Nomura Asset Management

Investment Outlook
Summer 2024

Summer 2024

Contents
Investment Outlook
02┃ Quarterly Market Recap
03┃ Investment Environment Outlook
Rumi Kurumizawa, Chief Economist
Yuichi Murao, Chief Investment Officer, Senior Corporate Managing Director
The prospect of interest rate cuts and the US presidential election could trigger aperiod of financial market volatility.

07┃ Japan Equity Market Outlook
Shintaro Harada, Chief Investment Officer, Active Japanese Equity
What will it take for the market to break out its range?

10┃ Global Equity Market Outlook
Takahiro Nakayama, Senior Managing Director, Chief Investment Officer,
Active Global Investments
Yoshiaki Saito, Chief Portfolio Manager, Global Multi Theme Equity

Our Global Multi Theme Equity Strategy (GMT) Investment Team comprises dedicated thematicinvestment specialists who focus on rigorous stock selection to exploit growth themes. The GMT
focuses on attractive growth opportunities arising from the Fourth Industrial Revolution.

13┃ Bond and Currency Market Outlook
Wataru Kato, Senior Portfolio Manager
Yuji Maeda, Head of Investment, Global Fixed Income
Bond yields are expected to fall along with monetary easing by the major central banks.

16┃ J-REIT Market Outlook
Tomoyuki Nobuhara, Senior Portfolio Manager
The market environment has entered a phase that requires investment strategies
that respond to inflation

18┃ Economic and Market Forecast
Note: In Nomura Asset Management (NAM) Investment Outlook Summer 2024, NAM’s senior investment professionals offer their views of theinvestment strategy and market prospects – commentaries are as of middle to late June 2024, and reflect each professional’s personal views,
and do not entirely match NAM’s house view. except for Investment Environment Outlook and Global Financial Market Forecast that are
based on NAM’s house view.

1

NAM Investment Outlook Summer 2024

Quarterly Financial Market Recap
Speculation around US monetary policy was a major factor driving fluctuations in the financial markets during
the April to June 2024 period. While US bond yields started to rise, they fell again later after indicators
suggested that inflationary pressure might be easing, while Federal Reserve Chair Jerome Powell voiced
caution regarding the stance towards additional rate hikes. Earnings growth of AI-related companies andexpectations of lower interest rates helped to drive equity price higher. In the foreign exchange market, theeuro/US dollar exchange rate remained range-bound, while the yen weakened against the US dollar. Market
interventions by the Ministry of Finance and the Bank of Japan caused periods of substantial volatility.

10 Year Bond Yields in Major Countries

Major Equity Markets(January 2, 2019 - June 28, 2024, daily)(January 2, 2019 - June 28, 2024, daily)(%)(Points)
6,000

5.0

S&P500USEuro300

5,000

4.0

Germany

TOPIX

Japan

3.0
4,000
2.0
3,000

1.0

2,000

0.0

1,000
Jan-19Jan-20Jan-21

Jan-22

Jan-23-1.0
Jan-19Jan-24

Source: Nomura Asset Management based on Bloomberg data

Jan-21

Jan-22

Jan-23Jan-24

Source: Nomura Asset Management based on Bloomberg data

Yen and Euro against the US dollar

Trends in VIX and MOVE

(January 2, 2019 - June 28, 2024, daily)(January 2, 2019 - June 28, 2024, daily)(USD/EUR)
1.25
1.20

Jan-20(Points)(JPY/USD)
170
USD/EUR (LHS)
JPY/USD (RHS)
160

1.15
1.10
1.05

250

VIX
MOVE

200

150
150

140
130

100

120

1.00

110

0.95
Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24

100

50
0
Jan-19Jan-20Jan-21

Jan-22

Jan-23Jan-24

Note: The VIX and the MOVE are indexes that show the risk of future
volatilities of US stocks and US bonds, respectively.
Source: Nomura Asset Management based on Bloomberg data

Source: Nomura Asset Management based on Bloomberg data

2

NAM Investment Outlook Summer 2024

Investment Strategy

Investment Environment Outlook
The prospect of interest rate cuts and the US presidential election
could trigger a period of financial market volatility.

Rumi Kurumizawa
Yuichi Murao
Chief Economist Chief Investment Officer,
Senior Corporate
Management Director

Investment environment for 2nd half of 2024: Focus shifts from monetary policy to US presidential
election.
In the first half of 2024, shifting expectations
surrounding US monetary policy had a significant
impact on financial market volatility. Economic
indicators such as employment data and theconsumer price index, which are used to determine
rate cuts, were closely watched. Market participantstended to react with elation or concern depending on
the outcome of these economic indicators. While
investors are still focused on the Federal Reserve’s(Fed’s) monetary policy stance, the second half will
see greater focus on the November US presidential
and congressional elections, as these could bringsignificant changes in the economic and market
outlook for 2025. In this autumn, financial market
volatility could increase depending on the interest rate
path taken by the Fed as well as election outcomes.

Figure 1. Key Political Schedule for the 2nd Half of 2024:
US

EuropeJapan

4: UK generalelection
7: French
legislative

Jul.

China
Third plenary
session

Aug.

Sep.

10: Presidential
Debates
25: Vice
Presidential
Debates

30: expiration of
the term of LDP
president
LDP executive
reshuffle

Oct.
Nov.

Dec.

5: Presidential
election
Budget and TaxCentral
Policy Outline for
Economic WorkFY 2025
Councilapproved by the

Source: Nomura Asset Management based various media sources

Macroeconomic Outlook: US economy is expected to return to its potential growth rate.
Currently, there are no visible signs that the US
economy will enter a recession in the near future. In
Europe, the Eurozone economy has been showing
signs of recovery in 2024 after experiencing slightnegative growth in the second half of 2023.

However, given the view that the economy and pricepressures at the moment do not warrant a significant
rate cut, our expectations for the pace of monetaryeasing are more gradual than what is currently priced
into the market. As such, we do not anticipate asignificant boost to economic growth from interest rate
reductions, and we forecast the US economy to growat a pace close to its potential growth rate in 2025.

