founding
families were stripped of their shares and the pre-war managers were purged and prohibited
from taking office. The resulting change in ownership was of enormous scale, and over 40%
of all corporate assets in Japan changed hands.”
The citation for the 40% estimate is Bisson, T, (1954) Zaibatsu dissolution in Japan.
The American authorities targeted small investors and prioritised employees and local
residents where the company operated. This was facilitated by setting prices low. Japan was
suffering from extremely high inflation rates over 1946–49, which would have led households
to seek savings alternatives to cash and bonds/debentures.
The share of the top
three shareholders
dropped from a
mean of 32% in 1937
to 8% in 1950.
Thereafter, the
share of the top
three shareholders
increased to a mean
of 18% in 1960 and
20% in 1970
As the Evolution of ownership: The curious case of Japan details, ownership was very widely
dispersed. The share of the top three shareholders dropped from a mean of 32% in 1937 to
8% in 1950 (the median dropped from 23% to 6%). Thereafter, the share of the top three
shareholders increased to a mean of 18% in 1960 and 20% in 1970.
In 1949, the individual ownership of TSE listed firms was 69.1%, with financial institutions
holding 10.0% and non-financial firms just 5.6%. Fig 60 illustrates the subsequent
developments.
The three subsequent step downs in individual ownership were:
1) The Tokyo Stock Exchange was closed from 1945–49. It was inevitable that in desperate
economic conditions some individuals would need to cash in their investments. However, as
Fig 60 shows, after adding in the growing holdings via an investment trust, individuals still
held around 55% of outstanding shares going into the early 1960s.
2) Stock prices collapsed between 1962 and 1965, culminating in the collapse in May 1965 of
Yamaichi Securities and its subsequent government bail-out. The year-end balance of bond
and equity mutual funds rose from ¥60bn in 1955 to ¥600bn in 1960 and to ¥1.2tr in 1961. As
savings flowed from banks to securities companies, capital market activities took off. The
boom ended with the business cycle and industrial companies such as Sun Wave and Nihon
Special Steel collapsed in December 1964. Sanyo Special Steel collapsed in March 1965. As
Fig 60 shows, the result was the death of investment trusts for a generation.
More history can be found at:
http://ocw.u-tokyo.ac.jp/lecture_files/eco_05/10/notes/en/CEHJ-23.pdf
As noted in Evolution of ownership: The curious case of Japan, in 1964 and 1965, financial
institutions set up two companies – the Japan Cooperative Securities Company and the
Japan Security Holding Union – to stabilise shareholdings. Between 1964 and 1965, these
two institutions purchased 5% of all listed companies.
3) In the early 1970s, there was a wave of large equity issues to outside investors at large
discounts to then-prevailing market prices. Eventually, the stock exchange rules were
changed to limit the size of discounts to 10%. Understandably, individual investors were
alienated by this, whilst the buyers, companies and financial institutions saw a marked
increase in their ownership levels.
1
Franks, F., C. Mayer, and H. Miyajima (2007) The Evolution of Ownership Structure: the curious case in
Japan, Oxford University Press,
2
Yafeh, Y. (2000) Corporate Governance in Japan: Past Performance and Future Prospects, Oxford Review of
Economic Policy, Vol. 16, No.2.
10 February 2016
38
Macquarie Research
10 February 2016
Fig 60 The changing distribution of listed companies’ shareholders 1945-2003
39
Macquarie Research
NISAs
The tax breaks,
which also included
the halving of the
tax rate on
dividends from 20%
to 10%, finished at
the end of 2013
In 2003, the capital gains tax was cut from 26% to 10% (initially for five years, then extended
to 10 years) as part of a government strategy to deepen individual share ownership.
Every five years, the BOJ conducts a share ownership survey. In FY2002, households held
21.2%; in FY2007, 18.4%; and in FY2012, 20.0%, Fig 11, page 9. These numbers suggest
that, in broad terms, the strategy has not worked.
The government has, therefore, changed course. The tax breaks, which also included the
halving of the tax rate on dividends from 20% to 10%, finished at the end of 2013.
To compensate for this, the government has introduced Nippon Individual Savings Accounts.
Nippon Individual
Savings Accounts
(NISAs) began
1 January 2014
The current
structure allows
both dividends and
capital gains for
shares bought and
held in an NISA to
be tax-free for five
years
The government included Nippon Individual Savings Accounts (NISAs) in its FY3/14 tax
reform package. NISAs, requiring a special account at a financial institution, began 1 January
2014, and exempt dividends and capital gains from taxes on annual investments of up to ¥1m.
The current structure allows both dividends and capital gains for shares bought and held in a
NISA to be tax-free for five years. Only one account is permitted per person. The individual
must be at least 20 years old. The NISA scheme will potentially last ten years to 2024.
Individuals who take out a bank NISA will have to invest in investment trusts, as banks are
not permitted to buy and sell stocks for their customers.
Fig 61 NISA accounts and their investments, from 2014 to September 2015
7
(millions)
(trillions)
Number of accounts (RHS)
6
14
12
Investment (LHS)
5
10
4
8
3
6
2
4
1
2
0
0
03/2014
06/2014
09/2014
12/2014
03/2015
06/2015
09/2015
Note: based on all financial institutions (714 companies) at which a NISA account can be opened
Source: FSA (Financial Services Agency), Macquarie Research, February 2016
NISA account data
Please see the above chart.
By way of comparison, there are approximately 32 million existing accounts at stockbrokers.
Outstanding issues
The devil in the
details
That the devil is in the details appears to apply here, with it becoming possible that the taxexempt scheme lasts for five years with holdings then transferred into regular tax-paying
accounts.
The catch is that it is looking likely that the book values of the equities transferred into the
new taxable account will be established at the then ruling market prices.
Imagine losing money, transferring the holdings to the new account, the stock rallying halfway
back – the investor loses money and has to pay capital gains tax.
10 February 2016
40
Macquarie Research
Other details include:
1)
2)
3)
Only newly purchased securities in the new tax-free account will be tax exempt (no
existing positions can be transferred in).
It will not be permitted to offset profit and losses between a NISA account and a
regular tax-paying account.
Permitted assets include equities, investment trusts, ETFs and JREITs. JGBs,
corporate bonds and bond investment trust holdings will not be permitted.
A back-of-an-envelope estimate would have annual contributions of ¥1m times 4 million
active accounts, some ¥4tr, a huge number. However, this is only net new buying if all the
accounts are activated, and if it does not cannibalize existing equity investments (sold from
one account, bought fresh into the NISA). If it goes into investment trusts, then the investment
trust holdings are unlikely to be purely domestic equities.
Future developments
Industry lobbying is prioritizing an extension of the maximum five-year term to 10 or 15 years.
If accomplished, this would be a significant development.
There have also been suggestions to increase the annual subscription ceiling from ¥1m to
¥2.4m (Nikkei, 25 July 2014, “Can Japan’s investment trusts play a bigger role in the
market?”).
From 2016, the ¥1m
annual allowance is
being increased
to ¥1.2m
Actual changes announced so far (modest)
From 2016, the ¥1m annual allowance is being increased to ¥1.2m.
From 2016, parents and grandparents can open “junior” NISAs for children (under the age of
20) with an annual allowance of ¥0.8m.
Individual investors continue to sell down their equity holdings
The TSE calculates that as of end March 2015, the proportion of listed companies held by
individual investors was just 17.3%, down 1.4% YoY.
It was the third consecutive year of decline. The ratio is a 15-year low.
The number of individual investors was up slightly YoY at 45.82 million.
Inheritance tax issues
One headwind to increases in individual share ownership appears to be the inheritance tax
system, as discussed in the 19 November 2015 Nikkei article, “Revamp of inheritance tax
could boost Tokyo stock trading”.
The Financial Services Agency (FSA) has made a request to the government “to revisit
inheritance tax valuation on publicly traded shares and other assets”. Whilst the securities
industry has been advocating this for a decade, this is the first time the FSA has added its
support.
The existing system has the estate of the deceased value shareholdings at market prices. In
contrast property assets are discounted: land at 80% of the official land price, structures at
50-70% of construction costs.
The FSA is recommending that stocks be valued at 70% of the market price.
It appears that equities are often sold to meet the inheritance tax bill. A JSDA survey found
that half of inherited shareholdings are sold within one year.
10 February 2016
41
Macquarie Research
Activity in investment trusts
The trend towards international investment by individual investors over the last decade is
clearly visible in Fig 62 below. However, a combination of a stronger exchange rate and
redemptions has resulted in October 2007 having been the peak at ¥38.0tr. The persistently
weak Yen since late 2012 is leading to a revival of inflows.
The persistently
weak Yen since late
2012 is leading to a
revival of inflows
Fig 62 Trend of investment trusts with foreign exposure, 1980 to latest
¥tr
40
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Investment trusts with foreign currency exposure
35
% foreign-currency denominated
30
25
20
15
10
5
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
Source: Investment Trust Association, Macquarie Research, February 2016
Fig 63 Geographic breakdown for Inv. Trusts with foreign exposure
Brazil
2%
Hong Kong
1%
Others
12%
Canada
3%
United Kingdom
5%
Australia
10%
United States
59%
Europe
8%
The chart below presents the progression of total assets under management in Japanese
investment trusts, broken down into publicly offered and privately placed investment trusts.
Fig 64 Investment Trust Association – AUM breakdown
200
AUM breakdown
(¥tr)
Total Private
Total Public
150
100
50
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
10 February 2016
42
Macquarie Research
This division of investment trusts into publicly offered and privately placed investment trusts is
the first breakdown in the following schematic.
Fig 65
Structure of Japanese investment trusts – total net value and number of trusts
Contractual-type
Investment Trust
¥97,756bn (5843)
Securities-type
Investment Trust
¥97,756bn (5843)
Stock
Investment Trust
¥81,738bn (5684)
Unit Type
¥1,734bn (359)
Open Type
¥80,004bn (5325)
ETF
¥16,165bn (145)
Others
¥63,839bn (5180)
Publicly-offered
Investment Trust
¥105,063bn (5896)
Bond
Investment Trust
¥16,018bn (159)
Unit Type
¥13bn (21)
Open Type
¥16,005bn (138)
MRF
¥11,195bn (12)
Others
¥3,168bn (113)
MMF
¥1,643bn (13)
Others
¥0bn (0)
Total
Investment Trust
¥167,921bn (9875)
Money Trust Benefit
Fund
Total unit&open:
¥0bn (0)
Investment Trust
Managed
by Trustee
¥0bn (0)
Investment
Corporation
¥7,307bn (53)
Securities
Investment Corporation
¥4bn (1)
REITs
¥7,303bn (52)
Contractual-type
Investment Trust
¥61,974bn (3961)
Privately-placed
Investment Trust
¥62,857bn (3979)
Securities
¥61,974bn (3961)
Others
Investment
Corporation
¥884bn (18)
Securities-type
Investment Trust
¥59,370bn (3580)
Bond Investment Trust
¥2603bn (381)
Securities
Investment Corporation
¥39bn (2)
REITs
Note: Figures in parentheses are the number of trusts. Data are December 2015 numbers; REIT numbers are one month behind.
About 63% of investment trusts are publicly offered investment trusts, and they make up
67% of the total net value (box with highlighted border in Fig 65).
This has now
exceeded the
October 2007 high
of ¥82.2tr
The contractual-type investment trust is by far the most popular type of publicly offered
investment trust and accounts for 93% of net value in this category. Investment trusts with
foreign exposure are included in this category (top row, left box with highlighted border in Fig
65). This has now comfortably exceeded the October 2007 high of ¥82.2tr.
Investment corporations account for less than 5% of net assets. REITs fall under this category
and they have a net value of ¥7.3tr (box with highlighted border in Fig 65).
10 February 2016
43
Macquarie Research
Fig 66 focuses on the main category of publicly offered investment trusts: the contractual-type
stock investment trusts (see also Fig 65 top row, second from the right). Despite the name
– stock investment trust – equities are only around 35% of the assets.
Despite the name –
stock investment
trust – equities are
only around 30% of
the assets
Fig 66 Distribution of assets of publicly offered investment trusts of contractualtype stock investment trusts
100
90
80
70
60
50
40
30
20
10
Stock (%)
Bonds (%)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
Others(%)
The Investment Trust Association releases its monthly data around the middle of the month. It
does not release weekly data. The website address is as follows: http://www.toushin.or.jp/.
