Nomura Japan Equity Beta SelectIndices using market, forex beta
EQUITY QUANTITATIVE RESEARCH

High/low beta index selection uses market forecasts Global Markets Research
24 January 2017

Research analysts
Focus on share price sensitivity (beta) versus Japanese equity market and
USD/JPY
In recent years, we have a seen a strengthening of the simultaneous correlation
between the Japanese equity market and USD/JPY, and it has become common tohave periods when Japanese equity prices have risen while the yen has weakened, orwhen Japanese equity prices have fallen while the yen has strengthened. In the
Abenomics-driven market from end-2012 onward in particular, there was a marked
tendency for Japanese equity prices to rise simultaneously with a weakening of theyen. In recent months too, Japanese equity prices rose sharply as the yen weakened
rapidly after the US presidential election on 8 November 2016 through mid-December.

Japan quantitative research
Sayuri Otsuka - NSC
sayuri.otsuka@nomura.com+81 3 6703 1397
Yasuhiro Shimizu - NSC
yasuhiro.shimizu@nomura.com+81 3 6703 1748

We have developed the Nomura Japan Equity Beta Select Indices, which are based onJapanese equities, to meet the needs of investors who want to be able to adjust theirinvestments to reflect their forecasts for the Japanese equity market and USD/JPY withease. The Nomura Japan Equity High Beta Select 30 (hereafter, the High Beta Select30) is highly sensitive to the Japanese equity market and USD/JPY, while the Nomura
Japan Equity Low Beta Select 50 (hereafter, the Low Beta Select 50) exhibits little
sensitivity to these two markets. We hope investors who are bullish on the Japaneseequity market and expect the yen to weaken will reflect their market outlook in theirpositions by investing in the High Beta Select 30. Conversely, we see investment in the
Low Beta Select 50 as an attractive option for investors who want to reduce their risk
exposure versus a fall in share prices and a strengthening yen while maintaining
exposure to a rise in Japanese equities.
Over the past 16 years, the High Beta Select 30 has substantially outperformed themarket when Japanese equities have been rising and the yen has been weakening,
while the Low Beta Select 50 has reduced the risk of share price declines relative tothe market when Japanese equities have been falling and the yen has beenstrengthening (Figure 1). We hope investors will use the two indices in accordance with
their forecasts for the Japanese equity market and USD/JPY, and that this will help toimprove their investment performance.

Fig. 1: Performance of Nomura Japan Equity Beta Indices by market conditions(%)
80

Return including dividends(annualized average)
in months when TOPIX was
rising/falling

(%)
40

40

High Beta Select 30 20TOPIX
Low Beta Select 50

0

0

-40

-20

-80

Japanese equities
risingRising months(106)Japanese equities
falling
Falling months
(86)

-40

Return including dividends(annualized average)
in months when USD/JPY wasrising/fallingHigh Beta Select 30
TOPIX
Low Beta Select 50

Yen weakening

Yen strengthening

Weakening months(93)

Strengthening
months (99)Note: Shows data for Jan 2001 through Dec 2016. Based on monthly returns including dividends.
Source: Nomura

Japanese version published on
January 18, 2017
Production Complete: 2017-01-24 07:48 UTC

