Assessing the Impact of New NISA on Japanese Stocks by Analyzing Corporate Costs with Product Indicators

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It has been one month since the start of the new NISA (New Small Investment Tax Exemption Scheme). Stock prices continued their upward trend from the end of last year and remained strong in January. In response to the high stock prices, securities companies also performed well. The performance of major online securities firms, which have attracted attention for their zero commission policy, was also strong. Account openings due to the effect of the new NISA also contributed to performance.

The Nikkei Stock Average rose 2,822 yen (8.4%) during the month. The rise in U.S. stocks, especially high-tech stocks, had an impact. Those who made their investment debut with the new NISA at the beginning of the year would have seen positive results. On the other hand, those who tried to identify the uptrend may be frustrated that they missed out on buying. However, the market is like that. Let’s make room to savor the swell of the market.

Under the new NISA, a large amount of money has flowed into index investment trusts that invest in foreign stocks, such as eMAXIS Slim All Country and eMAXIS Slim U.S. Equity (S&P 500). In the growth investment space, buyers flocked to Japan Tobacco Inc. and Mitsubishi UFJ Financial Group, which are known for their high dividend stocks.

Profits are necessary to sustain high dividends. And one of the keys to profitability is to keep the cost of sales low. In this issue, we will consider a key cost for companies: commodity market indices.

Toyota or Honda…something to think about before

When you hear of commodity markets, you may think of crude oil futures and other “professional” markets. However, there are a variety of commodities that are familiar to us. For example, is it Toyota Motor Corporation, which has posted strong results with its strength in HV vehicles, or Honda, which unveiled its “0 (zero) series” EV vehicles in Las Vegas? If you are wondering where to invest, you may choose a tire manufacturer that can handle any type of vehicle, if you are betting on the expansion of global automobile sales. Tires require rubber.

For companies that use natural rubber as a raw material, a rise in the price of natural rubber will put pressure on profits. The “international indexes for natural rubber prices” include [RSS3] and [TSR20]. Commodities have international price indexes, and international price trends affect domestic commodity prices. Commodity prices can be compared to the flow of a river. Japan, which relies on imports for many of its raw materials, can easily obtain early stock price materials by keeping a close eye on the international commodity market, which is “upstream.

Let us consider the reason for the high price of chocolate from the viewpoint of “upstream information.

It is Valentine’s Day, so let’s consider “upstream information” in the context of chocolate.

Cacao beans are indispensable for chocolate. In a money class for elementary school students, when asked “Which country produces the most cacao beans? the answer is “Ghana. The correct answer is Cote d’Ivoire. The two countries of Cote d’Ivoire and Ghana account for about 70% of the world’s cacao bean production. Japan’s largest import destination is Ghana. The children are also very correct.

Knowing the upstream situation of cacao beans, the main raw material of the chocolate industry, it is understandable that chocolates for the Valentine’s Day shopping season were expensive.

In its November 2011 report on the cocoa bean market, the International Cocoa Organization (ICCO) announced that the supply of cocoa beans for the ’23/’24 harvest season has decreased dramatically. This was due to heavy rains that hit major production areas in West Africa, including Cote d’Ivoire and Ghana, flooding cocoa plantations and affecting the growth of cocoa beans, farming and transportation operations in the harvest season.

However, the above announcement is also predictable, given the upstream information that Cote d’Ivoire is suffering from heavy rains due to abnormal weather conditions, the supply decrease is predictable. In July, Cote d’Ivoire announced that it would temporarily suspend cocoa bean futures sales due to supply concerns caused by the heavy rains. Upstream information comes to us when we have our antennas up.

Then, in October, shipments of cacao beans for the ’23/’24 harvest season began in Cote d’Ivoire. The guaranteed price for producer purchases was raised by 11% from the previous year. The upstream price increase affects manufacturers’ cost control and sales strategies, which is reflected at the Valentine’s Day fair in Japan.

If the cost increase can be passed on to the selling price, profits will be secured. However, if the psychological line is crossed, it will lead to a loss of customers and a drop in sales volume. The nature of the company’s efforts toward consumers should also be a hint in choosing where to invest.