Although the effects of past rate hikes may have beensmaller than expected, the US growth is expected tofall below the economy’s potential growth rate throughthe autumn, contributing to expectations of slowing
inflation rates. However, there is still skepticism about
whether inflation rates will steadily decline towards thecentral bank's target in the coming months, such thatrate cuts must be given careful consideration.

On the other hand, for Japan, we expect growth tocontinue slightly surpassing the potential growth rate,even with a minor interest rate hike, as the effects ofthe spring wage increase spread to actual wages anddue to the impact of flat-amount tax reduction.

Taking into account consistency with pastcommunications, downside risks to the economic
outlook, and concerns for the adverse effects of rate
hikes on low-income groups, we currently forecast
that the Fed could decide to cut rates in December.

3

NAM Investment Outlook Summer 2024

Monetary Policy Outlook: The Bank of Japan is expected to shift towards very gradual rate hikes
alongside a rate cut cycle in Europe and the United States.
Figure 2. Policy Interest Rates in Japan, the US, andEurozone, and NAM Forecasts(Actual values from Jan. 3, 2022, to Jun. 21, 2024, daily)

For the outlook period to the end of 2025, we expect
central banks in Europe and the US to continue
adjusting the degree of monetary tightening amid
subdued inflation. We anticipate a gradual pace of ratecuts after the central banks have confirmed their likely
impact on the economy and prices. We forecast the
Fed Funds rate to be around 4.5% by the end of 2025.

6

(%)

5
4

In Japan on the other hand, with structural labor
shortages and the government’s support for pricepass-through, conditions are becoming more
conducive for a solid wage increase during spring
wage negotiations in 2025. We expect policy interest
rates to be raised to around 0.5% by the spring of
2025.

3

US

2

Eurozone
Japan

1
0
-1
Jan-22

Jan-23Jan-24Jan-25

Note: The dots after June 2024 represent our forecasts as of the end of eachquarter.
Source: Nomura Asset Management based on Bloomberg data.

Interest Rate Outlook: Market anticipates it will be difficult to incorporate terminal rate forecasts.
Against a backdrop of subdued inflation and rate cuts,
long-term interest rates in Europe and the US are
expected to decline. However, with a persistent viewthat the neutral rate of interest is on the rise, market
participants may find it challenging to determine withany certainty how far interest rates might be loweredin the current rate-cutting phase. Looking ahead, until
the end of 2025, while we expect a downward trend in
US 10-year bond yields, we also believe that asignificant fall in interest rates is unlikely.

Figure 3. Long-run Fed Funds Rate Outlook by FOMC
Participants (Median)(Mar. 2022 to Jun. 2024, quarterly)
(%)
3.00

2.75

2.50

On the other hand, for long-term interest rates inJapan, additional rate hikes and reduced government
bonds holdings by the Bank of Japan could lead torising long term interest rates. However, global interest
rate trends are expected to limit the upward pressure
or could even exert downward pressure on rates inJapan, resulting in benchmark bond yields fluctuatingaround 1%.

2.25

2.00

Mar-22Mar-23Mar-24

Source: Nomura Asset Management based on the FRB data.

4

NAM Investment Outlook Summer 2024

Currency Outlook: A gradual weakening of the US dollar.
Figure 4. Investment in foreign securities by the investment
trust management company (Stocks and investment funds
holdings) (Jan. 2020 to May 2024, monthly)

Due to the slowdown in US economic growth and theshift towards interest rate cuts, we expect the US
dollar to depreciate, with the euro likely to appreciate
in such a scenario. Against the backdrop of a slightnarrowing of the interest rate differential between
Japan and the US, we can also expect the yen to
appreciate against the US dollar.

(JPY, tn)
1.4
1.2

2020

2021

2023

2024

2022

1.0

However, as Japan's trade deficit is becoming more
entrenched, and with the introduction of the new NISA
(Nippon Individual Savings Account) leading toincreased investment in overseas assets of Japan’s
household investors, there is likely to be continued
downward pressure on the yen from a flow of funds
perspective. Taking these factors into account, we do
not foresee a significant reversal towards yen
appreciation and US dollar depreciation, evenconsidering the diverging direction of monetary
policies between Japan and the US.

0.8
0.6
0.4
0.2
0.0
-0.2
-0.4

Jan.

Mar.

May

July

Sep.

Nov.

Source: Nomura Asset Management based on Ministry of Finance data.

Equity Market Outlook: An upward trend with some fluctuations.
In both Europe and the United States, against a
backdrop of solid economic growth and falling inflation,accompanied by modest rate cuts and a downward
trend in long-term interest rates, this would have apositive impact on earnings per share (EPS) andprice-earnings ratios (PER) for stock prices.

Figure 5. PER and Long Term Interest Rates in the US(Jan. 1, 2010 to Jun. 21. 2024, daily)(Times)35

S&P500 P/E ratio(LHS)
10yr US Gov. bond yield(RHS)(Inverted, %)1

30While there may be periods of asset price instability
due to uncertainty surrounding monetary policies andevents related to the US presidential andcongressional elections, we expect the upward trend
in equity prices to continue. However, particularly for
US stocks, given that AI-related stocks are leading toan increase in the market PER, we caution that any
negative news could potentially trigger a temporary
adjustment in stock prices.

0

2

25

3
20

4

15
10

5
6
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24（Yr）

Source: Nomura Asset Management based on the Bloomberg data.

5

NAM Investment Outlook Summer 2024

Risk Scenario: Unclear path of rate cuts by the Fed.
Figure 6. US Trade Policy Uncertainty Index(Jan. 1985 to May 2024, monthly)

Financial markets are currently pricing in theassumption that the next move by the Fed will be arate cut. In our basic scenario, we assume no
significant changes in fiscal, tax, or trade policies in
2025, following the results of the US presidential andcongressional elections. However, depending on theelection outcome, there could be expectations of amore inflationary fiscal policy being adopted by the
new administration starting in January 2025. If the Fed
perceives this as an inflationary concern, it is possiblethat rate cuts might be significantly postponed fromthe current expectations. If the view shifts towards thebelief that rate cuts will be challenging in 2025, there
is potential for the financial markets to react differently.