ETF holdings
2013-14 saw strong
growth. It is not
clear if the BOJ’s
ETF holdings of
over ¥4tr are
included in the
totals. This writer
believes so
As Fig 67 shows, historically the sums invested through ETFs, at between ¥2–5tr over the ten
years to 2012, have been relatively unimportant when compared to total investment trust
holdings, some ¥168tr, as discussed above.
2013-14 saw strong growth. It is not clear if the BOJ’s ETF holdings of ¥7.2tr (page 18) are
included in the totals. This writer believes so, and, if so, the BOJ would account for all of the
2012-15 growth in ETF assets. The 30 December 2014 Nikkei article “ETF trading in Japan
rises to record in 2014” notes that trading in ETFs in 2014 was ¥30tr, up 60% YoY. This
constituted 5.8% of TSE turnover, up from 3.3% in 2013.
The Next Funds Nikkei 225 Leverage Index ETF, a double-leveraged fund with AUM of
¥280bn early in 2015, traded ¥18tr in 2014. This one fund thus accounted for 60% of all ETF
trading in 2014.
Fig 67
Assets of ETFs in yen trillions
Fig 68 Number of listed ETFs in Japan
(no. of)
200
No. of listed ETFs in Japan
180
160
140
120
100
80
60
40
20
Source :The Nikkei, Bloomberg, Macquarie Research, February 2016
10 February 2016
YTD15
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
1995
0
Source :The Nikkei, Bloomberg, Macquarie Research, February 2016
44
Macquarie Research
The Next Funds
Nikkei 225 Leverage
Index ETF
The Next Funds Nikkei 225 Leverage Index ETF made headlines on 16 October 2015 when
its sponsor Nomura Asset Management temporarily suspended the fund to new subscriptions,
along with two sister funds:
Fig 69 The Next Funds Nikkei 225 Leverage Index ETF family suspensions
Code
Name
1357
1570
1571
NEXT FUNDS Nikkei 225 Double Inverse Index ETF
NEXT FUNDS Nikkei 225 Leveraged Index ETF
NEXT FUNDS Nikkei 225 Inverse Index ETF
Market Cap
(US$ bn)
Ave monthly turn over
(US$mn)
0.6
2.7
0.3
77.7
1,270.2
1.3
Note: As of 16 October 2015. The size of ETFs rise and fall with subscriptions/redemptions, and the NAV is
further impacted by market action in combination with the leverage employed. Media reports, such as the 25
January 2016 Short View, note that the Next Funds Nikkei 225 Leveraged Index ETF assets under
management peaked at nearly ¥800bn prior to its October 2015 new subscription suspension. The FT article
also notes that the current assets under management are around ¥720bn
Nomura Asset Management cited the size of the ETFs relative to the underlying liquidity in
the Nikkei 225 futures market as the catalyst for the move. The suspension lasted two
months.
Redemption requests were not suspended.
The chart below shows total ETF trading activity in both value and volume terms.
Fig 70 ETF trading, in value and volume terms, start 2013 to latest
900
(mn)
(JPYtr)
Value (in trn JPY) RHS
Volume (in mn) LHS
8
7
6
600
5
4
300
3
2
1
0
0
Note: Each monthly value is the sum of the then-listed ETFs
10 February 2016
45
Macquarie Research
Secondary issuance
Total new equity
offerings have, in
general, trended
under 1% of the
total market cap
A discussion of corporate behaviour, relating into M&A activity, attitudes toward pay-out
ratios, share buybacks and other corporate governance matters is to be found in the 9
December 2015 PEC’s Japan strategy: Corporate behaviours. Total new equity offerings
have, in general, trended under 1% of the total market cap, although they have dipped to half
of that during downturns (Fig 71). Secondary issues have generally raised twice as much as
IPOs, at ¥2.1tr on average versus ¥1.0tr.
Secondary issues
have generally
raised twice as
much as IPOs, at
¥2.1tr on average
versus ¥1.0tr
Fig 71
Value of new equities offered (¥tr)
IPO
Secondary
offerings
Total
Total market
cap*
Total/avg
market cap (%)
FY3/96
FY3/97
FY3/98
FY3/99
FY3/00
FY3/01
FY3/02
FY3/03
FY3/04
FY3/05
FY3/06
FY3/07
FY3/08
FY3/09
FY3/10
FY3/11
FY3/12
FY3/13
FY3/14
FY3/15
0.72
1.32
1.13
2.44
0.65
1.53
0.95
0.54
1.18
1.40
1.35
1.74
0.59
0.06
0.05
1.25
0.15
1.15
1.27
0.79
0.38
1.30
0.35
1.69
4.35
3.51
0.76
1.30
2.24
2.97
4.33
3.25
1.03
0.93
4.49
3.00
0.61
1.70
2.28
1.67
1.10
2.62
1.48
4.13
5.00
5.04
1.71
1.84
3.42
4.37
5.68
4.99
1.63
0.99
6.68
4.28
0.76
2.85
3.55
2.46
482.27
519.54
454.25
390.26
543.33
507.00
385.15
322.78
355.95
425.40
543.54
639.63
606.98
411.21
364.42
292.10
333.10
286.76
422.68
583.85
0.23
0.50
0.33
1.06
0.92
0.99
0.44
0.57
0.96
1.03
1.05
0.78
0.27
0.24
1.83
1.47
0.23
0.99
0.84
0.42
Simple average
1.01
2.11
3.23
443.51
0.76
*Aggregate market cap for the TOPIX. Average value of month-end values for the year.
Source: FactSet, Bloomberg, Macquarie Research, February 2016
Fig 73 details the major (greater than ¥10bn transaction size) secondary equity offerings
since the start of 2009, with monthly and annual totals.
Share buybacks: likely to exceed new issuance this year
As we detailed most recently in the 9 December 2015 PEC’s Japan strategy: Corporate
behaviours, Japan’s companies are experiencing robust cash flows and we expect a further
increase in share buybacks in 2016.
Fig 72 TOPIX Buybacks, actual versus announced
9 (¥ tn)
Actual buybacks
Buyback size on announcement date
8
7
6
5
4
3
2
1
0
2016
YTD
Note: The sources are Bloomberg (for announcements) and FactSet (for actual buybacks)
Source: Bloomberg, FactSet, Macquarie Research, February 2016
10 February 2016
46
Macquarie Research
Fig 73
Secondary issues since the start of 2009 (>¥10bn)
Amount (¥bn)
CY2015 Total YTD
CY2014 Total
CY2013 Total
CY2012 Total
CY2011 Total
CY2010 Total
CY2009 Total
2,201.2
1,825.8
2,988.6
711.0
1,161.2
3,264.5
4,814.7
FY2015 YTD
FY2014 Total
FY2013 Total
FY2012 Total
FY2011 Total
FY2010 Total
FY2009 Total
1,798.6
1,671.6
2,276.4
1,697.7
602.4
3,013.0
5,593.3
Effective date
Code
Name
21/01/2016
8985
Japan Hotel REIT Investment Corp
16/12/2015
15/12/2015
3279
8174
Activia Properties Inc
Nippon Gas Co Ltd
25/11/2015
4/11/2015
9873
3287
KFC Holdings Japan Ltd
Hoshino Resorts REIT Inc
14.5
19.8
18.5
72.2
13.4
31.4
7/10/2015
2/10/2015
9024
3453
Seibu Holdings Inc
Kenedix Retail REIT Corp
75.0
35.5
19.2
17/09/2015
17/09/2015
16/09/2015
10/09/2015
2/09/2015
2/09/2015
7412
8960
7732
8953
3281
8954
Atom Corp
United Urban Investment Corp
Topcon Corp
Japan Retail Fund Investment Corp
GLP J-Reit
Orix JREIT Inc
5/08/2015
7968
TASAKI & Co Ltd
60.7
21.4
13.1
44.6
23.7
21.7
12.7
168.4
19.1
31/07/2015
30/07/2015
22/07/2015
22/07/2015
21/07/2015
16/07/2015
2/07/2015
1/07/2015
2121
3227
6758
4042
6841
8963
3296
4755
Mixi Inc
MCUBS MidCity Investment Corp
Sony Corp
Tosoh Corp
Yokogawa Electric Corp
Invincible Investment Corp
NIPPON REIT Investment Corp
Rakuten Inc
29.4
27.5
21.9
273.6
26.4
14.0
28.9
23.8
166.1
23/06/2015
17/06/2015
9/06/2015
2/06/2015
8985
8955
3197
8976
Japan Prime Realty Investment Corp
Skylark Co Ltd
Daiwa Office Investment Corp
28/05/2015
27/05/2015
22/05/2015
20/05/2015
13/05/2015
7/05/2015
8986
3298
9024
3309
6028
8975
Japan Rental Housing Investments Inc
Invesco Office J-Reit Inc
Seibu Holdings Inc
Sekisui House Reit Inc
TechnoPro Holdings Inc
Ichigo Real Estate Investment Corp
30/04/2015
28/04/2015
28/04/2015
28/04/2015
16/04/2015
9/04/2015
7/04/2015
2/04/2015
8714
3436
3003
8968
6460
8233
8952
7733
Senshu Ikeda Holdings Inc
Sumco Corp
Hulic Co Ltd
Fukuoka REIT Corp
Sega Sammy Holdings Inc
Takashimaya Co Ltd
Japan Real Estate Investment Corp
Olympus Corp
25/03/2015
24/03/2015
8202
3263
Laox Co Ltd
Daiwa House REIT Investment Corp
Jan-16 *
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
10 February 2016
Amount (¥bn)
14.5
618.4
11.3
18.0
70.8
23.3
149.5
37.8
10.7
103.1
20.3
23.2
24.2
235.1
19.4
119.8
73.1
12.1
28.7
12.8
31.9
72.8
375.5
26.9
25.8
47
Macquarie Research
Fig 73
Amount (¥bn)
18/03/2015
17/03/2015
17/03/2015
11/03/2015
8954
1801
3249
9513
Orix JREIT Inc
Taisei Corp
Industrial & Infrastructure Fund Investment
Electric Power Development Co Ltd
17.5
18.7
11.2
108.3
13/02/2015
12/02/2015
5/02/2015
3/02/2015
3292
3296
3278
3282
AEON REIT Investment Corp
NIPPON REIT Investment Corp
Kenedix Residential Investment Corp
Comforia Residential REIT Inc
262.0
19.7
47.9
23.1
18.6
28/01/2015
22/01/2015
8985
8956
Premier Investment Corp
41.7
15.4
25.9
18/12/2014
17/12/2014
15/12/2014
10/12/2014
3/12/2014
3279
9044
7779
8960
8972
Nankai Electric Railway Co Ltd
CYBERDYNE Inc
Kenedix Office Investment Corp
45.6
23.6
20.7
22.1
22.6
29.2
26/11/2014
7/11/2014
3258
3295
Jowa Holdings Co Ltd
Hulic Reit Inc
23/10/2014
3360
Ship Healthcare Holdings Inc
55.9
19.7
26/09/2014
18/09/2014
17/09/2014
10/09/2014
2/09/2014
8953
8954
3283
8985
3281
Orix JREIT Inc
Nippon Prologis REIT Inc
GLP J-Reit
30.1
24.1
19.2
39.8
21.1
30.8
12/08/2014
4/08/2014
9861
3234
Yoshinoya Holdings Co Ltd
Mori Hills REIT Investment Corp