A_Select a company that “turns a pinch into an opportunity

The supply of cacao beans is declining, and there is competition for cacao mass and cacao butter. This is no time to sit on your hands. In Europe and the United States, palm oil and sunflower oil are being used as substitutes for cacao butter, and efforts to manufacture chocolate using grapes and sunflower seeds instead of cacao beans have been put into practical use. Although the development and manufacturing costs will be a heavy burden, identifying such venture companies and making them potential investment targets is also an option. We would like to pay attention to the strategies of major manufacturers.

B_Support developing countries through investment

Did you know that the production of cacao beans involves serious issues such as child labor and deforestation? Many cacao bean producers are small-scale farmers, and the purchase price is low, making poverty among producers an issue. Children who are responsible for farm work are unable to go to school, and opportunities to improve literacy are lost. In addition, global climate change and declining crop yields due to the aging of cacao trees are also increasing the seriousness of the situation. Producers will try to secure yield and increase income through deforestation. They have no idea that they are contributing to climate change.

C_The Fair Trade Choice

When enjoying sweet chocolate, we should also be aware of the bitter cacao story mentioned above. Fair trade is a system of trade that aims to improve the lives of producers and workers in developing countries who are in a weak position and to help them become self-reliant by continuously purchasing raw materials and products from cacao bean-producing countries at a fair price.

There are things you can do as a consumer to purchase Fairtrade products and as an investor to support Fairtrade certified companies.

The new NISA has just started. You can buy investment trusts, or you can choose the companies you want to support with the growth investment quota yourself. I want to invest my precious money in companies that society needs and that continue to grow. It is also fun to watch the commodity market from the perspective of what products have the greatest impact on the costs of the companies in which you invest. Take advantage of upstream information.

Indexes” to check for success in individual stocks.

I used cocoa beans as an example, but the importance of catching upstream information is the same for other commodities.

1_What is the “Copper Doctor”?

Copper, nicknamed “Doctor Copper,” is said to be a diagnostic of the economic outlook. Copper is widely used in key sectors closely related to the economy, such as machinery, construction, and transportation, and copper demand trends indicate the future of the economy. The three-month futures price on the London Metal Exchange (LME), an international index of copper prices, has been sensitive to changes in the global economy in the past.’ In the event of global economic shocks, such as the Lehman Shock in 2008 and the spread of the new coronavirus in ’20, copper prices have plunged ahead of economic indicators.

2_”CRB Index” is a leading index of inflation

The “Composite Commodity Index” is an index of the overall price movements of commodities such as energy, metals, and grains. A representative overseas index is the [CRB] Index, also known as an inflation index, which is an international commodity futures index calculated from futures contract prices on European and U.S. commodity exchanges and consists of 19 commodities (crude oil, unleaded gasoline, heating oil, natural gas, gold, silver, copper, aluminum, nickel, corn, soybeans, wheat, cotton, raw beef, lean pork, coffee, cocoa, orange juice, and sugar).

The CRB Index has a high percentage of energy and agricultural products and is easily influenced by WTI (West Texas Intermediate) crude oil.

3_”Nikkei Commodity Index 42″ is a leading index for business sentiment indices

Domestic commodity indices include the [Nikkei Commodity Index]. There are 17 commodity price indices and 42 commodity price indices calculated based on domestic inter-company transaction prices of major commodities such as materials and fuels that are sensitive to economic trends. 17 indices are published on a daily basis and 42 indices are published on a monthly basis (weekend values are also calculated as a preliminary report). The 42 commodity price indexes tend to respond quickly to economic recessions and recoveries, and are used in the leading series of the Cabinet Office’s business sentiment indexes.

The Nikkei Commodity Index includes cotton yarn, H steel, copper bullion, gold bullion, light oil, natural rubber, sugar, soybeans, etc. The 42 commodities reached a new high in November last year and remained at a high level in February.

Domestic commodity indices are positioned midstream. They spill over from the corporate goods price index to the consumer price index. In the process of moving from upstream to downstream, exchange rates and transportation costs have an impact. Factors that contribute to price fluctuations are intricately intertwined. Let’s suppress upstream information that directly affects corporate profits.