(1985-2010 average＝100)

Trump administration

2000
1800
1600
1400
1200
1000
800
600
400
200
0

85 88 91 94 97 00 03 06 09 12 15 18 21 24(Yr)

Source: Nomura Asset Management based on Policy Uncertainty.com data.

Risk Scenario: A significant economic slowdown beyond the basic scenario.
There is a consensus view that the US will avoid arecession, and that Europe will not return to a negative
growth rate. For the US in particular, the focus has
been on the risk of an upside surprise rather than an
economic downturn. However, we believe there
remains some downside risk of a rapid series ofinterest rate cuts beyond the general consensus. In
the most recent Job Openings and Labor Turnover
Survey (JOLTS), the job openings rate is approaching
pre-COVID levels. If the relationship between theunemployment rate and the job openings rate reverts
to pre-COVID levels, there is some possibility that aslight deterioration in labor demand from this point
could lead to an upside shock to the unemployment
rate.

Figure 7. US Beveridge Curve(Jan. 2001 to Apr. 2024, monthly)(Job openings rate, ％)8

2001-20197

After 2020

6

Apr.2024

5
4
3
2
1
0

0

5

10

15

Source: Nomura Asset Management based on the CEIC data.

620(Unemployment rate,％)NAM Investment Outlook Summer 2024

Japan Equity Market Outlook
What will it take for the market to break out its range?
Shintaro Harada
Chief Investment Officer
Active Japan Equity

The Japanese equity market kicked off 2024 with a strong start
Japan’s stock market saw rapid and significant gains
from the start of 2024, exceeding expectations set by
the range-bound trading at the end of 2023. There areseveral reasons for this, including a sense ofundervaluation compared to other advanced
economies’ stock markets, governance improvements
due to Tokyo Stock Exchange reforms, increased
evaluation of shareholder returns, diversification awayfrom the economic uncertainty in China, and tailwinds
from the rise of U.S. companies like NVIDIA in the AI
chip sector. Leading sectors included automotive,
trading companies, financial institutions, large value
stocks, and semiconductor stocks.

examples of the January to March period since the
Global Financial Crisis. Along with the post-crisis
rebound and the peak in foreign purchases during the
Abenomics era, this marks a significant level of buying
not seen in years, indicating a high level of interest.
Figure 1. Net Transaction Volume Trends
by Foreign Investors(2019 – 2024, From Jan. to Mar.)(JPY, bn)
4,000
3,000
2,000
1,000
0
-1,000-2,000-3,000-4,000-5,000-6,000The strength of foreign investor demand for Japanesestocks also stood out. Looking at trading trends byinvestor domicile, net buying from January to March
this year amounted to about 3 trillion yen, ranking thirdin terms of the value of net purchases among 16

'09

'11

'13

'15

'17

'19

'21

'23
(Yr)

Source: Nomura Asset Management based on Tokyo Stock Exchange data

Slow start to earnings forecasts for the fiscal year 2024
On the other hand, the market has been relatively flat

Figure 2. Earnings Forecast

since April. The TOPIX gained approximately 17% in
1Q2024,significantly

outpacing

the

rate

of

fundamental growth (i.e. profit growth). Therefore, theAs of May 2024

announcement season for annual financial results

Russell/Nomura Large Cap

from April to May was closely watched to assess the

Manuracturing
Basic Materials
Processing

earnings performance, but the fiscal year 2024 results
fell short of expectations, leading to a cautious shift inmarket sentiment and heavy pressure on stock prices.
Many companies have based their current fiscal year
forecasts on a conservative assumption that the yen

Nonmanufacutring (ex financials)
Basic materials
Machinery, autos
Electronics

FY23

FY24

FY25

(Actual)(Forecast)(Forecast)

15.0
12.3
-14.6

6.3
8.2
18.0

8.7
9.7
13.0

26.8
8.9
-14.6

3.8
-0.1
18.0

7.9
6.0
13.0

45.9

0.6

3.5

-0.8
-4.2
22.2

10.4
9.6
8.5

16.6
6.2
12.9

17.1

-10.4

6.4

49.9

14.9

11.3

therefore likely that forecasts will be revised upward

Consumption, distribution
Information
Utilities, infrastructure
Financials

as time goes by. On the other hand, some believe that

Source: Nomura Asset Management based on Nomura Securities data.

would appreciate by 10% or more from April’s
exchange rate of JPY 140-145/US dollar. It isthe consensus already factors in mid single-digit profit
growth.
*References to individual stocks do not imply recommendations for buying or selling specific stocks, nor does imply any view on their price movements.

7(%)

NAM Investment Outlook Summer 2024

Any signs of change in investment style trends?
As for investment styles, the general view is that there
will not be as much divergence as in the previous
fiscal year. Growth stocks continued to rise until thefirst year of the Covid-19 pandemic, but suffered a
sharp reversal in the second year and are currently atlevels seen before the Global Financial Crisis. Whilesome suggest that growth stocks have undergone a
considerable correction, they still seem to lackcatalysts for a reversal in the long-term trend favoringvalue stocks in Japan’s equity market. Moreover, there
the may still be some remaining valuation premium on
growth stocks may not have been fully erased. Thereis a possibility that interest might shift towards smallcap stocks following the peak in share prices of largecap stocks like Toyota, but the yen’s current
depreciation is not necessarily a positive factor forsmall-caps, which tend to include many domestic
growth stocks. It is unlikely that there will be as muchdisparity in investment styles as in the previous fiscal
year, and this could be a fiscal year where stocks that

demonstrate solid earnings are valued. This reaffirms
the importance of stock selection as we enter a phase
where earnings matter most.
Figure 3. Relative stock prices of the Russell/Nomura Index(Mar 2009 to May 2024, monthly)
1.2(Mar. 2009 = 1.0)

Total Value/Total Growth

1.1

Large/Small

1.0
0.9
0.8
0.7
0.6

Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Mar-19 Mar-21 Mar-23

Source: Nomura Asset Management based on Nomura Securities data.

