Morningstar | Japan Exchange Group Kicks Off Fiscal 2018 with Reasonably Strong 1Q
Wide-moat-rated Japan Exchange Group, or JPX, kicked off fiscal 2018 with a reasonably strong first-quarter result. Net profit growth of 7% against the same period last year was driven by higher clearing revenue from a new fee structure for over-the-counter Japanese Government Bond, or JGB, transactions. Heavy operating expense in the fourth quarter makes quarter-on-quarter comparison meaningless at the profit level. On the underlying metrics, equity turnover and derivatives trading volume were lower against the fourth quarter last year, or the first calendar quarter of 2018. Investment sentiments were weak as the rhetoric on trade and the eventual tariff implementation unsettled capital markets globally. Both Nomura Holdings and Daiwa Securities Group posted weaker revenue for its retail and asset management division.While the first-quarter result is trailing slightly behind our full-year forecast, our forecasts and fair value of JPY 1,870 are unchanged. The continuing tussle on trade will likely see heightened volatility but more importantly, the market speculation on a change in monetary policy by the Bank of Japan, or BoJ, could result in rising demand for derivatives as risk management tools. The BoJ has intervened in the bond market for the third time in the last week after yields on the JGBs increased as the market anticipated tighter monetary policies ahead. A shift in BoJ's ETFs policy could also lift equity turnover.
Our thesis on the exchange is intact and as per our earlier note on the Investor Day, the exchange continues to execute on its strategy with new products in ETFs, index futures for high-growth and emerging companies, and flexible options. We maintain our view that commodities and energy derivatives contracts remain an attractive suite of products for JPX. Tokyo Commodities Exchange currently offer derivatives in the above categories and uses JPX's J-Gate and Clearing System. Regulation remains a key challenge on possible consolidation.
Japan Exchange Group is a holding company engaged in the provision of financial instrument exchange services. Through its four major subsidiaries, Tokyo Stock Exchange, Osaka Exchange, Japan Exchange Regulation and Japan Securities Clearing, Co. provides market infrastructure for financial instruments including financial instrument exchange. Co. also offers traders and investors reliable venues for trading listed securities and derivative instruments, as well as clearing and settlement services through a central counterparty. Co. was established through the business combination between Tokyo Stock Exchange and Osaka Securities Exchange on Jan 1 2013.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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