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

1. Increasing correlation between equity
and forex markets
In recent years, we have a seen a strengthening of the simultaneous correlation between
the Japanese equity market and USD/JPY, and it has become common to have periods
when Japanese equity prices have risen while the yen has weakened, or when Japaneseequity prices have fallen while the yen has strengthened. Some people have suggested
that this growing simultaneous correlation might be partly due to an increase in program
trading that focuses on the correlation between macroeconomic indicators and theadjustment of forex hedging ratios by nonresident investors on the Japanese equity
market, or to nonresident investors' growing expectations of Abenomics.
In the Abenomics-driven market from end-2012 onward in particular, there was a marked
tendency for Japanese equity prices to rise simultaneously with a weakening of the yen(Figure 2). In recent months too, Japanese equity prices rose sharply as the yen
weakened rapidly after the US presidential election on 8 November 2016. We thinkstocks with a high beta versus the Japanese equity market and USD/JPY are likely to be
attractive to investors who expect the trend of rising Japanese equity prices plus a
weakening yen to continue as a result of the various economic policies to be introducedby the Japanese and US governments. However, Japanese equity prices fell sharply
while the yen strengthened rapidly around the time of the 2008 global financial crisis. In
our view, stocks with a low beta versus the Japanese equity market and USD/JPY wererelatively attractive at this time, when investors' risk tolerance had diminished because of
uncertainty surrounding the global economic outlook.
We have developed two new indices, the High Beta Select 30 and the Low Beta Select50, to meet the needs of investors who want to be able to adjust their investments toreflect their forecasts for the Japanese equity market and USD/JPY with ease, because
the globalization of corporate activity and investment is progressing rapidly and we think
the correlation between the Japanese equity market and the forex market is likely toremain strong. The High Beta Select 30 is highly sensitive to the Japanese equity market
and the USD/JPY, while the Low Beta Select 50 exhibits little sensitivity to these twomarkets. We hope investors will use these two indices to manage their funds in a waythat reflects their market outlook, with investors who are bullish on the Japanese equity
market and expect the yen to weaken investing in the High Beta Select 30, and those
who want to reduce their risk exposure versus a fall in share prices and a strengthening
yen while maintaining exposure to a rise in Japanese equity prices investing in the Low
Beta Select 50.

2

Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

Fig. 2: TOPIX and USD/JPY and correlation coefficient(points)

TOPIX and USD/JPY
Global economic crisis

2500
2000

(USD/JPY)
Abenomics-driven market
0.8
140

120

0.6

100

0.4

80

0.2

60

0

Coefficient of correlation of TOPIX
and USD/JPY over past 60 months

1500
1000
500

TOPIX (lhs)
USD/JPY (rhs)0Note: Shows data for end-Dec 2000 through to end-Dec 2016. Shading in the left-hand chart is for end-Jun 2007 through to end-Jan 2009 and end-Dec 2012 through to end-May
2015. The correlation coefficient shown in the right-hand chart is the coefficient of correlation over the past 60 months for monthly returns on the TOPIX (including dividends) andmonthly forex market returns (based on the USD/JPY middle rate as announced by the Bank of Japan (BOJ) at 17:00 JST each day), from Nov 2005 through Dec 2016.
Source: Nomura

3Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

2. Stock selection concept
Stocks are selected for the two indices on the basis of the correlation between shareprice returns and longer-term trends in the Japanese equity market and USD/JPY.
We use beta to evaluate the correlation between the Japanese equity market and theforex market. Beta indicates the average change in share price in response to a 1%change in the Japanese equity market or the forex market. A higher (lower) beta
indicates that the stock market or forex market has a larger (smaller) impact on the priceof the stock. Stocks are selected for our two indices using beta versus the Japaneseequity market (market beta) and beta versus the forex market (forex beta) as the key
criteria.
Below, we set out the respective stock selection criteria for the High Beta Select 30 and
the Low Beta Select 50.
The High Beta Select 30 comprises the top 30 stocks in terms of an indicator that reflects
market beta, forex beta, and momentum (Figures 3, 4). Because it comprises stocks thatexhibit a strong correlation with the equity and forex markets, we expect this index tooutperform the market when Japanese equity prices are rising and the yen is weakening.
Investors who expect Japanese equity prices to rise and the yen to weaken should be
able to reflect this forecast quickly in their positions by investing in this index. In addition,
the momentum effect, whereby stocks that have already seen their prices rise continue
to outperform the market, has been observed to be more marked when share prices arein a strong upward trend. The High Beta Select 30 aims to boost performance whenshare prices are rising by also taking momentum into account.
In contrast, the Low Beta Select 50 comprises the bottom 50 stocks in terms of an
indicator that reflects market beta, forex beta, and stock-specific risk. Because it
comprises stocks that exhibit little correlation with the equity and forex markets, thesestocks should see relatively limited price declines when Japanese equity prices are
falling and the yen is strengthening, and we therefore expect this index to outperform themarket during such periods. The Low Beta Select 50 is also designed to limit share pricefluctuation risk further by selecting stocks with a low level of stock-specific risk (ie, riskother than market correlation). Because a low stock-specific risk effect, whereby stocks
with lower stock-specific risk generate higher returns, has been observed on many stock
markets, we expect this effect to boost performance of the index. We think this index will
be an attractive investment target for investors who wish to remain exposed to rises inJapanese equity prices but also want to minimize risk at times when the market outlook
is unclear, share prices are weak, and the yen is strengthening.

