Summary of Japanese Equities Investment Strategy Industry Overview - **Industry**: Japanese Equities - **Focus**: Investment strategies and market outlook for Japanese equities, particularly in the context of economic conditions and corporate performance Key Points Economic Outlook - Japan is expected to confront the legacy of deflation in 2026, with a moderately high-pressure economy likely to enhance share prices and profitability as labor shortages eliminate unprofitable businesses [1][2] - The Japanese economy and corporations showed resilience in 2025 despite rising policy uncertainty, with earnings growth and upward revisions to forecasts leading to record highs in major equity indices [1][2] Earnings Forecasts - Top-down forecasts predict TOPIX EPS growth of +3.2% in FY25, +14.3% in FY26, and +9.8% in FY27, which are higher than consensus forecasts [3] - The main scenario anticipates the TOPIX at 3,600 by the end of 2026 and 3,750 by the end of 2027, with the Nikkei 225 projected at 55,000 and 57,000 respectively, although volatility is expected in 2026 [3] Sector Preferences - Preferred sectors include electric appliances, machinery, banks, real estate, and trading companies, while sectors to avoid are steel, retail trade, and businesses catering to inbound tourists [3] Supply-Demand Dynamics - Nonfinancial corporations were the largest purchasers of equities in 2025, with net purchases around ¥10 trillion, while individual investors were net sellers of approximately ¥9 trillion [30][34] - Share buybacks are expected to remain high at around ¥15 trillion annually from 2026, driven by the unwinding of cross-shareholdings and corporate restructuring [36][69] Investor Behavior - Individual investors showed a shift from being net sellers to net buyers, indicating a potential change in household portfolio strategies as they adapt to rising equity prices [75][78] - The expected returns on Japanese equities, including dividends, are estimated at around +7%, which may attract long-term investors [81] Corporate Management Trends - Companies are increasingly focusing on improving profitability by exiting unprofitable businesses due to labor shortages, particularly in B2B sectors [57] - There is a growing emphasis on corporate governance and the effective use of cash and deposits, with expectations for revisions to the Corporate Governance Code in June 2026 [62][83] Macroeconomic Policies - The Takaichi administration's economic policies are under scrutiny, with expectations that the government will shift its focus from primary surplus targets to managing government debt relative to GDP [42][44] - The correlation between interest rates and equity performance has shifted, with rising rates now more frequently associated with rising share prices [47] Conclusion - The Japanese equity market is poised for potential growth as it navigates the challenges of deflation and labor shortages, with corporate strategies increasingly aligned towards enhancing profitability and shareholder returns. The evolving dynamics of investor behavior and supply-demand conditions will play a crucial role in shaping market performance in the coming years [41][87]

Gold Market Insights - Global gold ETF holdings increased by 27 tonnes on a single day, marking the largest daily increase since January 2022, which is double the daily average for the year [1] - 2025 is on track to be the best year for gold since 1979, with only one year in the past 50 years performing better [2][3] - Despite strong gold performance, 39% of fund managers have no allocation to gold, indicating a lack of widespread adoption [2][3] S&P 500 Financial Metrics - The free cash flow yield on the S&P 500 has fallen below 2.6%, the lowest level since 2008, reflecting a significant decline from its peak in 2009 [4][5] Investment Strategy Commentary - The commentary emphasizes that investing, even with poor timing, is preferable to holding cash, suggesting that time and compounding are crucial for investment success [5]