171.0
14.6
25.7
24/07/2014
17/07/2014
3/07/2014
8750
8963
8976
Dai-ichi Life Insurance Co Ltd/The
Invincible Investment Corp
Daiwa Office Investment Corp
49.6
241.0
23.6
19.2
24/06/2014
18/06/2014
11/06/2014
8801
3880
8960
Mitsui Fudosan Co Ltd
Daio Paper Corp
26.3
300.3
13.2
19.3
28/05/2014
2/05/2014
8972
3287
Kenedix Office Investment Corp
Hoshino Resorts REIT Inc
380.4
10.2
17.2
22/04/2014
21/04/2014
16/04/2014
8973
9684
8952
Sekisui House SI Investment Co
Square Enix Holdings Co Ltd
20/03/2014
20/03/2014
20/03/2014
19/03/2014
18/03/2014
14/03/2014
12/03/2014
11/03/2014
5/03/2014
6141
3263
8951
8954
2121
8595
7550
4559
8214
DMG Mori Seiki Co Ltd
Daiwa House REIT Investment Corp
Nippon Building Fund Inc
Orix JREIT Inc
Mixi Inc
Jafco Co Ltd
Zensho Holdings Co Ltd
ZERIA Pharmaceutical Co Ltd
AOKI Holdings Inc
27/02/2014
4/02/2014
4/02/2014
5406
3269
3282
Kobe Steel Ltd
Advance Residence Investment Corp
Comforia Residential REIT Inc
30/01/2014
7211
Mitsubishi Motors Corp
17/12/2013
17/12/2013
3279
7242
KYB Co Ltd
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
Dec-13
10 February 2016
160.4
10.3
18.5
27.4
10.2
13.5
28.9
72.3
31.9
17.5
14.5
32.6
10.3
10.8
25.1
13.3
10.3
197.7
75.9
12.4
22.7
122.9
235.2
250.6
220.8
33.7
15.5
48
Macquarie Research
Fig 73
Amount (¥bn)
12/12/2013
5/12/2013
3/12/2013
3/12/2013
8848
2337
3283
8136
Leopalace21 Corp
Ichigo Group Holdings Co Ltd
Sanrio Co Ltd
27/11/2013
22/11/2013
14/11/2013
8986
3141
8972
Japan Rental Housing Investments Inc
Welcia Holdings Co Ltd
Kenedix Realty Investment Corp
24/10/2013
31/10/2013
29/10/2013
24/10/2013
16/10/2013
3/10/2013
3/10/2013
8961
8954
4571
8961
6753
8953
8967
Mori Trust Sogo Reit Inc
Orix JREIT Inc
NanoCarrier Co Ltd
Mori Trust Sogo Reit Inc
Sharp Corp/Japan
Japan Logistics Fund Inc
22.5
15.5
29.5
26.2
71.1
16.9
12.6
18.9
246.5
16.3
10.9
11.3
16.3
111.6
44.9
15.2
27/09/2013
20/09/2013
18/09/2013
12/09/2013
12/09/2013
10/09/2013
5/09/2013
5/09/2013
4/09/2013
2/09/2013
3281
4321
2181
9041
2413
8425
2206
3234
4564
9477
GLP J-Reit
Kenedix Inc
Temp Holdings Co Ltd
Kintetsu Corp
M3 Inc
IBJ Leasing Co Ltd
Ezaki Glico Co Ltd
OncoTherapy Science Inc
Kadokawa Corp
231.3
22.1
16.3
14.6
61.2
38.2
12.4
12.9
11.2
10.0
10.5
28/08/2013
13/08/2013
7/08/2013
2/08/2013
4974
8957
3278
8304
Takara Bio Inc
Tokyu REIT Inc
Kenedix Residential Investment Corp
Aozora Bank Ltd
115.8
21.9
11.7
35.9
28.2
30/07/2013
26/07/2013
26/07/2013
19/07/2013
3/07/2013
4324
7733
1925
3774
8959
Dentsu Inc
Olympus Corp
Daiwa House Industry Co Ltd
Internet Initiative Japan Inc
Nomura Real Estate Office Fund Inc
424.7
111.7
103.9
125.4
15.7
25.0
25/06/2013
20/06/2013
14/06/2013
11/06/2013
4/06/2013
5947
8905
8309
3283
6268
Rinnai Corp
Aeon Mall Co Ltd
Sumitomo Mitsui Trust Holdings Inc
Nabtesco Corp
23/04/2013
18/04/2013
2/04/2013
8973
8985
8954
Sekisui House SI Investment Co
Orix JREIT Inc
19/03/2013
15/03/2013
14/03/2013
13/03/2013
13/03/2013
7/03/2013
6/03/2013
5/03/2013
4/03/2013
4/03/2013
8984
2914
7732
8960
6361
2432
8964
3234
3226
8968
Daiwahouse Residential Investment Corp
Japan Tobacco Inc
Topcon Corp
Ebara Corp
Dena Co Ltd
Frontier Real Estate Investment Corp
Nippon Accommodations Fund Inc
Fukuoka REIT Co
13/02/2013
7532
5/02/2013
4/02/2013
3249
3269
Don Quijote Co Ltd.
Corp
Advance Residence Investment Corp
31/01/2013
24/01/2013
24/01/2013
8987
8951
8304
Japan Excellent Inc
Nippon Building Fund Inc
Aozora Bank Ltd
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
10 February 2016
314.5
18.1
46.4
94.0
73.4
35.1
17.8
62.8
10.4
29.2
19.7
935.8
10.8
746.9
11.5
23.4
13.2
44.0
17.0
10.8
21.9
10.7
46.4
10.9
10.7
22.4
213.3
14.9
66.0
127.1
49
Macquarie Research
Fig 73
Amount (¥bn)
Dec-12
13/21/2012
3003
Hulic Co Ltd.
30/10/2012
02/10/2012
8952
8953
07/08/2012
8270
UNY Co Ltd
31/07/2012
26/07/2012
19/07/2012
11/07/2012
8955
9202
9107
8964
Japan Prime Realty Investment Corp
All Nippon Airways Co Ltd.
Kawasaki Kisen Kaisha Ltd.
Frontier Real Estate Investment Corp
13/03/2012
6/03/2012
1/03/2012
7261
3249
8086
Mazda Motor
Nipro
29/02/2012
29/02/2012
21/02/2012
9/02/2012
2/02/2012
8242
8952
3092
9719
3269
H2O Retailing
Japan Real Estate Investment
Start Today
SCSK
Advance Residence Investment
26/01/2012
8951
Nippon Building Fund
15/11/2011
8956
Premier Investment
5/10/2011
8984
Daiwahouse Residential Investment
15/09/2011
15/09/2011
5233
8953
Taiheiyo Cement
Japan Retail Fund Investment
2/08/2011
6665
Elpida Memory
21/07/2011
20/07/2011
8972
4819
Kenedix Realty Investment
Digital Garage
9/06/2011
8/06/2011
6/06/2011
2/06/2011
8960
5738
7532
9204
United Urban Investment
Sumitomo Light Metal Industries
Don Quijote
Skymark Airlines
26/05/2011
8954
Orix JREIT
16/03/2011
16/03/2011
15/03/2011
10/03/2011
9/03/2011
2/03/2011
3101
8303
9001
6754
4503
3226
Toyobo
Shinsei Bank
Tobu Railway
Anritsu
Astellas Pharma
Nippon Accommodations Fund
16/02/2011
1/02/2011
1/02/2011
4541
8308
8987
Nichi-iko Pharmaceutical
Resona Holdings
Japan Excellent
27/01/2011
26/01/2011
25/01/2011
8951
6632
2131
Nippon Building Fund
JVC Kenwood Holdings
Accordia Golf
20/10/2010
20/10/2010
9003
9501
Sotetsu Holdings
Tokyo Electric Power Co
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
10 February 2016
56.0
25.7
8.5
69.4
30.6
24.4
6.3
32.8
21.2
229.4
19.5
160.1
21.8
19.6
10.5
0.0
1.4
171.3
131.4
19.3
17.7
93.1
11.3
36.6
12.5
12.5
14.7
26.0
18.7
19.0
14.3
14.3
16.5
16.5
56.3
30.3
19.7
43.1
38.9
46.2
13.8
11.0
94.4
54.0
10.0
10.4
17.8
12.9
12.9
2.9
251.8
13.8
64.8
65.7
13.9
14.5
22.3
527.9
15.1
497.6
14.1
75.7
27.8
14.2
25.2
23.0
5.0
438.9
13.9
407.3
50
Macquarie Research
Fig 73
Amount (¥bn)
10/13/2010
8698
Monex Group
9/16/2010
9/09/2010
9/08/2010
9/02/2010
5202
8015
4114
8967
Nippon Sheet Glass
Toyota Tsusho
Nippon Shokubai
Japan Logistics Fund
3/08/2010
3/08/2010
4321
1605
Kenedix
Inpex
22/07/2010
2/07/2010
1/07/2010
8411
8964
3269
Mizuho Financial Group
Frontier Real Estate Investment
Advance Residence Investment
24/06/2010
15/06/2010
9/06/2010
2/06/2010
1/06/2010
8473
6473
3402
4631
8961
SBI Holdings /Japan
JTEKT
Toray Industries
DIC
Mori Trust Sogo REIT
13/05/2010
6954
Fanuc
21/04/2010
7272
Yamaha Motor
26/03/2010
9/03/2010
3/03/2010
3/03/2010
3234
8714
6773
9107
Mori Hills REIT Investment
Senshu Ikeda Holdings
Pioneer
Kawasaki Kisen Kaisha
9/02/2010
8955
Japan Prime Realty Investment
28/01/2010
27/01/2010
26/01/2010
26/01/2010
8316
6728
8355
8840
Sumitomo Mitsui Financial Group
Ulvac
Shizuoka Bank
Daikyo
22/12/2009
17/12/2009
15/12/2009
10/12/2009
9/12/2009
9/12/2009
8/12/2009
2/12/2009
2/12/2009
1/12/2009
8306
8795
6501
6141
9101
8952
8804
4183
3632
7238
Mitsubishi UFJ Financial Group
T&D Holdings
Hitachi
Mori Seki
Nippon Yusen
Japan Real Estate Investment
Tokyo Tatemono
Mitsui Chemicals
Gree
Akebono Brake Industry
27/11/2009
5/11/2009
6701
3226
NEC
Nippon Accommodations Fund
27/10/2009
22/10/2009
22/10/2009
14/10/2009
4321
7261
4004
8604
Kenedix
Mazda Motor
Showa Denko
Nomura Holdings
25/09/2009
15/09/2009
17/09/2009
10/09/2009
15/09/2009
6665
6472
2784
4043
8361
Elpida Memory
NTN
Alfresa Holdings
Tokuyama
Ogaki Kyoritsu Bank
29/07/2009
22/07/2009
24/07/2009
22/07/2009
16/07/2009
6674
8591
8411
9202
8601
GS Yuasa
ORIX
Mizuho Financial Group
All Nippon Airways
17/06/2009
23/06/2009
3231
8316
Nomura Real Estate Holdings
Sumitomo Mitsui Financial Group
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
10 February 2016
14.7
86.1
36.9
13.0
15.6
10.0
486.5
13.4
472.2
730.0
678.3
19.0
27.3
217.6
35.0
13.0
92.4
15.8
40.2
93.8
93.2
76.5
67.7
139.3
14.1
42.0
26.6
34.8
33.5
13.8
934.2
880.5
15.4
20.8
16.7
1,558.3
930.5
107.9
230.0
15.4
101.2
25.1
27.7
39.6
34.9
13.4
148.2
107.5
20.5
547.3
14.4
85.2
35.2
395.2
172.9
55.3
21.8
25.8
43.0
15.2
1.4
898.8
30.0
78.7
480.0
129.5
180.6
1,159.3
60.2
802.9
51
Macquarie Research
Fig 73
Amount (¥bn)
4/06/2009
6502
Toshiba
12/03/2009
11/03/2009
8604
8795
Nomura Holdings
T&D Holdings
Mar-09
Feb-09
289.7
325.0
272.0
53.0
3.5
Case study #9: Strengthening the financial system, 3/2009-3/2011
Nomura
It all began with Nomura when, in September 2009, Nomura (8604 JP, ¥742, Not Rated)
announced a ¥0.5tr equity issue (completed in October 2009) following its offering in March
2009.
This led to concerns about other financial firms raising capital. The 1 October 2009 dated
Follow the Money: The risk in secondary issues described the risk of secondary issues
affecting the market through indigestion.
The five equity issues from Japan’s three mega banks in 2009/10 totalled ¥3.8tr. Over 19982003, the Japanese government injected about ¥12.3tr into the banks.
Dai-ichi Life
Dai-ichi Life Insurance (8750 JP, ¥1,348, Neutral, TP: ¥1,500, Leo Nakada) was
demutualised and had its IPO in April 2010, which raised ¥1.4tr for policyholders.
