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January In Japan

01 February 2019 by jbchevrel

January was a rather strong month for risky assets globally. It was a strong month for Japanese risk in particular, with iTraxx Japan s30 tighter c20bp Nikkei up 4% (6% from Jan 4 close). In this move tighter, sector performance was mixed. Marine transportation (3 names) tightened c60bp and Telecoms (2 names) tightened c40bp while other sectors tightened more marginally. In particular, Food, Construction and Transports are the lowest beta, tightening a small c10bp on average. Marine Transportation is the highest beta and happens to be the most leveraged sector. Indeed KAWKIS/MITSOL/NIPYU have ND/EBITDA ratios of 6.2/8.4/7.6 while the constructor SHIMIZ has just 1.1. But what is more worrying for Marine Transportation is its sluggish profitability. Transport and construction cos have positive double-digit ROEs. But KAWKIS/MITSOL/NIPYU have ROEs of 4.8%/-9.3%/3.7% respectively. Moreover, US/China potentially continued trade tensions and the risk of slower global growth will likely remain ongoing risks for the Marine Transportation sector, in the next few months.