M Idea Morgan Stanley Asia Limited Chetan Ahya Chief Asia Economist Chetan.Ahya@morganstanley.com +852 2239-7812 Morgan Stanley Asia (Singapore) Pte. Derrick Y Kam Asia Economist Derrick.Kam@morganstanley.com +65 6834-8272 Morgan Stanley Asia Limited Jonathan Cheung Economist Jonathan.Cheung@morganstanley.com +852 2848-5652 Kelly Wang January 27, 2026 06:57 PM GMT Asia Economics | Asia Pacific The Viewpoint: Investors' Concerns About Japan's Fiscal Position Are Overdone In this slide deck, we highlight the ...

Core Viewpoint - Bank of America indicates a significant shift in market dynamics, suggesting that the traditional safe-haven role of bonds has failed, leading to a re-evaluation of investment strategies [1][4]. Group 1: Bond Market Analysis - The chief equity strategist at Bank of America, Michael Hartnett, describes the first half of the 2020s as a period of "bond-market humiliation," with long-duration government bonds experiencing unprecedented losses [1][5]. - The iShares 20+ Year Treasury Bond ETF, representing long-duration bonds, lost 31% in 2022, marking one of its worst years, with a maximum drawdown of nearly -47.8% from its peak in 2020 through late 2025 [2]. Group 2: Investment Shifts - Hartnett anticipates that the latter half of the decade will favor international stocks, emerging markets, commodities, and gold, driven by a weaker dollar and overseas reflation [3][5]. - The U.S. Dollar Index has decreased by 9% over the past year and nearly 2% in the last five days, indicating a trend that may benefit international investments [6]. Group 3: Market Leadership Changes - Bank of America warns that the traditional market playbook is failing, suggesting that investors need to adapt to a new foundation for their portfolios as bonds lose their safe-haven status [4]. - The focus may shift from AI stocks, which have dominated attention recently, to small- and mid-cap stocks due to trends in reshoring and industrial rebuilding [3].

case for the moment. Let's get right to the floor show. Joining me now, Goldman Sachs Asset Management Fundamental Equity Managing Director, Greg Tuorto.Greg, um, new tariffs off the table. So, the markets moved on that the markets are moving on data. What are you watching that says to you this is a time to go long US stocks.>> Thanks for having me, Liz. Uh, you know, I think that there's a, you know, a slightly new paradigm in place, you know, where you have a a reflation of a lot of the cyclical sectors i ...

Summary of the Conference Call Transcript Industry Overview - **Industry**: China Economic Outlook - **Key Focus**: Public capital expenditure (capex) and private consumption trends in early 2026 Core Insights 1. **Growth Projections**: Early 2026 growth is expected to be led by public capex, with a potential pull towards 5% growth in Q1, although sustainability is questioned due to weak consumer and property sectors [1][6][8] 2. **GDP Tracking**: Q4 2025 GDP is projected to remain below 4.5%, despite a possible year-end rebound driven by fiscal expansion and resilient external demand [3][8] 3. **Public Capex Initiatives**: - Central budget for infrastructure projects increased to Rmb295 billion in Q1 2026 from Rmb200 billion in Q1 2025 - Local government bond issuance plan for Q1 2026 is Rmb665 billion, up from Rmb422 billion in the previous year [6][10] - New venture capital guidance aims to mobilize over Rmb1 trillion [10] 4. **Consumption Trends**: - Consumer spending is lagging, with retail momentum fading post-holiday and subdued service consumption - Continued support for goods trade-in programs, but initial allocations are smaller than the previous year [6][8][30] 5. **Inflation Dynamics**: - Recent upticks in CPI and PPI are not indicative of sustained reflation; core CPI remains muted due to weak final demand [7][8][25] - Inflation increases are primarily driven by commodities like gold and coal, rather than broad-based demand [7][8][25] Additional Important Points 1. **Trade-in Scheme Adjustments**: The 2026 trade-in scheme maintains a similar scale to 2025 but starts softer, with reduced subsidies for home appliances and a narrower range of eligible products [4][30] 2. **Monitoring Indicators**: Key indicators to watch in the coming months include: - Infrastructure bond issuance pace - Consumer goods trade-in program rollout - Mortgage-subsidy pilot designs post-NPC in March [8][9] 3. **Long-term Outlook**: A moderation in growth is anticipated from Q2 2026, with potential housing policy adjustments and incremental support for consumption and social welfare in the second half of the year [8][9] This summary encapsulates the key points from the conference call, focusing on the economic outlook for China, particularly regarding public investment and consumer behavior.