Update on Tokyo Stock Exchange's request on management reform
As of the end of May, the disclosure status regarding
the Tokyo Stock Exchange’s "Action to Implement
Management that is Conscious of Cost of Capital andStock Price" reached 63% of TSE Prime Market
companies, with an increase of approximately 4%each month. If this pace continues, most companies
are expected to have responded by the end of the
fiscal year. However, there are concerns that major
companies like Toyota, SoftBank Group, and Fast
Retailing have not yet responded. Meanwhile, thedisclosure ratio remains at 20% for companies in theStandard Market, and disclosure and response among
companies not classified among the low price-to-bookvalue ratio (PBR) stocks are relatively slow.
Personally, I believe that the initiative will reach its
ultimate goal when companies like Keyence (with over2 trillion yen in cash holdings) implement large-scale
share buybacks. There is still room for improvement,
particularly focusing on owner-operated companies.

Following moves to enhance returns among low PBR
stocks initiated last year, the current stage shows
signs of structural reform among companies with low
Return on Equity (ROE), potentially leading towards
financial reform efforts among high-ROE companies
too.
Figure 4. Disclosure on actions taken and plan forimproving capital cost efficiency and stock price(Dec 2023 to May 2024, monthly)

80%
70%
60%
50%
40%

Disclosre status of under consideration
Disclosed Initiatives
9.4%

10.5%

30%
20%

11.1%

40.1%

44.1%

47.8%

Dec-23Jan-24Feb-24

10.9%

11.3%

9.5%

53.9%

57.5%

62.7%

Mar-24Apr-24May-2410%0%

Source: Nomura Asset Management based on the TSE data.

8

NAM Investment Outlook Summer 2024

Japanese equity market outlook for the second half of the year.
As shown in the graph below, the Price-to-Earnings

late to buy in, and factors such as wage increases

Ratio (PER) of the TOPIX has averaged around 14

resulting from Japan's spring labor negotiations andsince the Global Financial Crisis. It increased tothe effects of flat-amount tax reduction leading to aaround 16 when optimism was factored in, andfirmer inflationary trend in Japan are also likely to

dropped to around 12 during spells of market

generate interest among foreign investors. In the shortpessimism. Currently, the PER is at 16 (shown by theterm, we expect April to June quarter earnings reports

indicate an

to bring few surprises, leading to minimal stock priceovervalued market. The stock price increase in thefluctuations driven by fundamental factors. The

first quarter of this year has exceeded the annual profit

automotive sector, for example, is expected to face agrowth rate of major companies (15% for fiscal year

slowdown in earnings momentum due to last year's

red line),

which traditionally could

2023, 6% for fiscal year 2024 - according to Nomura

production recovery peak as well as issues related toSecurities forecasts), leading to an elevated valuation.

testing compliance scandals.

However, it is believed that this rise in valuations

While a weaker yen could benefit export-oriented

could be sustained. The number of companies

companies, concerns about a slowdown in domestic

responding to the reform agenda of the Tokyo Stockdemand may offset these positive effects, with the yen

Exchange continues to increase, and the exchange's

no longer serving as a significant market catalyst.

monitoring policy is not only systematic but also aims

Therefore, as we navigate through first quarterto encourage actual improvements in corporate

earnings reports and the summer lull, the current

management. Therefore, it seems unlikely that thesemarket view suggests that stock prices should trend

initiatives have been fully factored in at this point.

towards the rate of profit growth, in line with the red

Considering the resilience of foreign investor demandline in the graph below, during the the latter half of thisfor Japanese stocks, the presence of entities that are

year.

3,000

Figure 5. TOPIX PER bands and BPS trends(Dec. 2005 to Dec. 2025. Stock prices up to Jun. 21, 2024)
BPS

2,800

PER16

2,600

PER14

2,400
2,200

PER12

2,000

TOPIX

1,800
1,600
1,400
1,200
1,000
800
600
Dec-05

Dec-10Dec-15

Dec-20Dec-25

Note: PER and BPS forecasts are based on our company's estimates. To make the graph easier to read, we have hidden a portion from 2008 to 2010. Source:
Nomura Asset Management based on Nomura Securities, data.

*This commentary reflects the personal views of the author and does not necessarily represent NAM’s house view.

9NAM Investment Outlook Summer 2024

Global Equity Market Outlook
Our Global Multi Theme Equity Strategy (GMT) Investment Team
comprises dedicated thematic investment specialists who focus
on rigorous stock selection to exploit growth themes. The GMT
focuses on attractive growth opportunities arising from the Fourth
Industrial Revolution.

Yoshiaki Saito
Takahiro Nakayama,
Senior Managing Director, Chief Portfolio Manager
Chief Investment Officer,
Active Global Investments

Three perspectives on Global Multi Theme investment
Nomura Asset Management’s Global Multi Theme
Strategy (GMT) Investment Team focuses on themesthat are expected to demonstrate attractive growth
opportunities over the medium to long term. We
identify these themes based on three perspectives:“Breakthroughtechnology/disruptive
innovation”,“New opportunities in emerging markets”, and“Structural change in society”. Investment themes
selected from these three perspectives arecontinuously changing, and our analysis enables us
to select the most attractive themes at any given time.

in the Fourth Industrial Revolution, also known as the
AI Revolution, which drives and enhances the level ofconnectivity and integration. Through a succession of
newly created technologies, the Fourth Industrial
Revolution will be able to drive new connected andintegrated developments using the existing global
internet infrastructure. The scale of the global AI
market in sales terms can be considered a leading
contributor in the Fourth Industrial Revolution and is
rapidly expanding, with an expected reach of 1.8
trillion US dollars by 2030.
Figure 1. Trends in the Global AI Market(Period: 2021 – 2030, annually)

