Japan Weekly Strategy Report – Watch out for the State of Affairs in Hong Kong Which Is at the Brink of a Major Upheaval November 21, 2019 269

Report type: Weekly Strategy

Watch out for the State of Affairs in Hong Kong Which Is at the Brink of a Major Upheaval

In the Japanese stock market in the week of 11/11, with continued positive influence from the supply and demand aspect of spot buybacks which followed the relief of positions in the “unsettled selling balance of arbitrage” involving “forward buying / long sales” and a shift towards a net buy trend from October with purchases by foreign investors, on 14/11, due to unsatisfying preliminary figures of Japan’s Jul-Sep GDP and economic indicators for October in China, it fell to 23,062 points on 14/11, however, the market tone was strong as it kept within the range of around 250 points above and below 23,300 points. However, the “up-down ratio” (a ratio above 120% is generally considered as overheating), an indicator obtained by dividing the total number of stocks with a price increase by the total number of stocks with a price decrease within a 25-day period in the TSE Section 1, hit 142.33% on 12/11, and it appears that there were concerns of it being overbought in a short period of time which pushed back the rise in price.

In the week of 11/11, the affairs in Hong Kong witnessed the most drastic changes. Despite extreme demonstrations being limited to the weekends thus far, the confusion continued well past the weekend, which saw escalating tension such as the Chinese media raising the need to deploy Chinese troops on standby at Shenzhen near Hong Kong. Also, in Vice President Pence’s speech on 24/10, there were statements such as, “nothing has put on display the Chinese Communist Party’s antipathy to liberty so much as the unrest in Hong Kong” and “we have repeatedly made it clear it would be much harder for us to make a trade deal if the authorities resort to the use of violence against protestors in Hong Kong”. Since these directly tie in with the risk of the US-China trade negotiations breaking down and its highly anticipated partial trade deal, we ought to be on the highest alert regarding this situation.

Furthermore, with Taiwanese President Tsai Ing-wen urging the international community on 14/11 to “stand up against acts of oppression and take action”, and with the Taiwan Presidential Election in Jan 2020 around the corner, Mayor Han Kuo-yu, who is a candidate from the Kuomintang, whose policy is to unify with China, also expressing that “the Beijing authorities should allow the Chief Executive of Hong Kong to be elected via universal suffrage”, etc., which saw signs of

the issue starting to extend to Taiwan’s affairs. In response, Chinese head Xi Jinping criticized the protests in Hong Kong by saying, “the persistence of violent crimes has seriously trampled on the rule of law and social order” and expressed his intention to clamp down on the protests, such as by emphasising that they “will pledge to support the Hong Kong police in strictly enforcing the law”. It does not look like there will be room for compromise in the affairs of Hong Kong for the sake of the US-China agreement. The “affairs of Hong Kong and Taiwan” could be an immense hurdle obstructing the US-China agreement that is anticipated by the stock market.

In the 18/11 issue, we will be covering Kyowa Exeo (1951), TEAR (2485), ROHTO Pharmaceutical (4527), Bunka Shutter (5930), Taiyo Yuden (6976) and Credit Saison (8253).


Kyowa Exeo Corporation (1951)   2,763 yen (15/11 closing price)

  • For 1H (Apr-Sep) results of FY2020/3 announced on 12/11, net sales increased by 59.8% to 212.302 billion yen compared to the same period the previous year, operating income increased by 25.9% to 10.766 billion yen, and net income increased by 6.4% to 6.275 billion yen. Fixed-line and mobile communication construction orders have performed strongly. Large orders were also received in the city infrastructure and system solutions from electrical / public facilities, etc.
  • For its full year plan, net sales is expected to increase by 16.8% to 495 billion yen compared to the previous year, operating income to increase by 0.9% to 32 billion yen and net income to decrease by 45.8% to 21.8 billion yen. The content that was released on 14/5 remain unchanged. In addition to ongoing development in information communication networks as a measure against rapidly increasing data / traffic, we can expect an increase in ICT investment from the popularisation of IoT.
  • Established in 1954 for the purpose of handling the telecommunications facility expansion plan for Nippon Telegraph and Telephone Public Corporation. With expertise in constructing information communications as its core compliance, it carries out the engineering solutions business and the systems solutions business. Its group corporation includes C-CUBE, Seibu Electric Industry and Nippon Dentsu, etc.


  • TEAR Co., Ltd. (2485)   596 yen (15/11 closing price)
  • For FY2019/9 results announced on 8/11, net sales increased by 3.8% to 12.779 compared to the same period the previous year, and operating income decreased by 12.6% to 1.156 billion yen. Although an increase in store openings of directly managed stores and funeral salons led to an increase in revenue, the increase in labour costs due to securing human resources for the mid and long-term as well as the increase in advertising costs following a diversification in sales channels have affected, which led to a decrease in profit.


  • For its FY2020/9 plan, net sales is expected to increase by 7.2% to 13.695 billion yen compared to the previous year and operating income to increase by 5.5% to 1.22 billion yen. Although, on one hand, a revenue increase due to new store openings is forecasted, there is the issue of how to handle the increase in labour costs involving securing human resources and the increase in advertising costs following the diversification in sales channels. It seems that the key to future growth lies in a marketing strategy aimed at the Tokyo market which is able to handle the funeral situation unique to Tokyo where ground rent / housing rental is relatively high but the unit costs of funeral services are low.
  • Established in 1997 in Nagoya. Carries out the funeral ceremony business via the membership system, “TEAR Club”, and funeral service consultation salons focusing on funeral contracts, as well as the franchise business which operates “Funeral Hall TEAR” for business firms in different industries.


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