David Fuller and Eoin Treacy's Comment of the Day
Category - Japan

    'Value' Label Haunting Japanese Shares Again: Taking Stock

    This article from Bloomberg may be of interest may be of interest to subscribers. Here is a section:

    As a key “value” market, Japan’s shares have gotten rolled up in the reversal of the reflation trade sparked by the Fed’s hawkish turn last week. The market capitalization of traditional value sectors financials, industrials, energy and materials is about 36% of the MSCI Japan Index, versus around 24% for the U.S. equivalent, according to data compiled by Bloomberg.

    With stocks trading higher Tuesday, after a value share rally in the U.S. overnight, it would seem the path for Japanese shares -- at least in the short-term -- is linked to the fate of global reflation bets.

    Back at home, the slow vaccination rollout is still a risk especially with the Olympics looming. Only about 6% of Japan’s population have been fully vaccinated, a sharp contrast to other Asian markets like Singapore and Hong Kong, where 35% and 17% of the population have received two doses, according to data compiled by Bloomberg.

    “The vaccine rollout is picking up, but risks of a resurgence will increase as Japan lifts the state of emergency and welcomes thousands of Olympic athletes and officials,” wrote Barclays Plc’s Tetsufumi Yamakawa and Kazuma Maeda in a note Friday.

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    China's tech workers pushed to limits by surveillance software

    This article from Nikkei may be of interest to subscribers. Here is a section:

    In China, technology adoption promises its swelling middle classes an easier, more productive life. But as companies bring productivity-enhancing tools into everyday office life, their efficiency is being channeled, not into leisure time, but into squeezing ever more value from employees.

    Just as algorithms have come to govern the workdays of blue-collar warehouse workers at Alibaba Group Holding and food delivery riders for Meituan, elsewhere, white-collar workers are becoming affected by the creep of software-driven management and monitoring into their professional lives.

    This is particularly the case in China's tech industry, where rapid technological development, paired with poor labor regulations, has created a potential for labor abuse. The big tech companies themselves, locked in cutthroat competition for new business opportunities, are pioneering these technologies and tools in their own operations. From hiring and goal-setting to appraisal and layoff, productivity-enhancing technologies look to quantify workers' behavior by collecting and analyzing extensive amounts of personal data.

    Some scholars warn that some practices can be unethical, invading employees' privacy and burdening them with greater workload and mental stress. Others draw parallels to the fatigue faced by factory laborers during industrial revolutions, where workers chased the pace of machines.

    "I felt that I was getting busier and having less time for myself," said the engineer Wang, looking back on his five years at Chinese internet companies.

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    Email of the day on Japanese indices

    Is it possible to add the Topix First Section Index to the Chart Library?

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    Warner-Discovery, French Deal 'Dramatically' Push M&A Up European TV Agenda

    This article from the Hollywood Reporter may be of interest to subscribers. Here is a section:

    While European broadcasters are still profitable, “and some very much so,” Godard highlighted, “savvy investors believe this is looking suspiciously like the high earnings of printed newspapers circa 2007, or a Wile E. Coyote run over the edge of the cliff. Broadcasters are capturing a declining share of total video audiences and their capacity to finance attractive content is shrinking as talent is bid up by SVOD operators.”

    The analyst then outlined two consolidation options that have emerged in Europe.

    “The first path — heralded by Bertelsmann RTL Group — would aim at creating national broadcasters with the content scale to operate compelling online platforms” via domestic acquisitions, Godard said, calling this the “possibly more defensive but also more realistic” option.

    The second path is “more ambitious but lacking a credible backer,” he argued. It targets “the never achieved idea of pan-European synergies, leveraging increased international appetite for non-English language content” by merging assets across borders, something that the likes of Italy’s Mediaset and Vivendi have talked about. “But its champion, Italy’s Mediaset, lacks capacity to deliver,” Godard concluded.

    “The group is already the biggest broadcaster in Italy and Spain and has built a 24 percent stake in Germany’s ProSieben, with the remaining shareholding fragmented,” he explained. “The problem is, if the cross-border strategy is sound, Mediaset may be its worst possible proponent. Besides bringing in strong leadership to its Spanish division, Mediaset never extracted significant synergies from its two Mediterranean units, despite their cultural affinity.”

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    Tokyo Traders See Faster Vaccine Pace Driving Markets Higher

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “Looking at Europe, expectations for business sentiment increased when the inoculation rate reaches about 20-30%,” said Masashi Samizo, a senior market analyst at SMBC Trust Bank Ltd. in Tokyo. “Japan is still in single digits, but the trend is clearly accelerating.”

    To be sure, vaccinations for professionals in Tokyo still seem far off, with little indication when they might get shots. While Japan has administered just 7 million first and second doses in a country of more than 126 million, compared with almost 60 million in the U.K., the pace has begun to increase as more local authorities in charge of vaccinations start to spin up their programs.

    Japanese Prime Minister Yoshihide Suga surprised many earlier this month when he gave a formidable target for the country to achieve 1 million inoculations a day, seeking to finish administering doses to the country’s 36 million over-65s by the end of July. While around 86% of municipalities have said they expect to finish by that date, it’s unclear if the pace, which per capita would match some of the best days in the U.S., is realistic.

    But the stock market’s mood has definitely changed for investors like Naoki Fujiwara, the chief fund manager at of Shinkin Asset Management in Tokyo. “It’s starting to feel real, whereas just a few days ago I was wondering when it would begin,” said Fujiwara, who expects the Moderna approval to support the market. “Should vaccination expand in the next month or so, Japanese stocks could rebound strongly again.”

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    JAPAN VALUE An Island of Potential in a Sea of Expensive Assets

    Thanks to a subscriber for this report from GMO which may be of interest to subscribers. Here is a section:

    Successful cost cutting, rising profits and free cash flows, and a corporate culture of risk aversion stemming from the bursting of the Japanese bubble led to an ironic side effect: over-capitalized balance sheets. As Exhibit 4 indicates, over 50% of listed nonfinancial companies are “net cash” today.3 In the U.S., that figure is less than 15%.

    Carrying large amounts of cash, especially in a negative interest rate environment like today, is troublesome for shareholders. Equity investors expect companies either to reinvest surplus capital in projects that generate returns above the cost of capital or return it to shareholders so they can reallocate to value-creating investments.

    These “lazy” balance sheets have drawn the attention of Japanese regulators and government, two groups that are trying desperately to spark economic growth to help address the pension burden in a country with a declining population and negative yield on government bonds. Furthermore, the Japanese equity market is filled with inefficiencies that offer upside opportunities for patient investors. The number of analysts and investors covering the Japanese market has declined following decades of disappointing returns after the bursting of the 1980s Japanese bubble. Cultural and language differences also have diminished foreign investor interest in Japanese equities.

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    PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia

    This article by Wes Goodman for Bloomberg may be of interest to subscribers. Here is a section:

    China hasn’t been this frugal in its cash offerings to banks in almost a year.

    The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

    Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

    Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

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