Fig. 3: High Beta Select 30 and Low Beta Select 50 have diametrically opposed characteristics
High Beta Select 30
High market beta

Low Beta Select 50
Diametrically
opposedcharacteristics

Low market beta

High forex beta

Low forex beta

High momentum

Low stock-specific risk

Source: Nomura

4Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

Fig. 4: Four indicators used for stock selection
Indicator

Details

High Beta Select 30

Low Beta Select 50

Market beta

Market beta over past 60 monthsForex beta

USD/JPY beta over past 60 months



Momentum

Share price return over past 11 months adjusted
for market beta-

Stock-specific risk

Standard deviation of share price return overpast 60 months adjusted for market beta-Source: Nomura

We will now look at the relationship between each of the indicators used for these two
indices and their performance during periods when Japanese equity prices are rising andthe yen is weakening, or when Japanese equity prices are falling and the yen isstrengthening. We divided large cap Japanese stocks into five groups based on thevalue of each of these four indicators, and Figure 5 compares the excess return versus
the market on each group during months when the TOPIX and USD/JPY rose andmonths when the TOPIX and USD/JPY fell. When Japanese equity prices were risingand the yen was weakening, high-beta and high-momentum stocks performed well, butconversely, when Japanese equity prices were falling and the yen was strengthening,
low-beta and low stock-specific risk stocks performed well. Our two indices are designed
to enable investors to reflect their market forecasts in their positions with ease by taking
advantage of this difference in performance between the two indices depending onmarket conditions.

Fig. 5: Performance of five portfolios based on four indicators used to select stocks for our two indices, by market conditions(%)

Average excess return vs benchmark (in months
when both TOPIX and USD/JPY were rising)#5 (large)#4#3#2#1 (small)

3
2
1

(%)

Average excess return vs benchmark (in months
when both TOPIX and USD/JPY were falling)#5 (large)#4#3#2#1 (small)

3
2
1

0

0

-1

-1

-2

-2

-3

-3
Market beta

Forex beta

Momentum

Stock-specificriskMarket beta

Forex beta

Momentum

Stock-specificrisk

Note: Shows data for Jan 2001 through Dec 2016. Based on monthly returns including dividends. We divided the universe of Russell/Nomura Large Cap Index (the benchmark
index) constituent stocks into five groups for each of the four indicators, by value of indicator, at the beginning of each month, and calculated the equally weighted return on eachgroup. Figure shows average monthly equally weighted excess return on each group versus the equally weighted return on the benchmark index. For all stock selection
indicators except momentum, we used the most recent values. For momentum, we used the most recent values at the beginning of the previous month.
Source: Nomura

5Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

3. Index performance
We now look at the historical performance of the two indices.
The left-hand chart in Figure 6 shows the cumulative performance of the two indices andthe TOPIX. It is immediately clear from this that the Low Beta Select 50 has performed
better than the other two indices. This is largely because the Low Beta Select 50 saw
relatively small declines in periods when the Japanese equity market fell sharply, suchas around the time of the 2008 global financial crisis. In addition, the standard deviationof absolute returns was 26.80% for the High Beta Select 30 and 12.79% for the Low
Beta Select 50. As expected, the High Beta Select 30, which is highly market-sensitive,
was more volatile than the TOPIX (18.00% annualized standard deviation), while the
Low Beta Select 50, which has little market sensitivity, was less volatile, indicating
reduced risk. In addition, if we compare the TOPIX beta and forex beta of the two indices,
we see that the High Beta Select 30 has a high beta while the Low Beta Select 50 has a
low beta, which is in line with the concept on which the two indices are based.
It is clear from the cumulative excess returns versus the TOPIX shown in the right-handchart in Figure 6 that both indices have outperformed the TOPIX while moving mostly inthe opposite direction to each other. The annualized average excess return versus the
TOPIX over the past 16 years is 3.15% for the High Beta Select 30 and 1.72% for the
Low Beta Select 50. In addition, the TOPIX beta and forex beta of the excess return
versus the TOPIX on the two indices have opposite signs (ie, positive for the High Beta
Select 30 and negative for the Low Beta Select 50), indicating that the excess returns
versus the TOPIX of the two indices have tended to move in the opposite direction in
response to changes in the Japanese equity market or the USD/JPY.

Fig. 6: Performance of Nomura Japan Equity High Beta Select 30 and Nomura Japan Equity Low Beta Select 50
Index performance (including dividends)(%)

High Beta Select 30
Low Beta Select 50
TOPIX

250

60

200

Cumulative excess return vs TOPIX
High Beta Select 30
Low Beta Select 50

40

150
20
100
0

50
0

(End-Dec 2000 = 100)

-20

Summary of performance since Jan 2001
High Beta
Absolute returnSelect 30
Geometric mean return (annualized, %)Standard deviation (annualized, %)Return/risk
TOPIX beta
Forex beta

3.88
26.80
0.14
1.41
1.27

Low Beta
Select 50

TOPIX

5.35
12.79
0.42
0.52
0.35

2.72
18.00
0.15
1.00
0.86

(End-Dec 2000 = 0%)

Excess return vs TOPIX
Average excess return (annualized, %)Standard deviation (annualized, %)Return/risk
TOPIX beta
Forex beta

High Beta
Select 30

Low Beta
Select 50

3.15
11.26
0.28
0.41
0.41

1.72
12.33
0.14
-0.48
-0.51

Note: Shows data for Jan 2001 through Dec 2016. Based on monthly returns including dividends. We did not take transaction costs into account. Analysis is based on past shareprice performance and does not guarantee future performance. TOPIX beta (or forex beta) is the regression coefficient obtained through a regression of the monthly index return
including dividends against the monthly return on the TOPIX including dividends (or USD/JPY).
Source: Nomura

Next, we look at specific examples of index performance during periods when Japaneseequities were continuously rising and the yen was continuously weakening and periods
when Japanese equities were continuously falling and the yen was continuously
strengthening. Figure 7 shows three examples: around the time of the 2008 global

6Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017financial crisis, the Abenomics-driven market from end-2012 onward, and the period after
the US presidential election in November 2016. The charts confirm that the High Beta
Select 30 substantially outperformed the TOPIX when Japanese equities were rising andthe yen was weakening, while the Low Beta Select 50 substantially outperformed the
TOPIX when Japanese equities were falling and the yen was strengthening. This result
is what we would expect in view of the concept on which the two indices are based.