Core Viewpoint - Wells Fargo analysts suggest that a combination of tax refund spending, improved earnings in previously lagging sectors, and new liquidity from the Federal Reserve could lead to a "reflation" in equities [1] Group 1 - Tax refund spending is expected to contribute positively to market dynamics [1] - Stronger earnings are anticipated in sectors that have previously underperformed [1] - Fresh liquidity from the Federal Reserve is seen as a catalyst for potential equity market growth [1]

Core Viewpoint - The article discusses the current state of financial markets, highlighting the volatility and risks associated with various investment strategies, particularly in a rising interest rate environment [2][9][14]. Investment Strategies - Investments in securities carry a risk of loss of principal and unrealized profits, with markets experiencing increased volatility due to economic events [2][3]. - Fixed-income securities generally decline in value during rising interest rates, which is a significant consideration for investors [9][14]. Market Conditions - The bond market is characterized by volatility, with fixed-income securities facing various risks including interest rate risk, inflation risk, and credit risk [9][10]. - Foreign investments, especially in emerging markets, are subject to heightened risks, including political and economic instability, currency fluctuations, and potential illiquidity [11][12][13]. Economic Indicators - The Consumer Price Index (CPI) is a key measure for assessing inflation and cost of living changes, which can impact investment decisions [16]. - The Purchasing Managers' Index (PMI) serves as an indicator of economic trends in manufacturing and services, providing insights into market conditions [17]. Investment Risks - Investments in foreign companies carry additional risks due to unique political and economic events that may affect market performance [11][12]. - The potential for significant declines in emerging market currencies against the U.S. dollar poses a risk for portfolios invested in these regions [12][13].

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy** and its monetary policy outlook, particularly regarding interest rates and reserve requirement ratios (RRR) [1][6]. Core Insights and Arguments - **Monetary Growth Trends**: M1 growth has decelerated to **4.9% YoY** from **7.2% YoY** in September, indicating pressure on the reflation outlook for the medium term [5][18]. M2 growth also softened to **8.0% YoY**, the lowest since May [5]. - **Total Social Financing (TSF)**: New TSF in November was **RMB 2,489 billion**, exceeding market expectations of **RMB 2,400 billion** [4]. The growth of outstanding TSF remained steady at **8.5% YoY** [4]. - **Government Bond Issuance**: Government bond issuance reached **RMB 1,204 billion** in November, the highest in three months, supported by an additional **RMB 500 billion** quota for local governments [7]. - **Household Borrowing**: Household short-term loans contracted by **RMB 216 billion** in November, indicating weak consumer confidence and potential downside risks to consumption [7]. - **Corporate Borrowing**: Corporate short-term loans increased to **RMB 100 billion**, while long-term loans remained subdued at **RMB 170 billion** [7]. The impact of the **RMB 500 billion** policy-financing tool has yet to be realized [6][16]. Future Outlook - **Interest Rate and RRR Cuts**: The expectation for a **20 basis points** rate cut and a **50 basis points** RRR cut in 2026 is maintained, with January seen as a potential window for these adjustments [1][6]. - **Economic Growth Projections**: Despite current challenges, a **5% growth** for 2025 is still considered achievable, bolstered by earlier export growth [1][6]. Additional Important Insights - **Fiscal Policy Lag**: There are indications that fiscal policy deployment is lagging, with fiscal deposits contracting by **RMB 50 billion** in November [7]. - **Credit Impulse**: The credit impulse has moved sideways, reflecting the influence of government bond issuance on economic fluctuations [12][14]. - **Consumer Confidence**: The subdued household risk appetite suggests ongoing challenges in consumer spending, which could impact overall economic recovery [6][10]. This summary encapsulates the key points discussed in the conference call, highlighting the current state of the Chinese economy, monetary policy expectations, and the implications for future growth and investment opportunities.

Vi e w p o i n t | 02 Dec 2025 23:19:47 ET │ 8 pages China Economics Few Surprises Towards Year-End – November Data Preview CITI'S TAKE We expect few surprises in Nov economic data or policy impact. We think an exports rebound could have happened, and reflation could have continued amid generally weak numbers. Yet concerns are likely on the sustainability of both. We focus more on the policy meeting and actions post-CEWC. Exports rebound likely to support production rebound? — Most activity indicators could ...

