10 April 2018
Japan in Focus: SGX takes a look at how MSCI Japan IndexSM compares with the TOPIX Index
  • There is an estimated US$1 trillion (or 25% of total Japan market capitalisation) in implied exposure to MSCI Japan IndexSM via the global MSCI benchmark indices.
  • MSCI Japan IndexSM has had similar return profile to TOPIX Index over the past 5 years and both have similar sector weightages.
  • MSCI Japan benchmarked investments in iShares MSCI Japan ETF in Q1 2018 alone was 500% of that in 2017.
  • SGX has launched two MSCI Japan Index Futures contracts on 9 April 2018 to widen access to the world’s second largest developed economy.

Renewed interest in Japanese equities 

Perceived undervaluation of Japanese equities has resulted in an increased investment in Exchange Trade Funds (ETFs). Compared to US equities, Japanese stocks demonstrate higher earnings yields and have traded in lower multiples to sales/book values over the last 5 years. One of the most popular Japanese ETFs, the iShares MSCI Japan ETF, attracted more than US$3 billion in Q1 2018 – about five times more than the whole of last year. Analysts cite the superior performance, value and earnings growth as to why this ETF has gained so much interest.  

Source: Bloomberg

ETFs on the MSCI Japan represent a small fraction of total funds benchmarked to MSCI Japan IndexSM. As a conservative estimate there is US$1 trillion, or 25% of total Japan market capitalisation, in implied exposure to the MSCI Japan IndexSM via the global MSCI benchmark indices. For instance, the MSCI All Country World IndexSM (ACWI) has a 9% weightage to Japan, while the MSCI World IndexSM has an 8% weightage to Japan.

Source: MSCI Inc.

 

Return profile: MSCI Japan IndexSM versus TOPIX Index

MSCI Japan IndexSM has had similar return profile to TOPIX Index over the past 5 years.

Despite the MSCI Japan IndexSM having only 16% of the amount of constituent stocks of the TOPIX Index, in terms of sector breakdown, the MSCI Japan IndexSM and TOPIX Index exhibit similarities. The heaviest weighted sector is Industrials, with MSCI Japan IndexSM weighing in at 23% and TOPIX Index at 21%. This is followed by Consumer Discretionary and Information Technology ratios at 20% and 13%, which is similar for both indices. 

Source: Bloomberg

Introducing SGX MSCI Japan Index Futures

Designed to measure the performance of the large and mid-cap segments of the Japanese market, both the MSCI Japan Index and MSCI Japan Net Total Return USD Index cover approximately 85% of the free float-adjusted market capitalisation in the Japan equity universe.  

The MSCI Japan IndexSM and MSCI Japan Net Total Return USD IndexSM are highly correlated to the domestic indices, Nikkei 225 Index (99.7%) and TOPIX Index (97.2%), and are used as benchmarks for the Japanese market by institutional investors around the world. The TOPIX Index consists of 2062 component stocks while MSCI Japan has 321 stocks.

The US CFTC approved contracts are available for round-the-clock trading (up to 4.45 am SGT) extending through European time zone and overlapping with the US. SGX MSCI Japan Index Futures (JP) and SGX MSCI Japan Net Total Return Index Futures (NJP) commence trading on 9 April 2018.

The SGX MSCI Japan Index Futures provide a more precise hedge with a lower tracking error for MSCI benchmarked funds. Using a modern market-capitalisation weightage methodology is preferred by industry as well as the Bank of Japan. Participants that are currently tracking TOPIX may consider using SGX MSCI Japan Index Futures to optimise tracking and ultimately reduce cost and improve transparency.

The SGX MSCI Japan Futures may also be used as a more capital efficient alternative to MSCI-benchmarked ETFs (i.e. iShares MSCI Japan ETF). Transitioning to futures contracts allows for lower upfront costs, including the maximisation of capital opportunities and elimination of management fees. Cross product margining with SGX Japanese equity derivatives (including Nikkei Futures and Options and Nikkei Dividend Futures) as well as other SGX equity index and currency derivatives allows for enhanced capital efficiency.

Product Name

SGX Ticker 

Spot Index (Bloomberg Ticker)

Price Information

SGX MSCI Japan Index Futures

JP

MSCI Japan Index
(MXJP <INDEX>)

Bloomberg: JAPA <INDEX>
Reuters: SJJP <F3>

SGX MSCI Japan Net Total Return (USD) Index Futures

NJP

MSCI Japan Net Total Return (USD) Index
(Realtime: M1JP <INDEX>
End-of-Day: NDDUJN <INDEX>)

Bloomberg: AJCA Index <INDEX>
Reuters: 0#SNJP:

 

Selected Margin Offset Pairs (As of 9 April 2018)

MSCI Japan Index Futures [JP]

MSCI Japan Net Total Return (USD) Futures [NJP]

MSCI Japan Index Futures [JP]

 

75%

MSCI Japan Net Total Return (USD) Futures [NJP]

75%

 

Nikkei 225 Index Futures [NK]

70%

60%

MSCI Taiwan Index Futures [TW]

60%

60%

FTSE China A50 Index Futures [CN]

55%

55%

MSCI Singapore Free Index Futures [SGP]

60%

55%

MSCI Emerging Markets Net Total Return (USD) Futures [NEM]

60%

60%

MSCI Emerging Markets Asia Net Total Return (USD) Futures [NEA]

60%

60%

MSCI Singapore Free Net Total Return (USD) Futures [NSG]

60%

65%

MSCI Taiwan Net Total Return (USD) Futures [NTW]

60%

60%

MSCI China Net Total Return (USD) Futures [NCH]

60%

55%

 

 

 

    

 

For more information, please visit http://www.sgx.com/wps/portal/sgxweb/home/products/derivatives/financials/equity-index/sgx_jpmsci.


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