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Investment Strategy by Lyxor Cross Asset Research

23/10/2015

JAPAN: NOT A NO-BRAINER ANYMORE DESPITE MACRO IMPROVEMENTS.

Economic fundamentals (labor market, investment, credit, money demand) are strengthening in Japan. Headwinds blow from China’s slowdown and the global industry slump. Policies are set to remain accommodative.

  • Manufacturing activity weathersthe lacklusterworldwidedynamics in traded goodsdemand, exacerbated by a direct Chinese exposure.

  • Abenomics 2ndarrow is positively translating in credit uptake, which trickles down toM2 growth. Green-shoots show progress in capexspending and labor markets. Yet,wage trends show little to no progress.

  • We expect the Bank of Japan to stay its expansionary course. Additional fiscalstimulus could buy some time for structural reforms to bear fruit.

Japan’s equity on slight overweight: cheap valuations andpositive EPS revisionsbalance with increased volatility.

  • Relative to its G3 peers, Japan is cheap onvaluation basis (Topix 100 at12.5PE).

  • EPS revisions, excluding energy and materials sectors, remain slightly positive.

  • Intraday volatility and cross-sector rotations have accelerated, increasing risk in acontext that lacks directionality.

Read the full Investment Strategy report by visiting: www.lyxor.com