Summary of Key Points from the Conference Call Industry Overview - The focus is on the Chinese economy, particularly regarding fixed asset investment (FAI) and gross capital formation (GCF) trends in 2025 and beyond [1][2][3]. Core Insights and Arguments 1. **Growth Projections**: Despite weak FAI, GCF resilience and fall stimulus are expected to keep 2025 growth on track to reach 5% [1][6]. 2. **Investment Disconnect**: There is a notable disconnect between macro fundamentals and stock market performance, with domestic demand data weakening significantly in 3Q and October [2][11]. 3. **FAI Methodology Changes**: The National Bureau of Statistics (NBS) has shifted its FAI methodology from "project progress" to "financial spending" since 2018, improving data quality but introducing potential time lags between FAI and GCF [3][8]. 4. **Factors Contributing to Weaker FAI**: - Tighter government financing has constrained new project starts. - Anti-involution measures and potential under-reporting by local governments may have suppressed reported FAI figures. - Weaker land sales in 3Q added downward pressure on FAI [4][5]. 5. **GCF Stability**: Although weak FAI in 3Q25 may signal a slowdown in GCF in 4Q25, fiscal expansion measures and a trade détente are expected to cushion the impact, potentially stabilizing GCF [5][10]. Additional Important Insights 1. **Policy Measures for 2026**: Incremental policy levers are anticipated, including front-loaded fiscal policies and housing market guardrails to support domestic demand [1][12][11]. 2. **Housing Market Risks**: The property market is under stress with record-high inventory and declining prices, raising concerns about the potential need for restructuring among developers [13][14]. 3. **Consumption Support**: There is a focus on service consumption support in 2026, with expectations for trade-in programs and other measures to stimulate demand [17][18]. 4. **Fiscal Constraints**: Public debt is at 113% of GDP, limiting the government's ability to shift focus towards consumption-driven growth [19]. Conclusion - The overall outlook suggests a slow-burn reflation scenario, with GDP expected to move out of deflation by 2026. Policy adjustments in infrastructure, housing, and consumption are likely to be reactive rather than proactive, providing a floor for growth [18][19].

Summary of Japan Equity Strategy Outlook Industry Overview - The report focuses on the Japanese equity market, specifically the TOPIX index, with a target of 3,600 points by December 2026, indicating a potential increase of nearly 10% from current levels [2][9][15]. Core Insights and Arguments 1. **Economic Growth and Inflation**: Japan is transitioning from a low-inflation environment to one where inflation is expected to approach 2%, leading to growth, wage increases, and improved pricing flexibility [4][12]. 2. **Corporate Governance Reforms**: Reforms by the Tokyo Stock Exchange and the Financial Services Agency are enhancing corporate governance, prompting companies to rethink balance-sheet management [4][13]. 3. **Investment Opportunities**: The report highlights sectors poised for growth, including Construction & Materials, Machinery, Electrical Equipment & Precision Instruments, IT Services, and Banks, while expressing caution towards Food, Pharmaceuticals, and Transportation sectors [9][40][46]. 4. **External Risks**: Significant uncertainty from external shocks is acknowledged, with a wide dispersion between bullish and bearish equity outlooks. Key risks include a potential US economic slowdown and sharp appreciation of the Japanese yen [5][9][35]. 5. **Fiscal Policy**: The Takaichi administration is expected to emphasize economic security and strategic investments in technologies essential for national security, such as AI and semiconductors [5][39]. Important but Overlooked Content 1. **Earnings Projections**: EPS growth for TOPIX constituents is projected at +16% for 2026, with a further +9% increase in 2027, indicating robust corporate earnings momentum [19]. 2. **Valuation Metrics**: The report outlines a forward P/E ratio of 15.0x for the base case, with a potential range from 12.2x in a bear case to 17.0x in a bull case, reflecting a significant range of market expectations [14][19]. 3. **Sector-Specific Insights**: - **Cyclical Sectors**: The report recommends focusing on cyclical sectors that can withstand US economic uncertainties, particularly those backed by government investment [39][40]. - **Underperforming Sectors**: Structural headwinds in Food, Pharmaceuticals, and Transportation sectors are highlighted, with expectations of underperformance during economic expansions [46]. Conclusion - The overall outlook for Japanese equities remains positive, with a strong emphasis on building resilient portfolios to navigate potential external shocks. The anticipated fiscal policies and corporate governance reforms are expected to drive long-term growth and profitability in the Japanese market [5][15][19].