To repay funds from the government, Mitsubishi UFJ Financial issued ¥0.5tr through a
secondary share issue in February 2011.
10 February 2016
52
Macquarie Research
Banks and their cross-shareholdings
The Banks category continues to be moderate net sellers of Japanese equities, Fig 4.
The government has been concerned about the linkage between a falling TOPIX and the
need for the financial system to raise more capital (because of substantial equity crossshareholdings) for over a decade now. Before looking at historical activity, it is important to list
the ongoing pressures on banks to reduce their equity cross-shareholdings.
The Shareholdings Restriction Law was enacted in 2001, and since September 2006 it has
limited banks’ equity holdings to the value of their tier one capital.
The ongoing pressures to keep selling equity holdings
Basel 3
Megabanks became
sellers of 23 banks
during a one-year
period through
30 September 2010
Resona (8308)
1) Basel 3 applies higher risk weights to equity holdings from July 2014. This is no doubt one
of the reasons why the banks have been persistent sellers of equities over the past five years.
Already in Japan, the “double-gearing” stakes held by financial institutions in other financial
institutions are deducted from their regulatory capital when calculations of capital adequacy
ratios are undertaken. The latter, for example, puts pressure on the mega banks to sell their
holdings in regional banks.
The Nikkei newspaper on 17 January 2011 carried an article entitled “Regional banks face
shakeout as megabanks loosen ties”. As stated there, large-shareholding reports submitted
by 64 regional banks show that the megabanks became sellers of 23 banks during a one-year
period through 30 September 2010.
Eiji Hosoya, Chairman of Resona, was quoted as follows in the Nikkei on 1 March 2011,
regarding bank cross-holdings: “I’ve come to understand that Japanese banks’ problems
don’t end with bad loans and ingrained high costs. That is, they have to get rid of crossholdings, which are a major risk for the future.”
As Chairman Hosoya went on to explain, over the last eight years since Resona was
essentially nationalized, Resona has reduced its cross-shareholdings by around two-thirds.
However, as the table below illustrates, there are still considerable cross-shareholdings in the
banking system. As of FY3/14, the total was ¥21.4tr, with the major banks owning ¥12.2tr.
Please note that the latter is down 56% on the FY3/00 holdings.
Crossshareholdings in the
banking system as
of FY3/14 were
¥21.4tr, with the
major banks
owning ¥12.2 tr
The latter is down
56% on the FY3/00
holdings
Fig 74 Equity holdings of banks by type (¥tr)
(¥tr)
FY3/15
FY3/14
FY3/13
FY3/12
FY3/11
FY3/10
FY3/09
FY3/08
FY3/07
FY3/06
FY3/05
FY3/04
FY3/03
FY3/02
FY3/01
FY3/00
All banks
# of banks
26.9
21.4
20.5
18.4
18.4
21.1
18.4
25.6
33.9
33.2
27.7
28.5
23.2
34.4
44.3
44.4
116
116
117
120
119
120
123
124
125
126
129
131
134
133
136
137
All banks with
trading accounts
30.2
39.2
40.2
# of
banks
City
Banks
# of
banks
Regional
Banks
# of
banks
27
29
30
15.3
12.2
12.0
10.9
10.9
12.1
10.4
14.7
19.5
18.9
17.4
18.7
15.4
21.2
27.5
27.8
5
5
6
6
6
6
6
6
6
6
7
7
7
7
9
9
6.6
5.1
4.6
4.0
4.0
4.7
4.3
6.0
8.1
8.0
5.6
5.3
3.9
na
na
na
64
64
64
64
63
64
64
64
64
64
64
64
64
na
na
na
Source: Japanese Bankers’ Association, Macquarie Research, February 2016
2) Basel 3 and double-gearing. There are many uncertainties relating to Basel 3. The 200809 global financial convulsions exposed the consequences of the interconnectedness of
financial institutions. Further tightening of the rules relating to “double-gearing” is highly likely,
we believe. Whether the strictures will extend to all equity holdings is still unclear.
10 February 2016
53
Macquarie Research
3) FSA-mandated disclosure requirements could change to make detailed disclosure of
cross-shareholdings mandatory.
4) IFRS (International Financial Reporting Standards) accounting could be mandatory by
2015–16. To this end, various changes are expected to be adopted before then. Since the
year ended March 2011, Japanese firms have been required to report comprehensive income,
which, unlike the current net profit accounting, can be hurt by unrealized losses on stocks and
other financial assets.
In addition, a regulatory change expected to begin in 2013, but now delayed to 2017, will
exclude capital gains on cross-shareholdings from net profit. This will limit the ability to use
gains from stock sales to smooth reported net profit.
The activity of the Bank Share Purchasing Corporation
http://www.bspc.jp/
1) The Bank Share Purchase Corporation (BSPC) was set up in 2002 during the financial
crisis, shortly after the Shareholdings Restriction Law (previous page) was enacted in 2001,
to purchase cross-shareholdings owned by banks.
Fig 75 details the purchases of bank shares by the BSPC since its inception in 2002.
The purchases by the BSPC bypass the stock market, coming directly from the banks, and
are thus not reflected in the TSE values. Any subsequent sales of stocks through the
exchange are reflected as transactions via trust banks.
While broken down into various sessions, the purchases of the BSPC between 15 February
2002 and 28 April 2006 amounted to some ¥1.6tr (grey highlights below).
Fig 75 Purchases of bank shares by the BSPC
Session
st
Period
Amount (¥bn)
Total purchases (¥bn)
1
2nd
3rd
4th
5th
6th
7th
8th
9th
February 15, 2002 ~ April 26, 2002
May 17, 2002 ~ November 1, 2002
Nov 5, 2002 ~ April 25, 2003
April 28, 2003 ~ October 31, 2003
November 4, 2003 ~ April 30, 2004
May 6, 2004 ~ October 29, 2004
November 1, 2004 ~ April 28, 2005
May 2, 2005 ~ October 31, 2005
November 1, 2005 ~ April 28, 2006
130.1
19.5
68.5
152.5
668.8
292.2
229.1
14.0
12.1
130.1
149.6
218.1
370.6
1,039.4
1,331.6
1,560.7
1,574.7
1,586.8
10th
11th
12th
13th
14th
November 2, 2009 ~ April 30, 2010
May 6, 2010 ~ October 29, 2010
November 2010 ~ April 2011
May 2, 2011 ~ October 31, 2011
November 1, 2011 ~ March 30, 2012
400.5
107.2
70.8
33.0
86.1
1,987.3
2,094.5
2,165.3
2,198.3
2,284.4
15th
16th
17th
18th
19TH
20th
21st
22nd
23rd
24th
25th
26th
27th
28th
April 2, 2012 ~ July 31, 2012
August 1, 2012 ~ October 31, 2012
November 1, 2012 ~ February 8, 2013
February 12, 2013 - April 30, 2013
May 1, 2013 - August 15, 2013
August 16, 2013 - October 31, 2013
November 1, 2013 - February 12, 2014
February 13, 2014 – May 16, 2014
May 19, 2014 – August 15, 2014
August 18, 2014 – October 31, 2014
November 4, 2014 - March 4, 2015
March 5, 2015 - April 30, 2015
May1, 2015 – July 31, 2015
August 3, 2015 - November 13, 2015
17.3
19.6
20.0
142.2
24.8
10.2
20.3
25.1
8.9
3.5
11.7
24.9
40.2
8.6
2,301.7
2,321.3
2,341.3
2,483.5
2,508.3
2,518.5
2,538.5
2,563.9
2,572.8
2,576.3
2,588.0
2,612.9
2,653.1
2,661.7
Note: In FY3/08, BSPC sold ¥770bn via the market (not reflected in total purchase number). As of FY3/09,
BSPC held ¥437.4bn.
Source: BSPC, Macquarie Research, February 2016
With the market stabilising thereafter, BSPC began unwinding its shares in FY3/08, unloading
¥770bn into the market. As of the end of FY3/09, BSPC held ¥437.4bn of stocks.
In mid-October 2008, the BSPC announced a temporary freeze in the unwinding of its shares,
given the market conditions.
10 February 2016
54
Macquarie Research
2) Recent activity of the BSPC
By end FY3/10, the
cumulative buying
was ¥395bn (¥0.4tr)
With the passage of the second FY3/09 supplementary budget, the BSPC was given further
funding authorisation of ¥20tr until April 2012, and it became able to also acquire bank shares
from any non-financial firms.
On 2 November 2009, the BSPC began to repurchase shares and over the subsequent
sessions through 2012, Fig 75, bought a cumulative ¥0.7tr.
Since April 2012, the BSPC had purchased a modest additional ¥0.3tr.
One possible future scenario is allowing the BSPC to purchase shares directly from the
market.
Fig 76 lists shares in which BSPC owns more than a 5% stake, which it is thus required to
disclose in its large shareholding report (tairyo hoyu hokoku-sho). The BSPC maintains the
data on its website: http://disclosure.edinet-fsa.go.jp/
Fig 76 BSPC holdings in excess of 5% of outstanding shares
Code
Name
8536
8550
6861
8714
8327
8233
8544
5007
7981
8325
8182
4914
9681
8175
5602
8563
8529
8551
8387
8536
8551
8541
8529
8325
8536
8541
8977
8714
4912
8977
8364
8585
8544
Higashi-Nippon Bank
Tochigi Bank
Keyence.
Senshu Ikeda Holdings
Nishi-Nippon City Bank
Takashimaya
Keiyo Bank
Cosmo Oil
Takara Standard
Hokuetsu Bank
Inageya
Takasago International
Tokyo Dome
Best Denki
Kurimoto.
Daito Bank
Daisan Bank
Kitanihon Bank
Shikoku Bank
Higashi-Nippon Bank
Kitanihon Bank
Ehime Bank
Daisan Bank
Hokuetsu Bank
Higashi-Nippon Bank
Ehime Bank
Hankyu REIT
Senshu Ikeda Holdings Inc.
Lion Corp
Hankyu REIT
Shimizu Bank
Orient Corporation
Keiyo Bank Ltd.
No. of shares owned BSPC’s stake at date
by BSPC (’000)
of report (%)
21,863
9,236
2,385
122,089
53,248
15,982
23,370
27,774
10,614
24,343
2,746
5,976
8,163
3,716
7,414
7,113
12,976
8,794
15,836
24,767
588
9,039
16,261
27,363
26,701
14,066
4
268,984
299,115
7
486
155,000
13,370
11.2%
8.1%
5.2%
10.3%
6.4%
5.2%
8.0%
4.1%
7.2%
9.6%
5.2%
5.9%
5.0%
4.5%
5.5%
5.6%
5.3%
5.6%
7.3%
13.4%
6.7%
5.1%
6.7%
10.9%
14.5%
7.9%
5.2%
17.2%
5.8%
7.1%
5.1%
10.0%
4.6%
Date of report
29/07/10
30/11/10
31/03/05
17/11/09
28/02/07
30/09/04
15/09/10
31/07/07
31/03/05
31/12/10
30/06/04
31/12/05
30/09/04
28/02/07
31/03/04
01/04/11
01/04/11
13/05/11
19/07/11
03/08/11
16/09/11
02/02/12
01/03/12
05/03/12
07/03/12
16/03/12
06/03/13
01/04/13
04/04/13
18/12/13
03/07/15
03/08/15
03/08/15
* Figures may be less than 5% due to reported changes in holdings.
Source: Edinet, Macquarie Research, February 2016
Other shares are entrusted to trust banks and thus do not appear in the list of major
shareholders.
Two other stakes above 5%, which the BSPC had owned but it has now completely disposed
of, include the Michinoku Bank and Biofermin Pharmaceutical.
10 February 2016
55
Macquarie Research
Other domestic institutions
Indications on FY3/16 investment plans
Reaching for
running yield by
taking credit risk
and investing in
alternative assets
such as
infrastructure funds
There have been few media articles. The 31 January 2015 Nikkei article “Japanese insurers
seek diversity amid interest rate adversity” discusses how insurance companies are reaching
for running yield by taking credit risk in the health care and farming industries (investing in
start-ups, loans) and investing in alternative assets such as infrastructure funds. Reuters
carried an article on 24 April 2015, “Nippon Life plans shift to risk assets from yen bonds”,
which included the comment that Nippon Life did not intend to sell Japanese equities this
year.