Fig. 7: Index performance during historical periods of falling equities/strong yen and rising equities/weak yen(a) Japanese equities falling/yen strengthening

160
140

Performance around time ofglobal financial crisis(Jul 2007–Jan 2009)120(b) Japanese equities rising/yen weakening

240
220
200

(End-Jun 2007=100)
100

180

80

160

60

140

40

120
High Beta Select 30
Low Beta Select 50
TOPIX

20
0

Performance during
Abenomics-driven market(Jan 2013–May 2015)

125
120

High Beta Select 30
Low Beta Select 50
TOPIX

115

Performance after
US presidential election(Nov 2016–Dec 2016)
High Beta Select 30
Low Beta Select 50
TOPIX

110
105
100
95

100
80

130

90

(End-Dec 2012=100)(End-Oct 2016=100)

Note: Shows monthly data for Jul 2007 through Jan 2009 (left-hand chart) and Jan 2013 through May 2015 (middle chart) and daily data for Nov 2016 through Dec 2016 (righthand chart). Returns are cumulative and include dividends. We did not take transaction costs into account. Analysis is based on past share price performance and does notguarantee future performance.
Source: Nomura

In addition, there are substantial differences of several tens of percentage points,
expressed as an annualized average, between the dividend-inclusive returns on the two
indices divided into months when the Japanese equity market and USD/JPY were risingor falling (Figure 8).

Fig. 8: Index performance by market conditions(%)

Return including dividends (annualized average)
in months when TOPIX was rising/falling(%)

Return including dividends (annualized average)
in months when USD/JPY was rising/falling

40

80High Beta Select 30
TOPIX
Low Beta Select 50

High Beta Select 30
TOPIX

40

20

Low Beta Select 50
0

0

-40

-20

-80

Japanese equities rising
Rising months (106)Japanese equities falling
Falling months (86)-40

Yen weakening
Weakening months (93)

Yen strengthening
Strengthening months (99)Note: Shows data for Jan 2001 through Dec 2016. Based on monthly returns including dividends.
Source: Nomura

7Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

4. High/low beta indices with contrasting
characteristics
In this chapter, we look at the beta values, valuations, and sector weights of the two
indices.
Figure 9 shows the historical 60-month beta values for the two indices and the coefficientof correlation between the indices. It is clear from this that the High Beta Select 30 has
high beta values and the Low Beta Select 50 has low beta values, in line with theconcept on which the two indices are based. Both the TOPIX beta and the forex beta ofthe two indices tend to move in opposite directions and lie on opposite sides of thevalues for the TOPIX. In addition, the coefficient of correlation between the two indiceshas been consistently low.

Fig. 9: Historical beta and correlation coefficient
Historical 60-month TOPIX beta
1.6

2.5

1.4

2.0

Historical 60-month
USD/JPY beta
High Beta Select 30
Low Beta Select 50
TOPIX

Historical 60-month coefficient ofcorrelation vs High Beta Select 30
1.2
1.0

1.2
1.0
0.8
0.6
0.4
0.2
0.0

High Beta Select 30
Low Beta Select 50
TOPIX

1.5

0.8

1.0

0.6

0.5

0.4

0.0

0.2

-0.5

0.0

High Beta Select 30
Low Beta Select 50
TOPIX

Note: Based on monthly returns including dividends from Jan 2001 through Dec 2016.
Source: Nomura

It is clear from Figure 10, which shows the P/B ratios and current-FY expected dividend
yield of the two indices, that these valuations for the two indices relative to the TOPIX
have changed substantially of late. At the beginning of December 2016, the average P/B
ratio of the Low Beta Select 50 was high relative to the other indices, and its expected
dividend yield was low. Meanwhile, the average P/B ratio of the High Beta Select 30
used to be high, and its expected dividend yield used to be low, but both valuations haverecently moved close to the equivalent valuations for the TOPIX.

8

Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

Fig. 10: Historical index valuations

(x)

P/B

(%)

4

3

4
High Beta Select 30
Low Beta Select 50
TOPIX

3

2

2

1

1

0

0

Current-FY expected dividend yield
High Beta Select 30
Low Beta Select 50
TOPIX

Note: Shows data as of index reconfigurations from Dec 2001 through to Dec 2016. Net asset yield and current-FY expected dividend yield calculated for index constituents after
each reconfiguration on a weighted average basis, using index weights as at end of previous month. P/B is the inverse of net asset yield.
Source: Nomura