Three Perspectives
Breakthrough Technology/Disruptive Innovation –Evolution in new technology, products and services
New Opportunities in Emerging Markets – Global
trend/expansion of mass-affluent in emerging markets
Structural Change in Society – Aging population,
increase in middleclass due to income growth inemerging countries
We also pay close attention to ongoing developments

Source: Nomura Asset Management based Next Move Strategy
Consulting data. Nomura Asset Management forecasts for 2024
and beyond

The view of the GMT Investment Team - 1

In recent years, we have seen rapid growth in theInternet of Things (IoT), where products and services
are connected through the internet. Vast amounts ofdata accumulated through IoT connected devices isbeing analyzed using AI and utilized for thedevelopment of new products and services.
Furthermore, we are seeing further convergence andenhancement of technologies used in various fields
that are connected via the internet. In other words, as
technologies that were previously considered separate
begin to converge – such as robotics, 3D printing,nanotechnology, biotechnology, genetic engineering,and blockchain technology – we can expect the Fourth
Source: Nomura Asset Management draft translation of “Vision for New Industrial
Industrial Revolution to benefit a wide range of Structure ” (the Ministry of Economy, Trade and Industry)(https://www.meti.go.jp/shingikai/sankoshin/shinsangyo_kozo/pdf/017_05_00.pdf/)
industries, not only IT companies.

10

NAM Investment Outlook Summer 2024

The view of the GMT Investment Team - 2
Autonomous driving is one example of a technology

capturing consumer attention. This has led to thethat not only contributes to growth in the automotive

emergence of new business models like Airbnb andindustry, but also has the potential to bring aboutUber.

broader structural changes in business sectors like theMoreover, at the core of the Fourth Industrial

auto insurance industry due to factors such as the

Revolution

reduction in traffic accidents. Meanwhile, three-areadvancements

inAI-related

technologies and the globally interconnected internet

dimensional measurement data obtained throughinfrastructure.

aerial photography by drones (unmanned aerial

However,

operation

of

these

technologies is extremely energy intensive and also

vehicles) has the potential to significantly improve theconsumes a large quantity of water for cooling data

productivity of infrastructure development and theprocessing facilities. This leads us to believe that there

construction industry. Furthermore, in commercial

may also be significant growth opportunities in thetransactions, the development of AI technology caninfrastructure

enable accurate management and billing of when,

sectors

neededtosupportAIdevelopment. With the addition of a sustainability

where, and by whom products and services are used.

perspective that was not considered in previous

Such developments are considered to be key drivers

industrial revolutions, the Fourth Industrial Revolution

in the shift from traditional "product" consumption toshould also encompass renewable energy technology"experience" consumption, a trend that is currently

as a growing sector of interest.

GMT Strategy: Eight themes from three perspectives
The GMT Investment Team’s dedicated thematic

opportunities in emerging markets“, and “Structural

specialists are assigned to select and investigatechange in society“.

attractive investment themes. Unlike industry-specific

The core themes are divided into "High Growth

analyst teams that uncover and investigate stocks

Themes" that involve significant changes and offer

related to specific sectors, thematic specialists explore

strong growth potential, such as 1) New Technology,

and investigate stocks across a range of industries on2) AI/Data Science, 3) Technological Solutions and 4)

the assumption that they can identify and benefit fromEntertainment/Experience, as well as "Stable Growth

unique growth stories within each theme without

Themes" that offer steady growth potential such as 5)limiting themselves to specific industries. Currently,

Global Aging and 6) Established Brands. In addition,

we have selected eight themes that are expected tothere are themes that combine characteristics of both,show attractive growth over the medium to long term
from

the

technology

three
/

perspectives
disruptiveofthese are 7) IoT/Reshoring and 8) Demographic“Breakthroughinnovation“,

Dividend, making a total of eight themes.

“New

11

NAM Investment Outlook Summer 2024

GMT Strategy: Eight investment themes in detail
1. New Technology: The Fourth Industrial Revolution
is still in its early stages, and for many companies,

5. Global Aging: There is a paradigm shift towards

investments are being made based on the
expectationoffuturechangesin"precision medicine," where medical treatments

industrial

arestructure. In this context, we are focusing on

processing

profits and producing semiconductors that are

6. Establishedcompanies that operate essential data centers forbrands,Moreover, given the need for secure handling of

medicalandepidemiological

Brands:Even

companies

with

must

constantly

innovatetomeetchanging consumer preferences. We are focusing

crucial information, including confidential andon companies that can actively introduce new

personal information during data processing, we

consumer-oriented services using AI and improve

are also focusing on companies related tohasofestablished brands, such as European luxury

the extensive data analysis capacity required by AI.

thatpatient-specificmolecular targeted drugs and immunotherapy.

2. AI/Data Science: We are closely monitoring

area

on

information. We are focusing on areas such as

essential for the Fourth Industrial Revolution.

an

based

information rather than the traditional statisticalgroups of companies that are already generating

cybersecurity,

individualized

production efficiency.

grown

significantly in importance.
7. IoT/Reshoring: We focus on companies that utilizeAI, based on the vast amount of data accumulated

3. Technological Solutions: We pay attention to thetechnologicalsolutionsthroughthethrough IoT, not just for automation in production

effective

using robots as in the past, but also for improving

utilization of vast amounts of data collected

the efficiency of the entire manufacturing process

through IoT for service realization, as well as theand developing new products and services, as

combination of new technologies such as Big Data,

well as solution providers for this purpose. We

AI, and robotics, is creating growth opportunities invariousfieldsincludingfinance,retail,also pay attention to the companies that would

andbenefit from the revision of such global production

healthcare.