Fig 77 Japanese insurance and pension funds’ financial assets in Japanese
government bonds and Japanese equities
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Japanese equities
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
JGB
1) Corporate pension funds
Powerful regulatory,
accounting and risk
aversion trends
have been driving
reduced
commitments to
Japanese equities
for some years
There is often speculation that the domestic private sector institutions will become aggressive
buyers of Japanese equities. We believe this is unlikely.
First, there are the powerful regulatory, accounting and risk-aversion trends that have been
driving reduced commitments to Japanese equities for some years already.
Second, there is the competition to Japanese equities coming from international equities. Any
increased desire for risk is likely to be partially channelled into international equities, in our
view.
Pension fund accounting change
Starting from FY3/12, companies had been expecting that it would be a requirement to
immediately reflect any pension fund shortfalls on their balance sheets. For risk management
reasons, the monies appear to be flowing into higher domestic cash and bond allocations.
Listed firms were
underfunded by
¥9.6tr as of
31/3/2012
As reported in the 24 August 2011 Nikkei, the Accounting Standards Board of Japan is
delaying the implementation of these rules. The article indicated a new start date of the end of
FY3/13. However, there has been another delay. The rise in measures of equity market
volatility, which impact risk calculations, will likely also deter domestic financial institutions
from upping their target allocations to Japanese equities.
According to the Nikkei, 16 August 2012, in an article entitled “Corporate pension funds shift
towards bonds”, listed firms were underfunded by ¥9.6tr as of 31/3/2012.
Privately managed pension funds and the PFA
http://www.pfa.or.jp/english/
Fig 78 shows data from Japan’s Pension Fund Association. The General Accounts category
relates to non-segregated pools of client pension fund assets. Without the underlying asset
class exposures, it is particularly difficult to interpret the pre-1999 data.
10 February 2016
56
Macquarie Research
Fig 78
Privately managed pension funds’ asset breakdown, FY90-FY14
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Domestic Bonds
Domestic Stocks
Foreign Bonds
Foreign Stocks
Others
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Short-term funds
General Accounts
Note: Based on a survey conducted annually by the Pension Fund Association. Includes assets managed by
members of the PFA and other employee pension funds, defined benefit pension funds and tax qualified
pension plans.
Source: Pension Fund Association, Macquarie Research, February 2016
Since 1999, the General Accounts category appears to have stabilised at around 10%. It
seems fair to say that, from 1999 to 2007, pension funds shifted away from Japanese equities
(from 37% to 23%) to foreign bonds (from 7% to 13%). With the other main categories having
remained broadly stable (Japanese bonds flat at around 25%, foreign equities up from 18% to
19%), it is also possible to say that there was an equity-to-bond shift during that period.
(PFA) member
managed accounts
only are about onefifth of all privately
managed pension
fund assets
Pension Fund Association (PFA) member managed accounts only: At ¥12.5tr of assets,
at end March 2015 (FY14), this is about one-fifth of all privately managed pension fund assets.
Fig 79 shows the trend decline in Japanese equity exposures, highlighted in grey. At end
FY13, Japanese equities were 13.1%, down from 35.6% at end FY03. At end FY14, the ratio
had increased to 17.2%. THE PFA web site is here:
http://www.pfa.or.jp/english/about/investments/overview.html
At end FY13
Japanese equities
were 13.1%, down
from 35.6% at end
FY03
Fig 79
(%)
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Pension Fund Association – Changes in Asset Allocation (%)
Domestic equities
Foreign equities
Domestic bonds
Foreign bonds
Other
35.6
32.4
35.3
27.5
23.2
17.5
17.1
14.0
13.7
14.0
13.1
17.2
21.5
21.4
22.3
21.9
20.9
21.5
25.4
27.1
26.1
26.1
25.8
28.5
34.3
32.7
35.1
36.4
34.2
39.9
36.7
38.2
38.9
38.3
38.9
41.6
6.2
6.0
6.1
11.0
19.0
20.9
20.2
20.0
20.6
20.8
21.5
12.8
2.4
7.5
1.2
3.2
2.7
0.2
0.6
0.7
0.7
0.8
0.7
NA
Source: Pension Fund Association, Macquarie Research, February 2016
Private sector pension fund cover is diminishing
As a percentage of
employees, only
48% have any form
of private sector
corporate pension
plan (36% excluding
DC plans), down
from 63%
10 years ago
10 February 2016
The number of corporate pension plans has declined by over 70% over the last decade, as
reported by the Nikkei in an article on 24 July 2012.
The combined total of (a) tax-qualified retirement pension plans that have been wound down,
(b) employee pension funds, (c) DC pension funds and (d) DB plans fell to 19,000 as of
3/2012 from nearly 75,000 in 3/2002.
In terms of enrolled employees, the total has diminished to 16.6 million from 20 million – most
pension fund closures have occurred at SMEs. In terms of the categories in the paragraph
above, enrolled employees have changed as follows: (a) 9.2m to zero, (b) 10.9m to 4.4m, (c)
from zero to 8.0m, (d) from zero to 4.2m. As a percentage of employees, only 48% have any
form of private sector corporate pension plan, down from 63% 10 years ago. Excluding DC
plans, the ratios are 36%, down from 63%.
57
Macquarie Research
DC pension funds
MUFG
DC pension fund activity: The industry began with legislation in October 2001. Assets are
usually invested in a spread of assets, typically the four asset classes of domestic bonds,
domestic equities, international bonds and international equities.
In March 2012, Mitsubishi UFJ Financial introduced a DC pension fund structure with eight
asset classes plus cash:
1) Domestic bonds (42%), 2) Domestic equities (16%), 3) International bonds (5%), 4)
International equities (20%), 5) EM bonds (4%), 6) EM equities (4%), 7) Domestic REITs
(3%), 8) International REITs (3%) and 9) Short-term financial assets (3%). The percentages
in brackets are initial recommended allocations.
Fig 80 details the leading asset managers of DC mutual funds. Assuming 20% of the assets
are invested in Japanese equity assets, the top 30 managers have only ¥0.3bn of Japanese
equities between them.
DC pension funds remain a very small business segment
Fig 80 DC mutual fund assets managed as at 31 March 2011: market value
DC mutual funds (¥m)
1
2
3
4
5
6
7
8
9
10
Nomura Asset Management
Mitsubishi UFJ Asset Management
DIAM
Daiwa Asset Management
STB Asset Management
Nikko Asset Management
Chuo Mitsui Asset Management
Sumitomo Mitsui Asset Management
Hitachi Investment Management
Tokio Marine Asset Management
Top 10 total
Top 30 total
274.8
257.6
171.8
132.7
128.0
114.5
103.0
80.5
62.9
52.1
1,377.9
1,658.0
Notes: Includes only those firms responding to Nenkin Joho survey. On 31 March 2011 US$1 = ¥82.77.
Source: Nenkin Joho/ R&I, Investment Trusts Association, Macquarie Research, February 2016
2) Life insurance companies
Fig 4 on page 4 shows the life insurance industry’s persistent net selling of Japanese
equities.
Fig 81
Japanese private sector life insurance companies (FY1979-FY2006)
100%
80%
60%
40%
20%
Currency and deposits
Bonds
Equities
Investment
trust
Loans
FY 05
FY 03
FY 01
FY 99
FY 97
FY 95
FY 93
FY 91
FY 89
FY 87
FY 85
FY 83
FY 81
FY 79
0%
others
Total assets as of FY3/07 were ¥193.4tr. The BOJ has subsequently stopped producing these numbers.
The chart above shows the progressive reduction in the asset allocation to equities over
time. The next two tables below detail recent data. At end FY3/15, the equity exposure
for the whole life insurance industry was 6.2%. Data excluding Japan Post Insurance is
only available to end FY3/14; the equity exposure was 6.9% (versus 5.1% including JPI).
10 February 2016
58
Macquarie Research
Fig 82 Life insurance industry: Asset distribution
Asset distribution
Cash, Deposits
Call Loans
Monetary Claims Bought
Money in Trust
Securities
(Government Bond)
(Local Government Bonds)
(Corporate Bonds)
(Stocks)
(Foreign Securities)
Loans
(Financial Loans)
Tangible Fixed Assets
Invested Assets
Total Assets
End FY3/14
Amount (¥ bn)
%
4,417
2,670
2,586
2,459
285,032
149,816
14,009
24,896
18,030
61,451
38,099
34,965
6,237
344,801
350,583
1.3
0.8
0.7
0.7
81.3
42.7
4.0
7.1
5.1
17.5
10.9
10.0
1.8
98.4
100.0
End FY3/15
Amount (¥ bn)
5,608
3,673
2,791
3,333
299,430
148,762
13,869
24,855
22,698
73,280
36,810
33,741
6,241
360,999
367,255
%
1.5
1.0
0.8
0.9
81.5
40.5
3.8
6.8
6.2
20.0
10.0
9.2
1.7
98.3
100.0
Source: The Life Insurance Association of Japan, Macquarie Research, February 2016
Fig 83
Life Insurance industry: Asset distribution ex. Japan Post Insurance
Asset distribution
Cash, Deposits
Call Loans
Monetary Claims Bought
Money in Trust
Securities
(Government Bond)
(Local Government Bonds)
(Corporate Bonds)
(Stocks)
(Foreign Securities)
(Other securities)
Loans
(Financial Loans)
Tangible Fixed Assets
Others
Invested Assets
Total Assets
End FY3/14
Amount (¥ bn)
%
2,753
2,439
1.0
0.9
1,877
215,652
97,292
4,835
18,454
18,028
60,211
16,830
27,078
0.7
81.8
36.9
1.8
7.0
6.9
22.8
6.4
10.3
6,230
7,461
2.4
2.8
263,493
100.0
End FY3/15
Amount (¥ bn)
%
NA
Source: The Life Insurance Association of Japan, Macquarie Research, February 2016
The principal driver of the ongoing trend:
The Japanese FSA has implemented a mark-to-market of liabilities as part of changes to the
solvency margin ratio (SMR) calculations.
There was a provisional implementation in FY3/11, followed by full implementation in FY3/12.
Previously, assets were marked to market but liabilities were not. Liabilities, of course, also
move in response to market changes. For example, they move in response to changes in
rates; as the insurers have books of business which offer investment guarantees, increases in
interest rates improve investment returns, which reduce negative spreads.
With liabilities being marked to market, this incentivizes insurers to match their assets and
liabilities by duration and amount, an actuarial process called immunization. The average time
to maturity on the leading life insurer bond portfolios has grown to near 12 years from six
years ten years ago. The aim is to become immunized against movements in interest rates.
Assets and liabilities move together. VAR calculations are also being tightened, with the FSA
raising the value-at-risk intervals from 90% to 95%.
The Nikkei carried an article on 25 December 2012 implying that regulations and accounting
requirements were strangling the ability of Japanese institutions to provide long-term stable
finance to the private sector: “I feel so frustrated when I hear people ask why life insurers are
not buying shares now,” said Yoshinobu Tsutsui, President of Nippon Life Insurance Co., “I
don’t want to blame regulations, but shareholding itself is considered a risk.”
10 February 2016
59
Macquarie Research
3) Out into the tail of financial institutions
Japan’s financial system, like almost all others worldwide, has a range of financial institutions
beyond domestically licensed banks. One way to convey this is to show the Bank of Japan’s
different monetary aggregates.
M2 is computed by aggregating currency in circulation and the deposits of:

Our interest here is
whether, at the tail
of financial
institutions, there
are any material
investors in
Japanese equity,
and, if so, what their
likely activity will be
The Bank of Japan, domestically licensed banks (excluding the Japan Post Bank),
foreign banks in Japan, Shinkin Central Bank, Shinkin banks, the Norinchukin Bank,
and the Shoko Chukin Bank.
M3 is computed by aggregating currency in circulation, deposit money, quasi money (time
deposits + fixed savings + instalment savings + foreign currency deposits) and CDs of:
 All depository institutions (financial institutions surveyed for M2, the Japan Post Bank,
the Shinkumi Federation Bank, Shinkumi Banks, the Rokinren Bank, Labour Banks,
Prefectural Credit Federations of Agricultural Cooperatives, Agricultural Cooperatives,
Prefectural Credit Federations of Fishery Cooperatives, and Fishery Coops).
