Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Japanese equity market**, particularly the **TOPIX 500** index and its performance in relation to earnings and market dynamics [1][11][12]. Core Insights and Arguments - **Contrarian Bias in Stock Reactions**: Share price reactions to 1Q earnings have shown a strong contrarian bias, with high-momentum stocks facing potential profit-taking despite solid earnings support [1][11][27]. - **Profit-Taking Opportunities**: Temporary selling in high-momentum names is viewed as an opportunity to buy on dips as the market heads into 2Q results [1][11][32]. - **Earnings Support Lacking**: The post-tariff-agreement rally lacks strong earnings support, with recent gains driven more by P/E expansion than by earnings strength [11][12]. - **Focus on Domestic Politics**: The focus of uncertainty is shifting from external pressures, such as tariffs, to internal pressures related to domestic politics, which could impact fiscal stimulus expectations [11][40][43]. - **Banking Sector Outlook**: The report maintains a long position in banks, anticipating that proactive fiscal stimulus could positively affect the banking sector [11][44]. Important but Overlooked Content - **Market Liquidity Concerns**: August is typically marked by lower market liquidity, raising caution against potential profit-taking by foreign investors, which could increase volatility [11][19]. - **Historical Patterns**: Historically, stocks with high run rates tend to rise until Q2 results are released, but a contrarian pattern emerges when considering Q1 earnings reactions [27][30]. - **Sector-Specific Risks**: Auto stocks are highlighted as particularly vulnerable due to ongoing tariff uncertainties, which could constrain EPS growth [11][14]. - **Dividend Yield Factor**: The effectiveness of the dividend yield factor has increased, suggesting a shift in focus for investors amid rising volatility [11][19][21]. Data and Exhibits - **Exhibit 1**: Shows the TOPIX 500 revision and YoY stock price comparison, indicating that stock increases following the Japan-US tariff agreement lack strong earnings support [3][16]. - **Exhibit 2**: Illustrates stock reactions to recurring profit achievement rates, emphasizing the need to watch for profit-taking in high-momentum names [5][36]. - **Exhibit 13 and 14**: Lists high-momentum stocks with elevated valuations and limited earnings support, as well as those with strong earnings backing price gains, respectively [37][38]. This summary encapsulates the key insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the Japanese equity market.

Investment Rating - The report indicates a weaker credit impulse expected from Q3, suggesting a cautious outlook for the industry [4][13]. Core Insights - Strong government bond issuance has driven a 10bps increase in broad credit year-on-year, reaching 9.1% [3][13]. - Private credit demand remains weak, with bank loans unchanged at 7.1%, reflecting subdued private credit amid a softer property market and external tariff impacts [3][13]. - A supplementary budget of Rmb0.5-1 trillion is anticipated from Beijing in September/October to address slowing GDP growth, projected to dip to 4.5% year-on-year [5][13]. Summary by Sections - **Credit Impulse and Government Bonds**: The fiscal-led credit impulse peaked due to strong government bond issuance, which has improved liquidity for local governments and infrastructure entities [3][4]. - **Future Projections**: The remaining quota for government bond issuance in the second half of 2025 is expected to be below Rmb6 trillion, leading to a reversal in the credit impulse trend [4][5]. - **Economic Growth Outlook**: The report forecasts a slowdown in real GDP growth to 4.5% year-on-year in Q3, influenced by the payback of front-loaded exports and a negative deflationary feedback loop [5][13].

International Markets - US stocks still have a home bias, but international markets offer catalysts beyond just a weaker dollar [1] - Europe benefits from lower rates and fiscal stimulus, China from AI, and Japan from corporate reform [2] - Emerging markets, including Korea, Taiwan, and Latin America, benefit from the resurgence in hardware within tech and the reorganization of global trade [2][3] - International opportunities are not all dependent on each other, providing diversification [3] US Market & Fiscal Policy - The market has largely priced in the "big beautiful bill," with short-term positive impacts on equity markets due to growth boosts [4][5] - The long-term impact of the bill includes a potentially ever-expanding deficit, estimated to be in the trillions, which could create a floor on yields [5][6] - The market seems to have gotten comfortable with tariffs around 14% or 15%, after a previous range of 2% to 25% [8] Market Resilience & Outlook - The market has shown resilience to geopolitical risks, the reconciliation bill, and recession risks [9][10] - The path of least resistance for the market is higher, given its resilience to various downside risks [10] - The market could become more rangebound in the second half of the year due to higher valuations [12][13] - Diversified portfolios are up 6% to 7% in the first half of the year [14] Bond Market & Yields - Resistance has been met around 45% on the 10-year Treasury yield [15] - Yields could drift lower throughout the year, potentially providing opportunities for investors [16] - Even if yields remain stable, the income cushion will generate a decent return further out on the curve [16]

Market Outlook - Global liquidity and fiscal stimulus are expected to drive stock prices higher [1] - Tech stocks are favored over small-cap stocks [1] - Gold is expected to have more upside potential [1]