4. Entertainment/Experience:systems.
Whileconsumption

8. Demographic Dividend: We are focusing on

used to center around ownership and purchasing

companies that benefit from the rising prosperityof goods, Millennials and Generation Z are

and population growth in emerging countries andincreasingly placing value on unique experiences.

the various business opportunities arising from

We are focusing on companies that can quickly

different stages of development.

adapt to this change in consumer values andprovide services that accurately capture customer
needs.

*This commentary reflects the personal views of the author and does not necessarily represent NAM’s house view.

12

NAM Investment Outlook Summer 2024

Bond and Currency Market Outlook
Bond yields are expected to fall along with monetary easing by the
major central banks.
Wataru Kato
Yuji Maeda
Senior Portfolio Manager Head of Investment
Global Fixed Income

Bond yields have risen amid fears of a pause in inflation’s decline
In the first half of 2024, bond yields of the major

Figure 1. Changes in Government Bond Yields

economies exhibited a gradual upward trend. Bond

(Jan. 2, 2020 – Jun. 14 2024, daily)

yields had declined rapidly since the autumn of 2023
as markets anticipated a shift in monetary policy by
the major central banks, but they began to rise again(%)

US 2Y T-Note

US 10Y Bond6

US 30Y T-Bond

German 10Y Bond

UK 10Y Gilt

JGB 10Yat the start of this year. This was driven by a series of5

economic indicators from the US that exceeded

4market expectations, leading to the scaling back of

3market expectations for near term rate cuts by theFederal Reserve and other major central banks. In

2particular, the US Core Consumer Price Index (CPI)1showed a high growth rate of 0.4% (mom) for threeconsecutive

monthsfrom

Januaryto0

March,

highlighting the difficulty in taming inflation. As a-1
Jan-20result, both the Fed and financial markets werecompelled to make adjustments to their outlook on

Jan-21

Jan-22

Jan-23Jan-24

Note: Yield is Bloomberg Generic
Source: Nomura Asset Management based on Bloomberg data

policy interest rates.

Fed expected to begin cutting interest rates in the second half of 2024
The Fed decided to maintain its policy interest rate atwhere the pace of economic growth is slower that in

the June FOMC meeting. The median outlook by

the US, we anticipate that inflation will continue tocommittee members suggested a likelihood of one

decelerate, and we expect the ECB to implement rate

rate cut in 2024 and four rate cuts in 2025. We also

cuts in a pattern similar to the Fed.

anticipate that the impact of the cumulative interest

We can also expect many other central banks inrate hikes to date on economic growth indicators will

advanced countries and regions, including Canada,

become increasingly apparent, leading to a slowdown

which started cutting rates in June, to continue cutting

in US growth rates and a lower rate of inflation.

interest rates at a similar pace.

Therefore, we expect the Fed to start cutting rates in

One obvious outlier to this monetary easing trend is

the second half of the year and to continue with athe Bank of Japan (BOJ), which is expected to be oneseries of rate cuts thereafter.

of the few central banks seeking to raise interest rates

In June, the European Central Bank (ECB) decided toover the coming months. Having carried out one policy

cut its policy rate by 0.25 percentage points at its

rate hike this year, its first in 17 years, and lifting its

regular board meeting. While ECB President Christine

negative interest rate policy at the March monetary

Lagarde hinted at the possibility of further rate cuts,policy meeting, the BOJ is expected to implement

she also signaled a cautious approach in determining

additional incremental rate hikes in the second half ofthe pace of future interest rate moves, citing the highthis year.

wage growth rate in the first quarter. In the Eurozone,

13NAM Investment Outlook Summer 2024

US economy is expected to slowdown
Figure 2. US Unemployment Rate andCredit Card Delinquency Rate

Economic conditions in the US have been generallyrobust, with little noticeable impact so far from the(Jan. 2008 - May 2024, monthly)(till April 2024 for Credit Card Delinquency Rate)

Fed's monetary tightening measures. However, uponcloser observation, indicators such as rising credit(%)

card delinquency rates among lower-income groups

10

suggest that the rising interest burden may be about toexert downward pressure on personal consumption in

Unemployment Rate
Credit Card Delinquency Rate8

the future. While the unemployment rate remains low,
there is a slight upward trend, reaching around 4% in

6May, its highest level for about two and a half years.
We now forecast that further declines in personal

4

consumption and worsening conditions in the labor2

market will lead to a slowdown in the US economy inthe second half of the year.

0
Jan-08Jan-12

Jan-16

Jan-20Jan-24

Note: To make the graph more readable, some parts of the unemployment
rate data for the year 2020 have been hidden. Source: Nomura AssetManagement based on Bloomberg data.

With the Fed’s shift towards interest rate cuts, bond yields are expected to fall
Current US Treasury bond yields appear to havemarket takes on more evidence of an economic

factored in the rate cuts projected at the June FOMC

slowdown amid declining economic indicators, bondmeeting for the rest of the year, with a medianyields are likely to decrease even before the Fed takes

projection of 25 basis points by the end of 2024.

action to loosen policy.

However, we still believe there is room for bond yields

In a less benign scenario, potential triggers such as an

to decrease further.

outbreak of financial system instability, similar to the

The outlook from the June FOMC suggests that while

events of spring of 2023, could set off a significant fall

Gross Domestic Product (GDP) will continue to growin asset prices, including risky assets like stocks. In

at a solid pace of about 2% annually, the inflation rate

such a scenario, there could even be a negative

will gradually converge towards the Fed's target in an

impact on the the consumption behavior of high-optimistic scenario. Nevertheless, given that theincome households, which has been strong so far due

adverse impact of the cumulative interest rate hikes toto the asset effect. If a rapid economic downturn

date are now manifesting in parts of the US economy,

occurs, the market may press the Fed for significant

we believe these effects will become more widespreadinterest rate cuts, causing bond yields to decline

and lead to an economic slowdown.

further.