Beyond deposit-taking, there are the insurance operations of many of these cooperatives,
mutual aid associations.
Our interest here is whether, at the tail of financial institutions, there are any material
investors in Japanese equity, and, if so, what their likely activity will be.
The Nikkei newspaper carried an article on 10 March 2009 entitled “Market’s quiet giants
shifting to sell”. The article noted that JA Kyosairen (the National Mutual Insurance Federation
of Agricultural Cooperatives), also known as Zenkyoren, has ¥42tr of assets under
management, compared to Nippon Life’s ¥46tr of general-account assets.
In addition, the article noted that JA Kyosairen had no intention of increasing its 3% (¥1.2tr)
allocation to Japanese equities. This is important because, prior to the global financial crisis,
JA Kyosairen’s policy was to buy ¥0.2tr pa of Japanese equities.
Fig 84 Overall business results of cooperative insurers for fiscal 2008
Cooperative insurer
Type
Name
Agricultural
Fishery
Consumer
JA Zenkyoren
JF Kyosairen
Zenrosai
Saikyosairen
FJCC
JCCU
NFUCA
JAFMAC
Others
Small & Medium Nikkaren
Enterprises
Chusho-Kigyo
Zenjikyo
Kokyoren
Others
Others
NOSAI Zenkoku
Others
Total
No. of
policies
(thousands)
Amount
insured
(JPY
billions)
Premium
income
(JPY
billions)
Claims
paid
(JPY
billions)
Total
assets
(JPY
billions)
55,430
770
33,280
0
35,020
6,480
960
1,450
9,850
470
560
780
770
80
5,830
1,890
153,620
418830.6
5819.7
241778.0
0.0
206510.0
9598.5
1412.2
10973.4
66017.1
9003.7
589.0
0.0
0.0
785.5
58184.6
104678.8
1134181.1
6012.1
58.7
595.4
0.0
514.6
136.7
5.1
15.1
226.8
13.6
4.5
27.3
37.5
0.7
63.9
19.8
7731.8
3986.8
55.1
323.7
0.0
264.9
51.9
2.2
5.0
119.5
4.4
1.5
17.3
25.5
0.2
28.6
10.4
4897.1
43210.4
484.4
2868.7
42.3
428.2
124.4
30.1
52.2
1957.1
63.8
6.3
33.3
111.7
0.6
0.0
115.3
49528.8
Source: ZENROSAI, Macquarie Research, February 2016
Zenrosai
The 10 March 2009 Nikkei article also indicated that the National Federation of Workers and
Consumers Insurance Cooperatives, otherwise known as Zenrosai, had sold 20% of its
Japanese equities since 31 May 2008. However, at that time, it only held ¥28bn of Japanese
equities out of total assets of around ¥3tr.
As Fig 84 shows, beyond JA Kyosairen (Zenkyoren) and Zenrosai (highlighted in pale red),
other mutual aid association insurance operations are relatively modest in scale.
10 February 2016
60
Demand and supply of equities* (¥tr) – the table covers four periods of intense financial stress when the TOPIX hit its lows (grey columns)
Macquarie Research
10 February 2016
Fig 85
Note: * Net selling is recorded as a negative number and net buying as a positive one. Grey highlights the years leading to a market bottom, inflection. Reported by exchange members with greater than
¥3bn in capital.
61
Macquarie Research
In summary
The sweep of history…
Fig 85 shows investor flow activities over the past decade and provides insights into which
investor group sellers and buyers tend to be around market inflection points. We group the
various investor types by their dominant net buy (demand) or net sell (supply) status. The
resulting residual value is from trading with exchange members, with capitalisation below
¥3bn not captured in the survey.
The longer time horizon of Fig 85 gives investors a historical context; the table covers four
periods of intense financial stress when the TOPIX hit its lows (grey columns).
Total new equity
offerings have, in
general, trended
around 1% of total
market cap
For reference purposes, we have added in total new equity offerings; for simplicity, we have
categorised IPOs as a subset under ‘individuals’ because IPOs are usually founders selling
shares, and we have categorised secondary offerings under ‘business companies’.
The ‘other financial institutions’ category in Fig 85 includes government and municipal groups,
foundations and labour unions. The GPIF would be in this category. However, the GPIF’s
entrusted funds to trust banks would be under the ‘Trust Banks’ category.
… the state of the market today
Markets are clearly
a zero-sum game in
that there is a buyer
for each seller
Markets are clearly a zero-sum game in that there is a buyer for every seller. However, the
current diversity of willing buyers suggests to us a healthier market.
1)
Individuals are one crucial swing investor group that creates a healthy diversity of
willing buyers. FY3/12 saw the lowest level of individual activity since at least FY3/05.
Individual activity surged in 2013, but by September 2015 had returned to the late 2012
lows.
However, the
current diversity of
willing buyers
suggests to us a
healthier market
2)
Japan’s “six months every two to three years” and foreign buying. Conceptually,
Japan is regarded as a global cyclical market that outperforms when perceptions of the
global macroeconomic cycle turn, i.e., inflect positively from a cyclical low. The best
gauge of the latter is the OECD Leading Indicator, which is currently mildly negative and
falling slowly. A structural reform market similar to 2003-06 offers the other best
hope of sustained foreign buying, with a ratified TPP agreement a possible trigger.
Foreigners have been net sellers since the start of 2015.
Foreigners have
been subdued net
sellers since the
start of 2015
3)
Domestic private sector institutions (ex Japan Post) are likely to remain persistent
net sellers for some years under both regulatory and accounting pressures. This includes
life insurance companies, pension funds and the unwinding of bank cross-shareholdings.
The major portfolio re-allocation by GPIF could result in some minor rebalancing towards
Japanese equities amongst private sector institutional investors in FY3/16.
4)
The corporate sector swung from significant net buying in FY3/06–09 to net selling in
FY3/10. Net buying in FY3/16 is on track to be the highest on record.
5)
GPIF’s new asset allocation and its signalling effect. This has been the major
change, and represents the return of domestic institutions to net buying of Japanese
equities. The signalling effect of the new asset allocation at GPIF is leading to 1)
increased Japanese equity buying by other public sector pension funds, and, we believe,
2) will shortly lead to major Japanese equity buying by both the Japan Post Bank and by
Japan Post Insurance.
6)
Government buying of equities – the bottom line. Since December 2010, the BOJ has
acquired ¥7.2tr of equity ETFs and ¥279bn of J-REITs. The BOJ’s new annual equity
ETF buying target is ¥3tr.
A healthy market requires an end to entrenched deflationary expectations. Japan’s persistent
mild deflation has kept domestic investors largely in cash (households) and JGBs
(institutions).
This is why the new LDP government’s campaign to end entrenched deflationary
expectations is so important. It has the potential to reawaken domestic investor interest in risk
assets, such as property and equities.
10 February 2016
62
Macquarie Japan Rated Research
Name
Rating
1605
1662
1801
1812
1925
1928
2193
2331
2337
2362
2371
2384
2432
2461
2502
2503
2651
2802
2914
3003
3088
3349
3382
3391
3436
3632
3660
3668
3765
4062
4063
4321
4324
4661
4689
4751
4755
4819
4902
5020
5108
5201
5214
5334
5401
5411
5541
Inpex Corp
Japan Petroleum Exploration
Taisei Corp
Kajima Corp
Daiwa House Industry
Sekisui House
Cookpad Inc
Sohgo Securities
Ichigo Inc
Yumeshin Holdings Co Ltd
Kakaku.com
SBS Holdings
DeNA Co Ltd
F@N Communications Inc.
Asahi Breweries
Kirin Holdings
Lawson
Ajinomoto
Japan Tobacco
Hulic
Matsumotokiyoshi
Cosmos Pharmaceutical
Seven & I
Tsuruha Holdings
SUMCO
Gree
Istyle
COLOPL Inc
GungHo Online Entertainment
Ibiden
Shin-Etsu Chemical
Kenedix Inc
Dentsu
Oriental Land Co
Yahoo Japan
Cyber Agent
Rakuten
Digital Garage Inc.
Konica Minolta
JX Holdings
Bridgestone
Asahi Glass Company
Nippon Electric Glass
NGK Spark Plug
Nippon Steel Sumitomo Metal
JFE Holdings
Pacific Metals
N
UP
OP
OP
OP
OP
OP
N
OP
OP
UP
OP
OP
UP
OP
OP
OP
OP
OP
OP
OP
N
OP
OP
OP
N
OP
OP
OP
N
N
OP
N
UP
OP
OP
N
OP
OP
OP
OP
N
OP
N
N
UP
UP
12,499
1,463
7,419
6,039
18,639
11,239
1,314
5,053
1,615
395
4,001
270
2,204
495
14,648
12,851
8,196
14,569
71,575
5,905
2,450
2,872
38,714
4,052
1,750
1,224
474
2,186
2,438
1,698
21,510
984
14,752
23,557
22,123
2,920
14,556
761
4,193
10,316
28,474
7,244
2,638
4,975
17,131
7,588
490
Close
price
Latest
Target
Price % Diff
1,026
2,998
742
669
3,277
1,855
1,440
5,800
377
620
2,128
811
1,712
747
3,747
1,650
9,600
2,936
4,682
1,044
5,350
16,990
5,129
9,940
699
595
918
2,042
270
1,412
5,831
434
6,060
7,587
455
5,410
1,192
1,884
977
484
4,102
715
621
2,607
2,112
1,447
293
1,100
2,700
875
775
4,000
2,400
2,850
5,700
460
1,150
1,600
1,750
2,500
755
4,600
1,850
10,000
3,200
4,600
1,800
8,000
19,000
6,300
12,000
1,900
550
1,360
3,000
400
1,800
6,250
630
6,400
5,500
625
5,600
1,960
2,300
1,385
580
6,000
710
670
3,300
2,300
1,100
230
7.2
-9.9
17.9
15.8
22.1
29.4
97.9
-1.7
22.0
85.5
-24.8
115.8
46.0
1.1
22.8
12.2
4.2
9.0
-1.8
72.4
49.5
11.8
22.8
20.7
171.8
-7.6
48.1
46.9
48.1
27.5
7.2
45.2
5.6
-27.5
37.4
3.5
64.4
22.1
41.8
19.8
46.3
-0.7
7.9
26.6
8.9
-24.0
-21.5
Price
Price
Perf
Perf
1 month 3 months
-15.6
-8.2
-4.5
-4.7
-3.3
-6.5
-42.4
4.7
3.3
4.7
-13.6
-12.2
-7.8
3.5
0.4
2.9
-1.9
7.8
10.3
0.5
-8.1
-8.9
-4.8
-3.2
-19.6
4.9
-7.3
-12.7
-16.1
-15.5
-9.9
3.1
-5.2
4.5
-3.8
9.7
-11.4
-15.4
-17.4
-4.1
1.7
4.4
5.1
-16.7
-11.5
-23.2
-12.5
-14.0
-21.1
-0.4
4.0
9.6
-3.9
-38.0
2.7
16.7
-4.5
-1.8
-27.6
-11.8
-12.8
-2.1
-0.8
7.9
4.7
5.4
-1.9
0.6
10.3
-9.3
0.7
-43.9
2.8
59.1
2.1
-30.6
-24.1
-19.2
3.1
-10.6
1.7
-7.5
16.8
-26.1
1.6
-22.2
0.9
-10.1
0.8
-1.0
-18.0
-13.8
-22.9
-14.3
PER
FY0
28.6
5.0
18.5
nmf
18.2
13.7
37.4
42.9
27.7
72.1
45.8
18.5
15.0
15.8
18.0
13.0
20.8
34.6
23.4
27.4
24.0
29.8
20.3
29.8
11.9
9.6
135.7
12.7
5.6
10.2
19.3
15.8
23.3
61.6
22.0
20.7
22.3
21.1
10.6
nmf
11.7
53.3
85.0
12.6
6.9
5.6
nmf
FY1
EV
/EBITDA
FY2
FY1
ROE
FY1
32.7
24.6
15.0
16.4
14.0
12.8
27.8
30.6
17.5
22.0
38.5
9.6
20.7
14.5
15.1
14.4
21.6
28.4
17.4
20.1
15.8
27.2
19.0
23.6
11.4
15.0
49.3
9.5
5.1
9.6
17.2
16.4
26.6
36.6
15.1
19.1
21.4
15.1
11.2
nmf
9.7
18.9
35.0
11.8
33.8
21.4
nmf
27.1
19.1
14.0
14.8
12.5
10.5
20.2
24.3
16.2
12.2
31.8
8.3
13.0
13.1
14.3
12.9
19.8
24.0
18.7
17.5
14.7
23.3
17.4
20.1
6.2
15.4
35.8
8.2
5.5
12.7
17.4
13.8
19.8
33.9
18.1
17.6
14.2
13.7
9.4
10.7
10.1
19.5
16.4
12.3
13.8
15.7
nmf
1.6
1.7
10.6
10.0
13.8
9.7
23.9
10.3
17.9
13.4
45.3
9.4
6.8
31.4
12.3
10.4
16.9
8.9
18.4
12.2
11.1
17.5
10.1
14.2
9.1
9.5
22.3
47.1
45.8
6.1
7.2
9.1
5.9
12.7
21.6
24.2
13.8
18.9
8.3
-1.5
15.5
3.9
1.7
14.5
4.5
2.3
-3.4
4.0
13.0
7.9
10.6
8.5
8.2
14.8
11.8
20.9
9.8
22.1
7.8
6.1
7.2
9.3
8.3
8.9
11.5
9.6
21.0
8.0
12.5
8.0
13.3
6.8
3.8
25.2
4.2
1.9
2.3
5.5
17.0
13.5
17.3
8.0
8.5
11.6
10.0
5.1
31.4
4.7
5.9
4.5
7.4
9.8
7.1
-4.6
Div.
