Great Reset & Great Volatility

Investment Rating - The report suggests a cautious approach to Japanese equities, emphasizing the need to manage risk due to ongoing downward pressure on Japanese shares [4][10]. Core Insights - The TOPIX P/E ratio has fallen to recession-era levels at 11.5x as of August 5, 2024, which is below the past 10-year average of 14x and the bear case scenario of 13x [6][10]. - The report indicates that the downturn in share prices is expected to reverse once pessimism regarding the US economic outlook diminishes [2][10]. - The contrasting monetary policies of the US and Japan, along with weak US job figures, have led to a significant shift in market strategies, particularly affecting yen carry trades and positions in high-tech stocks [3][8]. Summary by Sections Market Conditions - The Japanese stock market experienced a sharp decline following the Bank of Japan's (BoJ) July monetary policy meeting, with the Nikkei average dropping ¥4,451 to ¥31,458, marking the largest single-day drop in the index's history [8]. - Concerns about a potential US recession have heightened, although some economists believe a soft landing is still achievable [9]. Monetary Policy Implications - The BoJ's recent pivot from an accommodative stance, including unexpected rate hikes, has contributed to market volatility and a stronger yen, which in turn has negatively impacted Japanese equities [8][13]. - The upcoming speech by BoJ Deputy Governor Shinichi Uchida is anticipated to provide insights into the implications of the yen's appreciation and the stock market's decline [13]. Stock Selection Strategy - The report emphasizes the importance of selecting stocks based on volatility factors, as the current market environment is characterized by heightened volatility and uncertainty [7][16]. - A list of low-volatility and high-volatility stocks is provided to assist investors in navigating the current market conditions [16][21].