Figure 11 shows sector weights at the time of periodic reconfigurations from December
2001 onward. Sector weights have changed substantially for the High Beta Select 30.
We think this is because the index comprises only 30 stocks and the lineup of high-beta
stocks has changed considerably over time. The electric appliances & precision
instruments and automobiles & transportation equipment sectors, which are typicalexternal demand sectors, have often had a high index weight, but in the past few years
the financials (ex banks) sector has consistently had a particularly high weight.
Meanwhile, sector weights in the Low Beta Select 50 have been relatively stable, andrecently the domestic demand sectors of transportation & logistics, IT & services, others,
and foods have had particularly high weights. However, the weight of electric power &gas, which is a typical domestic demand sector, has fallen recently compared to previous
levels.
We have not adjusted the sector weightings of the two indices. This is because market
beta and forex beta vary substantially from sector to sector, and thus the high-beta andlow-beta characteristics of the two indices are clearer if sector adjustment is not carriedout. The two indices are designed in such a way as to maintain their respective beta
characteristics after reflecting the latest data at the time of the twice-yearly periodic
reconfigurations, and are in our view highly convenient tools that will enable investors toadjust their positions with ease on the basis of their forecasts for Japanese equities and
USD/JPY.

9

Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

Fig. 11: Index sector weights

Note: Index weights at end of previous month for the TOPIX 17 sectors, based on constituent stocks after each periodic reconfiguration from Dec 2001 through to Dec 2016.
Source: Nomura

As we already have discussed, we have developed the High Beta Select 30 and the Low
Beta Select 50 in order to enable investors to reflect their market forecasts in theirpositions with ease. Our aim is that investors will use these two indices to manage theirportfolios in a way that reflects their market outlook, with investors who are bullish on theJapanese equity market and expect the yen to weaken investing in the High Beta Select30 and those who want to reduce their risk exposure versus a fall in share prices and astrong yen because they are unsure about the market outlook investing in the Low Beta
Select 50. We hope the two indices will help investors with various and different
forecasts to improve the efficiency of their investments.

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24 January 2017

(Reference) Index construction method
Here we give a simple explanation of the method used to construct the two indices.
Figure 12 shows the flow of the stock selection process. The indices are reconfigured
twice a year, on the first business day of June and the first business day of December(using data as of the fifth business day of the preceding month). Please see the index
rulebook for more details.
[Index construction process](1) Stocks that are both in the top 85% of all Japanese listed stocks in terms of free-floatadjusted market cap and in the top 500 of all Japanese listed stocks in terms of average
daily turnover over the past 60 days are selected for the composite score calculation
universe.
(2) For each stock, a linear regression based on the least sum of squares method isused to calculate values of the four indicators on which the composite score is based(market beta, forex beta, momentum, and stock-specific risk). For each of these scores,
a standardized score is then calculated by adjusting the scores so that the average forthe composite score calculation universe is zero and the standard deviation is one.
We then calculate a composite score for each stock, for each index separately. In thecase of the High Beta Select 30, the composite score is the average of the standardized
scores for market beta, forex beta, and momentum, while for the Low Beta Select 50 it is
the average of the standardized scores for market beta, forex beta, and stock-specificrisk. The top 30 stocks in terms of composite score are selected for the High Beta Select30 and the bottom 50 stocks in terms of composite score are selected for the Low Beta
Select 50.
(3) Lastly, the weights of constituent stocks are determined. Weights are essentiallydetermined on the basis of free-float-adjusted market cap, but the maximum weight foreach constituent stock is set at 5% to prevent certain stocks from having an excessively
high index weight. Any weight exceeding 5% is allocated among other constituent stocks
in proportion to their free-float-adjusted market cap.