Yld
FY1 Analyst name
1.8
1.7
0.7
0.7
1.6
3.2
0.8
0.8
1.6
5.6
1.0
2.0
1.3
2.3
1.3
2.4
2.6
0.9
2.5
1.3
1.3
0.4
1.6
1.0
2.9
0.8
0.1
1.0
1.7
2.5
1.9
0.9
1.2
0.5
1.9
1.0
0.4
1.3
3.1
4.1
3.4
2.5
2.6
1.6
0.9
2.8
0.0
Polina Diyachkina
Polina Diyachkina
William Montgomery
William Montgomery
William Montgomery
William Montgomery
David Gibson
William Montgomery
William Montgomery
William Montgomery
David Gibson
William Montgomery
David Gibson
David Gibson
Toby Williams
Toby Williams
Toby Williams
Toby Williams
Toby Williams
William Montgomery
Toby Williams
Toby Williams
Toby Williams
Toby Williams
Damian Thong
David Gibson
David Gibson
David Gibson
David Gibson
George Chang
Damian Thong
William Montgomery
Nathan Ramler
William Montgomery
Nathan Ramler
David Gibson
Nathan Ramler
David Gibson
Damian Thong
Polina Diyachkina
Polina Diyachkina
George Chang
George Chang
George Chang
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
63
Code
Market
Cap
(US$b)
Macquarie Research
10 February 2016
Fig 86
Name
Rating
5713
5938
6146
6201
6268
6273
6301
6305
6326
6367
6479
6481
6501
6502
6503
6506
6586
6594
6645
6701
6702
6723
6740
6752
6758
6762
6770
6806
6841
6845
6857
6861
6869
6902
6954
6963
6967
6971
6976
6981
6988
7011
7012
7013
7201
7203
7259
Sumitomo Metal Mining
LIXIL Group
Disco
Toyota Industries
Nabtesco
SMC
Komatsu
Hitachi Construction Machinery
Kubota
Daikin Industries
Minebea
THK
Hitachi
Toshiba
Mitsubishi Electric Corporation
Yaskawa Electric
Makita Corporation
Nidec
OMRON Corporation
NEC Corp
Fujitsu
Renesas Electronics
Japan Display
Panasonic Corporation
Sony
TDK
Alps Electric
Hirose Electric
Yokogawa Electric
Azbil Corp
Advantest
Keyence
Sysmex
Denso
Fanuc
Rohm
Shinko Electric
Kyocera
Taiyo Yuden
Murata Mfg
Nitto Denko
Mitsubishi Heavy Industries
Kawasaki Heavy Industries
IHI Corp
Nissan Motor
Toyota Motor
Aisin Seiki
N
OP
OP
OP
OP
N
UP
UP
N
N
OP
OP
OP
N
OP
N
UP
OP
N
OP
OP
OP
OP
OP
OP
OP
OP
N
N
OP
OP
N
N
OP
N
N
N
N
OP
OP
N
OP
OP
OP
N
OP
OP
Close
price
Latest
Target
Price % Diff
6,314
6,799
3,324
14,409
2,267
14,685
14,492
3,072
16,537
19,053
2,801
1,986
21,082
6,378
20,604
2,914
7,674
20,194
5,507
6,671
7,408
10,646
1,309
19,709
22,405
6,892
3,408
4,250
2,972
1,796
1,797
29,868
13,460
34,054
26,483
4,782
805
15,074
1,295
26,606
9,163
12,154
4,564
2,456
41,431
188,793
11,660
1,272
2,544
10,880
5,180
2,122
25,075
1,747
1,673
1,556
7,614
822
1,809
511
176
1,124
1,280
6,420
7,934
3,015
300
419
748
255
941
2,615
6,230
2,045
12,440
1,296
2,870
1,055
57,540
7,570
4,512
15,850
4,940
698
4,676
1,259
13,835
6,177
422
320
186
1,074
6,625
4,635
1,300
3,800
12,500
8,100
2,800
34,000
1,700
1,600
1,750
7,000
1,600
2,700
810
180
1,480
1,250
5,900
9,500
3,500
455
690
950
410
1,635
3,800
10,000
3,600
13,400
1,500
3,700
1,190
53,000
8,300
6,800
17,000
5,450
830
5,900
2,200
20,400
8,600
600
470
300
1,300
9,000
5,550
2.2
49.4
14.9
56.4
32.0
35.6
-2.7
-4.4
12.5
-8.1
94.6
49.3
58.5
2.1
31.7
-2.3
-8.1
19.7
16.1
51.7
64.6
27.0
60.8
73.7
45.3
60.5
76.0
7.7
15.7
28.9
12.8
-7.9
9.6
50.7
7.3
10.3
18.9
26.2
74.7
47.5
39.2
42.2
46.9
61.3
21.1
35.8
19.7
Price
Price
Perf
Perf
1 month 3 months
-12.7
-5.6
-2.3
-18.0
-12.4
-18.2
-10.3
-10.4
-15.6
-11.0
-21.5
-18.6
-24.1
-28.1
-9.2
-18.5
-8.5
-6.3
-22.5
-20.4
-30.2
0.1
-25.2
-22.6
-11.7
-16.7
-34.8
-11.2
-7.4
-6.8
8.0
-9.9
-0.7
-18.2
-21.3
-18.1
-8.3
-14.1
-22.4
-18.1
-28.0
-19.6
-26.8
-43.3
-12.4
-8.3
-8.6
-16.1
-7.3
-2.8
-20.9
-9.9
-19.3
-13.4
-12.9
-16.8
-3.3
-41.0
-20.7
-28.3
-46.8
-11.5
-13.5
-1.5
-14.6
-28.5
-21.1
-27.4
4.2
-34.4
-32.4
-24.0
-27.3
-46.8
-17.3
-10.3
-7.9
9.0
-10.0
6.6
-20.3
-26.5
-23.3
-9.8
-17.5
-28.9
-27.6
-27.8
-29.5
-32.2
-44.3
-16.1
-11.6
-3.5
PER
FY0
FY1
EV
/EBITDA
FY2
FY1
5.2
29.6
19.9
14.1
15.0
15.4
11.0
13.7
13.9
15.4
6.8
9.9
5.8
nmf
10.3
13.5
19.2
30.2
11.3
13.6
6.2
13.3
nmf
12.1
nmf
16.3
10.3
19.0
19.4
16.7
15.7
110.7
58.9
13.7
14.9
11.0
13.5
15.4
13.0
18.6
13.8
6.1
10.4
4.8
9.8
9.3
16.0
nmf
13.6
18.1
12.0
23.3
16.0
12.2
20.5
17.4
14.1
8.0
10.8
9.6
nmf
11.6
13.8
19.9
25.1
15.1
13.8
10.6
13.1
9.9
11.8
19.4
12.7
16.9
19.7
11.2
21.2
29.9
34.1
44.4
13.5
19.6
16.8
13.5
21.6
8.6
14.6
12.1
8.2
8.1
12.1
8.3
9.0
14.2
15.5
10.1
15.0
12.0
13.6
15.7
13.3
14.6
12.3
13.9
6.8
10.3
8.0
nmf
11.9
14.8
19.0
21.7
13.4
8.2
8.4
12.7
4.8
8.4
11.9
11.6
10.5
20.3
11.7
16.0
18.8
23.9
39.2
10.9
22.0
16.8
14.0
16.9
8.7
13.5
13.1
7.3
7.3
6.7
7.3
8.5
12.9
ROE
FY1
11.1
-2.6
8.7
8.9
9.1
13.6
7.2
5.5
10.9
7.6
8.1
11.0
6.2
8.7
7.9
4.1
12.3
9.9
8.4
14.6
4.4
17.2
3.1
8.5
5.4
8.6
-8.8 -114.9
5.1
11.5
7.1
13.6
10.3
8.9
12.1
12.1
6.4
8.8
5.6
6.7
3.3
10.1
7.2
27.5
1.6
3.8
2.9
9.8
4.5
6.6
4.5
8.5
4.4
12.1
6.4
7.4
5.6
13.1
8.5
6.4
8.4
4.7
21.9
10.2
22.4
19.1
6.5
8.2
9.8
11.7
3.7
4.2
1.6
5.1
7.9
3.7
3.3
11.4
7.5
17.7
5.0
13.8
4.9
9.7
9.0
15.0
23.8
7.3
6.9
10.9
8.5
13.4
3.5
6.8
Div.
Yld
FY1 Analyst name
3.8
2.6
2.5
2.1
2.1
0.8
3.3
3.6
1.8
1.4
1.9
3.1
3.1
0.0
2.4
1.6
1.8
1.3
2.3
2.0
2.4
0.0
0.0
2.7
0.8
1.9
1.2
1.9
1.5
2.3
1.9
0.2
0.7
2.7
3.1
2.7
3.6
2.1
1.2
1.4
2.3
2.8
3.8
1.6
3.9
3.2
2.2
Polina Diyachkina
William Montgomery
Damian Thong
George Chang
Kenjin Hotta
Kenjin Hotta
Kenjin Hotta
Kenjin Hotta
Kenjin Hotta
Damian Thong
George Chang
Kenjin Hotta
Damian Thong
Damian Thong
Damian Thong
Kenjin Hotta
Kenjin Hotta
George Chang
Damian Thong
Damian Thong
Damian Thong
Damian Thong
Damian Thong
Damian Thong
Damian Thong
George Chang
George Chang
George Chang
Damian Thong
William Montgomery
Damian Thong
Kenjin Hotta
Damian Thong
George Chang
Kenjin Hotta
Damian Thong
George Chang
George Chang
George Chang
George Chang
George Chang
Kenjin Hotta
Kenjin Hotta
Kenjin Hotta
Takuo Katayama
Takuo Katayama
George Chang
64
Code
Market
Cap
(US$b)
Macquarie Research
10 February 2016
Fig 86
Name
Rating
7261
7267
7270
7532
7649
7731
7733
7741
7751
7752
7974
8001
8002
8028
8031
8035
8053
8058
8253
8267
8306
8308
8309
8316
8331
8332
8358
8411
8570
8591
8630
8725
8729
8750
8766
8795
8802
8897
9020
9021
9022
9062
9064
9201
9202
9432
9433
Mazda Motor
Honda Motor
Fuji Heavy Industries
Don Quijote
Sugi Holdings
Nikon
Olympus
HOYA
Canon
Ricoh Company Ltd
Nintendo
Itochu
Marubeni
FamilyMart
Mitsui & Co.