Although signs began to emerge in June, once the14NAM Investment Outlook Summer 2024

US dollar depreciation trend expected
The Fed’s shift towards interest rate cuts is expected

One risk associated with this scenario is the potential

to lead to depreciation of the US dollar. US monetary

divergence in monetary policies if other central banks

policy is among the most important factors thatcut policy rates more significantly than the Fed,

influence the currency market. From the middle ofleading to wider market awareness of the policy

2021 to the second half of 2022, the US dollar

divergence. For example, if the ECB, which cut rates

strengthened, primarily in anticipation US interest rate

at its June regular meeting, adopts an exceptionallyhikes that began in March 2022. With the Fed now

accommodative stance compared to the Fed, it could

movingarelead to a scenario of a weaker euro alongside a

expectations that this trend could reverse, leading to a

towards

stronger US dollar. However, given that a weaker euro

new trend towards a weaker US dollar. In addition,

could fuel inflationary pressure in the Eurozone

consideringfactorthrough increased import prices, and considering thatthepolicyexternal

rate

cuts,

balance

as

there

a

influencing longer-term exchange rate movements,

the ECB might not have absolute confidence inthe significant current account deficit in the US is likely

completely taming inflation, there may be limitations toto exert downward pressure on the US dollar.

the extent of policy divergence.

With rates moving in opposite directions, will BOJ policy cause a yen rebound?

While major central banks elsewhere are moving

Figure 3. JPY/USD and USD/EUR Trends(Jan. 2, 2020 – Jun. 14, 2024, daily)

towards rate cuts, the BOJ is expected to continue
exploring monetary normalization and rate hikes. The
BOJ's persistent and extensive monetary easing(JPY/USD)

measures have resulted in significant widening of

170

interest rate differentials between Japan and other160

large economies, with the value of the yen sinking asother central banks raised interest rates. Looking

150

ahead,

140

rapid

narrowing

of

these

interestrate

differentials could trigger a significant rebound in theJapanese yen.

130

However, such a reversal is not guaranteed. Due to120

deteriorating trade balances and sluggish productivity,

110Japan is structurally less prone that it has been in the100
Jan-20past to experiencing significant currency appreciation.
Even if interest rate differentials shrink, it is important
to be aware that there may be less risk of a substantial(USD/EUR, inverse scale)
0.95

JPY/USD (LHS)
USD/EUR (RHS)

1.00
1.05
1.10
1.15
1.20

Jan-21

Jan-22

Jan-23Jan-24

1.25

Source Nomura Asset Management based on Bloomberg data.

strengthening of the yen.

* This material contains personal views and does not necessarily reflect Nomura Asset Management house view.

15

NAM Investment Outlook Summer 2024

J-REIT Market Outlook
The market environment has entered a phase that requires
investment strategies that respond to inflation

Tomoyuki Nobuhara
Senior Portfolio Manager

Domestic long-term interest rates are moving in an upward trend
The Bank of Japan implemented a financial policy

Figure 1. TSE REIT Index and US 10Y T-Note Yield（Jan. 2005 – May 2024, monthly）

change in March of this year, which included thereversalofthenegativeinterest

rate

policy.

Furthermore, as additional monetary policy changes(Points)
3,000

such as reducing the amount of government bond

TSE REIT Index (ex. Div.) (LHS)

(%)
2.5

US 10Y T-Note (RHS)

purchases and additional interest rate hikes wereconsidered, domestic long-term interest rates havebeen on an upward trend. The rise in interest rates
could lead to a decrease in the attractiveness of REIT
dividend yields compared to government bond yields
and an increase in borrowing costs, making it a cause
for concern in the short term. However, if the interest
rate rise is accompanied by healthy inflation, there is a

2,500

2.0

2,000

1.5

1,500

1.0

1,000

0.5

500

0.0

high possibility of realizing an increase in rents for

0

REIT properties, so there may not be a need to'05 '07 '09 '11 '13 '15 '17 '19 '21 '23

excessively worry about it in the medium term.

-0.5
(Yr)

Source: Nomura Asset Management based on QUICK data

Strong performance of sectors with expected rent increases
In an environment where inflation trends are firm andinterest rates are rising, it is expected that easing cost

Figure 2. J-REIT Sector Return(2024 YTD, Dec. 29, 2023 – May 31, 2024)

increases by raising rents on owned properties will beeffective. On the contrary, sectors and shares where10%

rent increases are not expected may find it challenging

8%

to maintain profits and may be less valued in the6%market. Upon reviewing the sectoral returns since the4%

beginning of 2024, the Hotel and Resort sectors and2%

the Residential sector have been performing well. The
Hotel and Resort sector has shown improvements in

0%

occupancy rates and room rates, leading to an-2%increase in rents received by REITs. The Residential-4%

sector has also seen rents rise due to environmental-6%

improvements. While the return of the Office sector
remains negative, the market itself is showing signs ofrecovery.

Note: Market capitalization weighted average, industry classification by GICS
industry subsector classification.
Source: Nomura Asset Management based on Bloomberg data

16

NAM Investment Outlook Summer 2024

Office market conditions are expected to recover.
In 2023, the office vacancy rate remained high in the

Figure 3. Tokyo Business District Office Market

mid-6% range due to the large supply of new office(Jan. 2001 to May 2024, monthly)buildings. However, as companies consider new officeleases from the perspectives of increasing in-person(%)

work rates and securing talent, the demand for office10

space is increasing. Since the beginning of 2024, theoffice vacancy rate has decreased to the mid-5%
range, and rents have started to rise from their lows.
With a decrease in the expected supply of new officebuildings in 2024, a continued recovery in demandshould lead to a decrease in vacancy rates. Owners ofoffice buildings are also starting to negotiate rent
increases with a more bullish stance compared tobefore.

