Japan Equity Strategy: A Takaichi Basket

The report introduces the 'SG Takaichi Basket', a collection of 16 Japanese stocks poised to benefit from the Takaichi Administration's focus on reflation, defense spending, and strategic industries.

Key Takeaways

• 1.The LDP supermajority provides full control over the legislative process, fostering a program of moderate fiscal expansion and a weak Yen.
• 2.Japan is in a 'Reflation Extended' phase where nominal GDP growth remains above JGB yields, favoring equity over debt.
• 3.Market valuations are becoming stretched, with multiple metrics like P/B and Price to Sales at the 100th percentile rank.

Table of Contents

• SUMMARY
• MACRO PICTURE
• THE LDP HAS FULL CONTROL OF THE LEGISLATIVE PROCESS
• REFLATION EXTENDED
• HOW DEEP CAN THE EQUITY RISK PREMIUM COMPRESS?
• THE VALUATION BECOMES A LITTLE STRETCHED
• SELL AMERICA? FOREIGN INVESTORS RETURN ON THE EQUITY MARKET
• SECTORS
• 1) THE POLICY MIX AND OTHER TAILWINDS FOR JAPANESE BANKS
• THE RISK ON BOND VALUATION LOSS IS MOSTLY ON REGIONAL BANKS
• 2) JAPAN DEFENSE SPENDING GROWTH EXPECTED TO ACCELERATE
• 3) GEOECONOMICS: THE JAPAN BENEFICIARIES FROM THE US CAPEX BOOM
• 4) THE STRATEGIC INDUSTRIES
• THE BASKET

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