Tokyo Electron
Sumitomo Corp
Mitsubishi Corp
Credit Saison
Aeon
Mitsubishi UFJ Financial
Resona
Sumitomo Mitsui Trust Holdings
Sumitomo Mitsui Financial
The Chiba Bank
The Bank Of Yokohama
Suruga Bank
Mizuho Financial
Aeon Financial
ORIX Corporation
Sompo Japan Nipponkoa
MS&AD Insurance
Sony Financial
Dai-ichi Life Insurance
Tokio Marine
T&D Holdings
Mitsubishi Estate
Takara Leben
East Japan Railway
West Japan Railway
Central Japan Railway
Nippon Express
Yamato
Japan Airlines
ANA Holdings
Nippon Telegraph and Telephone
KDDI Corporation
OP
OP
N
N
OP
OP
OP
OP
N
OP
OP
UP
OP
OP
UP
OP
OP
OP
N
UP
OP
OP
OP
OP
N
N
OP
N
N
OP
OP
OP
N
N
N
OP
OP
OP
OP
OP
N
OP
UP
OP
N
OP
OP
9,436
48,279
28,204
4,988
3,146
6,232
13,369
15,055
38,168
7,600
17,471
19,676
8,680
4,789
20,513
9,587
12,492
25,536
3,257
11,060
65,102
8,988
11,080
41,407
4,343
5,670
3,615
38,590
4,433
18,227
11,099
16,003
5,767
13,761
26,082
6,650
26,488
598
36,216
12,393
37,214
4,705
9,065
12,621
9,537
92,636
66,384
Close
price
Latest
Target
Price % Diff
1,843
3,118
4,220
3,695
5,820
1,821
4,570
4,236
3,352
1,195
17,040
1,386
585
5,910
1,338
6,797
1,170
1,866
2,057
1,550
538
453
333
3,430
581
530
1,824
182
2,490
1,613
3,130
2,960
1,553
1,346
4,033
1,143
2,232
556
10,775
7,497
22,150
531
2,498
4,076
318
5,176
3,104
2,900
5,000
4,900
4,000
7,500
2,000
5,050
5,500
3,375
1,500
20,400
1,300
700
7,000
1,150
8,400
1,600
2,500
2,200
1,300
860
745
580
5,800
910
770
2,800
250
2,900
2,400
4,800
4,100
1,700
1,500
4,900
1,400
3,200
935
12,800
9,500
22,500
800
2,200
5,900
385
5,500
3,200
57.4
60.4
16.1
8.3
28.9
9.8
10.5
29.8
0.7
25.5
19.7
-6.2
19.7
18.4
-14.0
23.6
36.8
34.0
7.0
-16.1
59.8
64.5
74.4
69.1
56.6
45.4
53.5
37.6
16.5
48.8
53.4
38.5
9.5
11.5
21.5
22.5
43.4
68.2
18.8
26.7
1.6
50.7
-11.9
44.7
21.2
6.3
3.1
Price
Price
Perf
Perf
1 month 3 months
-22.7
-14.8
-12.4
-11.5
-8.8
13.5
-3.1
-13.6
-6.0
-1.9
3.8
-3.6
-5.4
3.7
-6.5
-3.8
-5.2
-7.8
-11.3
-14.2
-27.7
-22.7
-26.6
-24.7
-31.2
-27.2
-25.9
-24.1
-3.8
-4.3
-18.3
-13.1
-26.5
-31.7
-10.7
-26.4
-8.9
-9.9
-3.8
-8.0
4.7
-4.5
0.0
-4.7
-5.8
7.5
0.6
-23.5
-21.2
-12.8
-18.3
0.0
14.1
10.5
-15.4
-8.3
-8.7
-14.5
-8.6
-14.7
17.0
-11.5
-9.7
-11.7
-8.3
-17.2
-13.6
-31.3
-29.4
-30.3
-29.9
-32.4
-28.8
-21.9
-26.8
-16.1
-10.1
-18.9
-18.9
-28.2
-39.4
-16.3
-32.7
-11.3
-8.1
-6.4
-6.9
1.1
-7.2
8.9
-11.1
-14.0
11.6
6.1
PER
FY0
7.6
9.3
12.5
21.3
26.6
24.5
21.6
20.2
16.6
12.8
49.2
7.3
9.6
23.3
8.0
15.7
nmf
7.7
29.9
20.6
6.7
4.8
6.0
6.1
9.2
10.2
12.7
7.1
16.4
9.0
23.8
13.3
12.4
10.8
12.4
8.1
29.1
10.9
18.7
22.0
15.2
14.5
26.4
9.6
31.2
21.7
16.9
FY1
EV
/EBITDA
FY2
FY1
ROE
FY1
7.1
10.3
8.0
22.9
23.8
30.5
20.7
19.3
15.8
12.1
46.7
7.2
5.1
16.5
13.0
13.7
6.8
10.3
12.5
20.1
6.4
5.9
7.0
5.9
8.8
8.7
11.1
7.1
14.4
8.2
7.9
11.6
12.8
8.6
11.7
9.1
40.0
7.5
15.1
13.5
13.2
13.0
26.5
9.0
18.9
17.0
15.5
7.6
8.4
9.9
20.3
22.2
17.9
18.3
16.0
14.9
10.9
47.3
6.6
5.3
16.1
11.0
13.0
5.8
9.0
10.4
13.7
6.3
5.7
6.6
5.8
8.5
8.3
10.9
7.1
12.5
8.0
7.5
9.1
11.1
7.6
10.2
8.3
36.8
6.6
14.0
12.8
12.2
12.3
23.0
7.6
14.7
16.9
14.7
16.7
8.0
34.7
11.5
11.9
4.2
19.8
16.1
7.7
6.5
3.7
11.4
12.7
12.1
4.4
13.3
8.7
4.8
6.6
5.3
7.5
9.1
7.5
8.6
6.3
7.5
12.7
7.5
12.1
11.5
8.4
5.1
9.4
5.6
6.9
6.4
5.1
24.0
11.8
12.8
15.2
7.6
6.7
23.1
7.1
7.2
15.7
4.4
4.8
4.8
11.7
10.5
8.3
10.6
9.3
4.9
7.0
25.5
14.3
14.1
7.4
14.6
6.6
14.2
16.8
nmf
6.5
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
nmf
20.7
5.3
8.7
7.2
7.8
6.3
8.2
3.5
6.2
4.6
5.8
Div.
Yld
FY1 Analyst name
1.6
2.8
3.4
0.6
0.8
0.9
1.2
1.8
4.5
2.9
1.1
3.6
4.3
1.9
3.6
3.2
3.8
3.0
1.7
1.9
3.7
3.8
3.9
4.4
2.4
2.5
1.2
4.1
2.7
2.8
2.7
2.5
3.5
3.0
2.6
2.4
0.7
1.8
1.2
1.8
0.6
1.9
1.1
3.3
1.6
1.9
2.1
Takuo Katayama
Takuo Katayama
Takuo Katayama
Toby Williams
Toby Williams
Damian Thong
Damian Thong
Damian Thong
Damian Thong
Damian Thong
David Gibson
Polina Diyachkina
Polina Diyachkina
Toby Williams
Polina Diyachkina
Damian Thong
Polina Diyachkina
Polina Diyachkina
Leo Nakada
Toby Williams
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Alastair Macdonald
Leo Nakada
Leo Nakada
Leo Nakada
Leo Nakada
Leo Nakada
Leo Nakada
Leo Nakada
Leo Nakada
William Montgomery
William Montgomery
Heyang Ping
Heyang Ping
Heyang Ping
Heyang Ping
Heyang Ping
Azita Nazrene
Azita Nazrene
Nathan Ramler
Nathan Ramler
65
Code
Market
Cap
(US$b)
Macquarie Research
10 February 2016
Fig 86
Code
Name
Rating
Market
Cap
(US$b)
9437
9502
9503
9504
9505
9506
9507
9508
9509
9513
9684
9697
9735
9766
9831
9983
9984
9989
NTT DoCoMo
Chubu Electric Power Company
Kansai Electric Power Company
The Chugoku Electric Power Company
Hokuriku Electric Power Company
Tohoku Electric Power Company
Shikoku Electric Power Company
Kyushu EPCO
Hokkaido Electric Power Company
Electric Power Development Co
Square Enix
Capcom
Secom Co
Konami
Yamada Denki
Fast Retailing
SoftBank
Sundrug
N
OP
N
N
UP
OP
OP
OP
OP
OP
OP
OP
OP
N
OP
OP
OP
OP
97,056
10,092
10,442
5,094
3,065
6,491
3,230
4,866
2,038
6,173
3,098
1,384
16,437
3,362
3,877
30,105
51,682
3,944
Close
price
Latest
Target
Price % Diff
2,783
1,560
1,303
1,608
1,707
1,512
1,696
1,202
1,109
3,950
2,967
2,393
8,253
2,744
566
34,590
5,042
7,640
2,150
2,100
1,400
1,600
1,500
1,600
2,500
1,600
1,500
5,200
4,240
3,070
9,200
2,760
650
52,500
9,300
8,500
-22.7
34.7
7.4
-0.5
-12.1
5.8
47.4
33.1
35.3
31.6
42.9
28.3
11.5
0.6
14.8
51.8
84.5
11.3
Price
Price
Perf
Perf
1 month 3 months
11.7
-3.3
-8.2
-0.6
-3.7
0.5
-9.3
-7.5
-12.0
-8.2
0.4
-17.7
3.2
-3.6
5.2
-14.4
-15.5
3.4
13.1
-12.4
-12.8
-5.5
-6.3
-8.7
-13.5
-13.8
-7.7
-2.7
-9.5
-7.6
2.3
-3.1
1.6
-22.7
-26.5
16.8
PER
FY0
27.4
75.8
nmf
17.0
30.5
13.3
31.6
nmf
nmf
16.7
30.2
20.2
21.2
42.2
20.7
32.0
9.3
28.3
FY1
EV
/EBITDA
FY2
FY1
ROE
FY1
23.0
7.8
10.6
50.6
27.4
10.1
24.6
8.6
10.3
15.5
19.9
16.2
20.5
35.7
10.0
27.3
8.4
21.4
21.3
22.6
12.8
83.1
25.9
12.2
15.3
8.6
3.6
12.3
15.3
13.4
18.5
21.3
8.8
19.9
7.5
19.0
8.6
9.9
10.5
1.9
3.9
11.9
5.1
14.5
12.4
6.6
11.5
11.3
10.7
4.9
8.9
16.5
23.3
17.3
7.6
8.0
7.8
17.0
11.7
7.5
11.7
11.5
11.2
12.4
7.5
5.5
8.5
6.1
9.0
13.0
6.1
11.9
Div.
Yld
FY1 Analyst name
2.5
1.9
0.0
3.1
2.9
1.7
1.5
0.4
0.5
1.8
1.5
1.7
1.6
0.8
2.5
1.2
0.8
0.9
Nathan Ramler
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
Polina Diyachkina
David Gibson
David Gibson
William Montgomery
David Gibson
Toby Williams
Toby Williams
Nathan Ramler
Toby Williams
Macquarie Research
10 February 2016
Fig 86
Note: All price data as of 5 February 2016 close. Note the recommendations of some stocks in the table may be out of line with Macquarie’s standard recommendation price range bands.
66
Macquarie Research
Important disclosures:
Recommendation definitions
Volatility index definition*
Financial definitions
Macquarie - Australia/New Zealand
Outperform – return >3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return >3% below benchmark return
This is calculated from the volatility of historical
price movements.
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
Benchmark return is determined by long term nominal
GDP growth plus 12 month forward market dividend
yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie – South Africa
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell
3000 index return
Neutral (Hold) – return within 5% of Russell 3000 index
return
Underperform (Sell)– return >5% below Russell 3000
index return
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30–40% in a year.
Low–medium – stock should be expected to
move up or down at least 25–30% in a year.
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Asia/Australian/NZ/Canada stocks
only
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 31 December 2015
Outperform
Neutral
Underperform
AU/NZ
50.68%
31.51%
17.81%
Asia
61.04%
24.66%
14.30%
RSA
53.16%
34.18%
12.66%
USA
47.90%
47.70%
4.39%
CA
65.22%
29.71%
5.07%
EUR
43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients )
34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients)
21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients )
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Analyst certification:
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their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or
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PEC`s Japan strategy

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