Global equities face pressure from rising yields. US equities retreated as inflation concerns resurfaced and political uncertainty lingered. The S&P 500 dropped 1.9%, while Nasdaq fell 2.3%. The US labour market remained robust, with December’s nonfarm payrolls rising by 256,000, surpassing expectations, while the unemployment rate fell to 4.1%. This data led to reduced expectations for Federal Reserve rate cuts, prompting higher Treasury yields and a stronger dollar. Small-cap stocks underperformed, and the S&P 500 erased its early-year gains.
The STOXX Europe 600 Index increased by 0.65% and FTSE 100 ended 0.3% higher, with expectations for European Central Bank rate cuts despite rising inflation. Japan’s Nikkei 225 down 1.8% amid speculation over the Bank of Japan’s tightening plans and concerns over U.S. policies. Chinese markets declined, with the Shanghai Composite and Hang Seng Index off 1.3% and 3.5% respectively, as deflationary pressures persisted, highlighted by weak inflation and ongoing PPI declines.
Topic in focus: Japan equities – earnings outlook remains robust in 2025. Consensus forecasts project an aggregate earnings growth of 9% for Japanese companies this year. Sectors currently trading at valuations below the market average — such as banks, insurance, materials, autos, energy, utilities, and real estate — hold potential for rerating. This rerating could be driven by corporate restructuring efforts in response to the Japan Exchange Group’s ongoing calls for market reforms, aimed at enhancing efficiency and shareholder value.
While short-term market volatility may persist, our focus remains on long-term, irreversible structural trends that will drive sustainable growth and returns. Thematic drivers include Japan’s ageing population, ongoing digitalisation, as well as its competitive advantages in the export sector. Beneficiaries of these trends include:
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