Fig. 12: Index construction method

All Japanese listed stocks(1) Selection of composite
score calculation universe(based on market cap and liquidity criteria)(2) Selection of stocks on
basis of composite score(3) Index formed with stocks weighted
according to free-float-adjusted market cap(maximum weight 5%)
Source: Nomura

11Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

Appendix A-1
Analyst Certification
We, Sayuri Otsuka and Yasuhiro Shimizu, hereby certify (1) that the views expressed in this Research report accurately reflect
our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of ourcompensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in thisResearch report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Important Disclosures
The lists of issuers that are affiliates or subsidiaries of Nomura Holdings Inc., the parent company of Nomura Securities Co., Ltd., issuers thathave officers who concurrently serve as officers of Nomura Securities Co., Ltd., issuers in which the Nomura Group holds 1% or more of any
class of common equity securities and issuers for which Nomura Securities Co., Ltd. has lead managed a public offering of equity or equity
linked securities in the past 12 months are available at http://www.nomuraholdings.com/report/. Please contact the Research ProductManagement Dept. of Nomura Securities Co., Ltd. for additional information.

Online availability of research and conflict-of-interest disclosures
Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, pleaseemail grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to
FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a researchanalyst account.
Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) areregistered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, andNIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.

Distribution of ratings (Nomura Group)
The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 39% of companies with thisrating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 52% of companies withthis rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 7% of companies with thisrating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services by the Nomura Group.
As at 31 December 2016.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation
Distribution of ratings (Instinet, LLC)
The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
53% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.

Definition of Nomura Group's equity research rating system and sectors
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow

12

Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

24 January 2017

analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the statedtarget price, defined as (target price - current price)/current price.

STOCKSA rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates thatthe analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCIEmerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.

SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates thatthe analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.

Target Price
A Target Price, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part the analyst's
estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, andby other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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Nomura | Nomura Japan Equity Beta Select Indices using market, forex beta

