17 June 2018

As underlined last week, the North Korean peace talks looked nothing but a brief distraction from deeper concerns brewing about the rising trade barriers, the future of the US in G7 and NATO, not to mention, global tightening of monetary policies, a major policy shift for over a decade. These we have argued are obviously the more relevant issues for capital markets and are key reasons behind our continued caution in Japan stocks. 

With ECB and Fed shifting further away from BOJ's continued expansionary monetary stance, we believe the pressure on Japan's central bank to officially curtail its bond purchases will only intensify. In reality BOJ is already tapering as big wave of JGB maturities have hurt supply of paper in already a dangerously illiquid market as the central bank simply cannot find enough bonds to buy. 

However, clearly there are some at BOJ who are becoming concerned about the impact of the next 2% consumption tax hike on the economy. This leaves a more benign outlook for the yen for now with the unit likely to trade around it current levels of around 110 against the USD. On the other hand, any major depreciation in the Japanese unit could spark talks of currency manipulation among US policy makers, which in our view could put political pressure on BOJ to taper. 

Although in June thus far Topix has rebounded by around 3% back to around its 1800 resistance level, the rally masks some notable sector re-allocations and sell-offs being seen in some highly loved names in techs and machinery sectors due to growing cyclical concerns which we at Asymmetric have been outlining in the past few months. We still see great shorting opportunities in these segments, particularly in semiconductor and automation-related names. 

One name mentioned in our last week's note was Nintendo (7974) which as we expected reacted negatively to the E3 show line-up where much of the game title launches had already been anticipated. We its chart technicals now looking fairly poor, we see more downside on this very popular name with over 20 buy recommendations and no sell calls from brokers. 

One other tech-related which we removed from our short sell list more recently and have become positive about is Softbank (9984) which as we noted last week is clearly deleveraging, and its shares should react positively to a court ruling allowing AT&T/Time Warner's merger to go through. Thus far, the scenario has panned out as expected. 

With Sprint/T-Mobile looking to officially file with FCC for a proposed merger on this coming Monday, so soon after the AT&T/Time Warner decision, we suspect Softbank's Son-san feels more confident that the FCC will overlook Sprint's partly Chinese equipped network infrastructure, and hopefully ignore ARM's recent sale of its China subsidiary back to the Chinese. If the merger does go through, Softy could remove close to $37bn of debt off its balance, one of the many moves it is making to shrink its debt and lock into low interest rates through refinancing.