Market Trends & Geopolitical Impact - Oil prices initially surged to their highest level since January but pulled back following signals from Iran about de-escalating tensions and potential nuclear talks [1][18][20][21] - Defense stocks continued to climb amid the Israel-Iran conflict, though analysts suggest investor behavior is more of a "safe haven" move than a direct correlation to company bottom lines [1][70][71][72] - The Paris Air Show is expected to be muted due to the ongoing conflict and a recent Air India crash, with Boeing CEO skipping the event [59][61] Economic Indicators & Fed Policy - The market is shifting focus to Fed policy, earnings, and factors impacting the earnings picture, with the FOMC meeting being a key event [5][8] - There's discussion around the potential for a dovish Fed pivot, driven by inflation being cooler than in 2019 when the Fed last cut rates [35][36] - Real-time housing inflation is falling, suggesting the official measure has room to decline, potentially signaling a green light for the Fed to turn dovish [38][39] Company Specific & Sector Analysis - Meta is introducing ads to WhatsApp, focusing on user data for targeting but aiming to avoid content analysis, with the bigger opportunity being the race to artificial general intelligence [44][45][47] - Reddit is launching AI-driven advertising tools, leveraging human engagement data to inform generative AI and improve ad targeting [50][51] - Victoria's Secret is facing pressure from activist investors to overhaul the board and focus on the core bra business, while also navigating consumer spending habits and recent leadership changes [53][56][57] - China is stimulating its consumer market to offset export dependency, with Apple being a notable loser as domestic brands like Huawei gain market share [76][78][79][80] Global Investment Strategies - There's a potential shift in global equity leadership away from the US, with capital repatriation expected to benefit Europe, Asia, and emerging markets [87] - The US dollar showed no reaction to market surprises, and there was no rally in treasuries, indicating a lack of appetite for US assets [84][85] - TPW Advisory is overweight Chinese equity, favoring US-listed ETFs, and constructive on a global growth cycle extending through 2027-2028 [82][83] AI & Technology - AI is a major theme at the Can Lions International Festival of Creativity, with discussions on how it's changing the advertising and media industries [95] - Time Inc is embracing AI, launching Time AI with Scale AI to create personalized content and audio versions of their journalism [96][97][98][101][102] - Hyperscalers are investing heavily in the race to artificial general intelligence, even without knowing the ultimate prize [48] Energy Sector - Energy stocks may present an opportunity, as they have diverged from oil price trends and offer potential dividends [105][106] - AI's energy demands are creating a large energy problem, with hyperscalers investing in creative solutions like "behind the meter" energy sources [16][17] - Gas prices are still about 33 cents a gallon below last year, and diesel prices hit their lowest level since 2021 prior to Middle East escalations [23][32][33]

China's Economic Strategy & Consumer Market - China is strategically shifting away from export dependency on the US consumer by stimulating domestic consumption, which has been sluggish since COVID [3] - The Chinese government is using fiscal stimulus to support consumption, particularly for big-ticket items like washing machines and refrigerators [5] - Chinese retail sales rose more than expected due to stimulus measures like the consumer goods trade-in program [1] US-China Trade & Tech Competition - US companies, particularly Apple, are losing ground in the Chinese market due to US-China tensions and increasing domestic competition [6][7] - Huawei is dominating the smartphone market in China, while Tesla's market share in the EV space has significantly declined, now barely in the top 10 [8][9] - China is successfully implementing industrial policy, dominating the renewable energy sector and expanding into robotics, advanced manufacturing, and AI [9][10] Global Investment & US Economic Outlook - TPW Advisory is overweight on Chinese equity using US-listed ETFs and has been for over a year, also favoring emerging markets more broadly [10][11] - The US is perceived as being priced at a premium with governance and policy uncertainties, leading to a potential shift in global equity leadership away from the US [16][17] - There is a lack of appetite from domestic and foreign investors to significantly increase their treasury, dollar, or US equity positions [15] - The US is seen as falling behind in EVs and industrial policy compared to Europe and China, which are actively investing in AI, climate, and defense [21]

Investment Rating - The report suggests a cautious approach towards US equities, indicating a narrower path for further gains while highlighting opportunities in emerging markets (EM) assets and carry strategies [2][11][30]. Core Insights - The report emphasizes that while trade tensions have eased, the US still faces significant growth-inflation challenges, leading to a weaker dollar and a steeper UST curve [2][19][26]. - It notes that the expected tariff shifts have reduced some tail risks, allowing equity investors to overlook certain weaknesses in economic data [7][11]. - The outlook for growth is described as "soggy," which may favor carry strategies over cyclical risks, particularly in the context of lower volatility and a more stable inflation environment [11][39]. Summary by Sections Economic Outlook - The US economy is expected to experience sluggish but non-recessionary growth, with inflation remaining sticky [11][19]. - The report anticipates that the Federal Reserve may maintain its current stance unless significant weakness in the job market is observed [22][39]. Market Dynamics - The report highlights a shift in market sentiment towards a more balanced return outlook globally, with a focus on diversified risky asset portfolios [26][30]. - Emerging market equities are noted for their potential upside, given their current undervaluation compared to US equities [30][32]. Risks and Opportunities - The report identifies a potential rise in unemployment as a key risk that could reignite recession fears, impacting risky assets negatively [16][39]. - It suggests that the path for a weaker dollar remains wide, driven by easing trade tensions and a favorable outlook for EM currencies [26][28]. Investment Strategies - The report recommends combining diversified equity positions with hedges, particularly in anticipation of key economic data releases [2][11]. - It emphasizes the importance of diversification in both equity and bond allocations to mitigate risks associated with potential economic downturns [39].