Director | Global Equities

Amanda Ens Director | Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporated Japan Investment Strategy Nikkei to 20,000: Inventory cycle upturn — cyclicals; inflation — banks, insurance Investment Strategy 18 November 2016 Key takeaways ° Solid macro and weaker JPY positive for Japan equities, which also tend to outperform when US rate rises (esp. steepening) ° The inventory cycle continues to recover on fiscal easing and capex, implying cyclical stocks will outperform ° Inflation and higher yields positive for banks, insurance. Risk is diplomacy, protectionism, and US economic cycle FULL REPORT Bullish equities 2017; rotation into cyclicals, banks, insurance We are bullish Japan equities for 2017 and we estimate the Nikkei 225 index will recover to 20,000 by end- 2017 (see $/¥'s eventual surge: Buy Nikkei 06 September 2016). Our new Chief Japan Economist Izumi Devalier forecasts above-consensus Japan GDP growth and inflation in 2017, which is also supportive of our bullish equities scenario (see Ready for ignition 18 November 2016). We expect rotation into cyclicals, banks and insurance as explained below. HOUSE_OVERSIGHT_014399