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opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements
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Disclaimers required in Japan
Credit ratings in the text that are marked with an asterisk (*) are issued by a rating agency not registered under Japan’s Financial Instruments
and Exchange Act (“Unregistered Ratings”). For details on Unregistered Ratings, please contact the Research Product Management Dept. of
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carry the risk of losses owing to price fluctuations or other factors. Fees and risks vary by product. Please thoroughly read the written materials
provided, such as documents delivered before making a contract, listed securities documents, or prospectuses.
-----Transactions involving Japanese equities (including Japanese REITs, Japanese ETFs, and Japanese ETNs) are subject to a sales commissionof up to 1.404% of the transaction amount (or a commission of ¥2,808 for transactions of ¥200,000 or less). When Japanese equities arepurchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However,Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Japanese equities carry the risk of losses
owing to price fluctuations. Japanese REITs carry the risk of losses owing to fluctuations in price and/or earnings of underlying real estate.
Japanese ETFs carry the risk of losses owing to fluctuations in the underlying indexes or other benchmarks.
Transactions involving foreign equities are subject to a domestic sales commission of up to 1.026% of the transaction amount (which equals the
local transaction amount plus local fees and taxes in the case of a purchase or the local transaction amount minus local fees and taxes in thecase of a sale) (for transaction amounts of ¥750,000 and below, maximum domestic sales commission is ¥7,668). Local fees and taxes inforeign financial instruments markets vary by country/territory. When foreign equities are purchased via OTC transactions (including offerings),
only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC
transactions, as agreed with the customer. Foreign equities carry the risk of losses owing to factors such as price fluctuations and foreignexchange rate fluctuations.
Margin transactions are subject to a sales commission of up to 1.404% of the transaction amount (or a commission of ¥2,808 for transactions of¥200,000 or less), as well as management fees and rights handling fees. In addition, long margin transactions are subject to interest on thepurchase amount, while short margin transactions are subject to fees for the lending of the shares borrowed. A margin equal to at least 30% of
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the underlying stock. In addition, convertible bonds denominated in foreign currencies also carry the risk of losses owing to factors such as
foreign exchange rate fluctuations.
When bonds are purchased via public offerings, secondary distributions, or other OTC transactions with Nomura Securities, only the purchaseprice shall be paid, with no sales commission charged. Bonds carry the risk of losses, as prices fluctuate in line with changes in market interest
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carry the risk of losses owing to factors such as foreign exchange rate fluctuations.
When Japanese government bonds (JGBs) for individual investors are purchased via public offerings, only the purchase price shall be paid, withno sales commission charged. As a rule, JGBs for individual investors may not be sold in the first 12 months after issuance. When JGBs forindividual investors are sold before maturity, an amount calculated via the following formula will be subtracted from the par value of the bondplus accrued interest: (1) for 10-year variable rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be
used, (2) for 5-year and 3-year fixed rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used.
When inflation-indexed JGBs are purchased via public offerings, secondary distributions (uridashi deals), or other OTC transactions with
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prices fluctuate in line with changes in market interest rates and fluctuations in the nationwide consumer price index.The notional principal of
inflation-indexed JGBs changes in line with the rate of change in nationwide CPI inflation from the time of its issuance. The amount of the
coupon payment is calculated by multiplying the coupon rate by the notional principal at the time of payment. The maturity value is the amountof the notional principal when the issue becomes due. For JI17 and subsequent issues, the maturity value shall not undercut the face amount.
Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.4% of the transaction
amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time of redemption.
Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset managementfee (trust fee) of up to 5.4% (annualized basis) of the net assets in trust, as well as fees based on investment performance. Other indirect costs
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compensation.
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prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry
the risk of losses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the writtenmaterials provided, such as prospectuses or documents delivered before making a contract.
In interest rate swap transactions and USD/JPY basis swap transactions (“interest rate swap transactions, etc.”), only the agreed transaction
payments shall be made on the settlement dates. Some interest rate swap transactions, etc. may require pledging of margin collateral. In someof these cases, transaction payments may exceed the amount of collateral. There shall be no advance notification of required collateral value or
collateral ratios as they vary depending on the transaction. Interest rate swap transactions, etc. carry the risk of losses owing to fluctuations inmarket prices in the interest rate, currency and other markets, as well as reference indices. Losses incurred as such may exceed the value ofmargin collateral, in which case margin calls may be triggered. In the event that both parties agree to enter a replacement (or termination)transaction, the interest rates received (paid) under the new arrangement may differ from those in the original arrangement, even if terms otherthan the interest rates are identical to those in the original transaction. Risks vary by transaction. Please thoroughly read the written materials
provided, such as documents delivered before making a contract and disclosure statements.
In OTC transactions of credit default swaps (CDS), no sales commission will be charged. When entering into CDS transactions, the protection
buyer will be required to pledge or entrust an agreed amount of margin collateral. In some of these cases, the transaction payments may exceed
the amount of margin collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on
the financial position of the protection buyer. CDS transactions carry the risk of losses owing to changes in the credit position of some or all of
the referenced entities, and/or fluctuations of the interest rate market. The amount the protection buyer receives in the event that the CDS is

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triggered by a credit event may undercut the total amount of premiums that he/she has paid in the course of the transaction. Similarly, theamount the protection seller pays in the event of a credit event may exceed the total amount of premiums that he/she has received in thetransaction. All other conditions being equal, the amount of premiums that the protection buyer pays and that received by the protection seller
shall differ. In principle, CDS transactions will be limited to financial instruments business operators and qualified institutional investors.
No account fee will be charged for marketable securities or monies deposited. Transfers of equities to another securities company via the Japan
Securities Depository Center are subject to a transfer fee of up to ¥10,800 per issue transferred depending on volume.

Nomura Securities Co., Ltd.
Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)
Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association ofJapan; and Type II Financial Instruments Firms Association.
The Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but
not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls andemployee training.
Additional information regarding the methodologies or models used in the production of any investment recommendations contained
within this document is available upon request by contacting the Research Analysts listed on the front page. Disclosures information
is available upon request and disclosure information is available at the Nomura Disclosure web
page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
Copyright © 2017 Nomura Securities Co., Ltd. All rights reserved.

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