(JPY/
Tsubo)

Average Rent (Tokyo Business District,
RHS)
Average Vacancy (Tokyo BusinessDistrict, LHS)

25,000924,0008

23,0007

22,0006

21,0005

20,0004

19,0003

18,0002

17,0001

16,0000
Jan-01 Jan-05 Jan-09 Jan-13 Jan-17 Jan-21

15,000Source: Nomura Asset Management based on data from Sanki Shoji

Hotel and rental housing rents are increasing.
Figure 4. Consumer Price Index(Tokyo metropolitan area/ by item)(Jan. 2019 - May 2024, monthly yoy)

The hotel sector has not only recovered to prepandemic levels in domestic demand but has also
seen a surge in inbound demand supported by thedepreciation of the yen. As a result, accommodation80%

prices have significantly increased. In the Residential
sector, rents have been on the rise due to the revival

0.8%

Hotel Charge (LHS)
House Rent, Private (RHS)

60%

0.6%

of population inflows to urban areas and an increasein tenants choosing rental housing as a result ofsoaring prices of condominiums. In these sectors,
cost increases due to inflation and rising interest
rates are being mitigated by increasing cash flowfrom owned properties. In the future, investment
strategies that respond to inflation will be required in
the entire REIT market, and while some sectors havealready implemented such strategies, there are

40%

0.4%

20%

0.2%

0%

0.0%

-20%

-0.2%

-40%
2019

expectations for the spread to other sectors.

2020

2021

2022

2023

-0.4%
2024 (Yr)

Source: Nomura Asset Management based on based on data from the Statistics
Bureau of the Ministry of Internal Affairs and Communications (https://www.estat.go.jp/).

17

NAM Investment Outlook Summer 2024

Global Financial Market Forecast
2024
Q1

2025

2022

Q2

Q3

Q4

Q1

Q2

F

F

F

F

F

2023

2024

2025

F

F

Real GDP

World

*1,*4

2.8

2.8

2.5

2.5

2.4

2.5

2.9

2.9

2.6

2.5

(qoq, ann, %)Developed

*2

1.1

2.0

1.5

1.6

1.7

1.7

2.6

1.7

1.6

1.7

Emerging

*1,*3

4.8

4.4

4.0

3.9

3.7

3.8

3.4

4.6

4.3

3.7

United States

1.3

2.6

2.0

2.0

1.9

1.8

1.9

2.5

2.5

1.9

Eurozone

1.3

1.3

0.8

0.9

1.2

1.3

3.5

0.6

0.7

1.1

Japan

-1.8

1.5

2.8

1.0

1.2

1.0

1.0

1.9

0.1

1.3

China

*1

5.3

5.2

4.8

4.4

4.1

4.1

3.0

5.2

4.9

4.1

CPI

World

*4

3.4

3.6

3.5

3.5

3.1

2.9

7.0

4.4

3.5

2.8

(yoy, %)Developed

*2

3.0

3.0

3.0

2.9

2.7

2.4

7.5

4.7

3.0

2.3

Emerging

*3

4.0

4.5

4.4

4.3

3.9

3.7

6.2

3.9

4.3

3.5

3.2

3.4

3.4

3.1

2.7

2.5

8.0

4.1

3.3

2.5

United States
Eurozone
Japan

2.6

2.5

2.4

2.6

2.4

2.2

8.4

5.4

2.5

2.1

*5

2.5

2.3

2.1

2.2

2.8

2.6

2.3

3.1

2.3

2.4

0.0

0.5

1.0

1.6

1.4

1.7

2.0

0.2

0.8

1.2

Policy Interest Rate

United States

China
*6

5.50

5.50

5.50

5.25

5.25

5.00

4.50

5.50

5.25

4.50

(%)

Eurozone

*6

4.00

3.75

3.50

3.25

3.00

2.75

2.00

4.00

3.25

2.25

Japan

*6

-0.10

0.10

0.25

0.25

0.25

0.50

-0.10

-0.10

0.25

0.50

China

*6

3.45

3.45

3.45

3.45

3.45

3.45

3.65

3.45

3.45

3.45

4.20

4.40

4.40

4.30

4.10

4.00

3.87

3.88

4.30

3.90

10-Year GB Yield

United States(End of Period, %)Germany

2.30

2.50

2.50

2.40

2.20

2.10

2.57

2.02

2.40

2.00

Japan

0.73

1.06

1.10

1.10

1.10

1.20

0.42

0.61

1.10

1.20

Equity Index

S&P500

5,254

5,460

5,610

5,740

5,920

6,090

3,840

4,770

5,740

6,450

(End of Period, Point)

EURO300

2,031

2,032

2,070

2,100

2,140

2,180

1,678

1,889

2,100

2,260

TOPIX

2,769

2,810

2,790

2,820

2,870

2,880

1,892

2,366

2,820

3,060
1,200

MSCI EM ($)

1,043

1,086

1,110

1,120

1,140

1,160

956

1,024

1,120

Currency

USD/EUR

1.08

1.07

1.09

1.10

1.11

1.12

1.07

1.10

1.10

1.13

(End of Period)

JPY/USD

151.3

160.9

156.0

154.0

152.0

148.0

131.9

141.0

154.0

146.0

JPY/EUR

163.5

172.4

170.0

169.0

169.0

166.0

140.8

155.7

169.0

165.0

RMB/USD

7.23

7.27

7.30

7.20

7.20

7.10

6.95

7.09

7.20

7.10

2022
Currency(Per USD,
End of Period)

Policy Interest Rate
(%)

2023

2024

2025

F

F

INR
IDR
BRL
MXP
ZAR
TUR
India
Indonesia
BrazilMexicoS. Africa

82.7
15,568
5.3
19.5
17.0
18.7
6.25
5.50
13.75
10.50
7.00

83.2
15,397
4.9
16.9
18.3
29.5
6.50
6.00
11.75
11.25
8.25

84.0
15,400
5.0
18.5
18.0
40.0
6.25
6.00
10.25
10.75
8.00

82.0
15,600
5.2
18.6
17.5
54.0
6.00
5.00
9.00
8.50
7.00

Turkey *6

9.04

42.50

50.00

50.00

Note: Forecast as of June 24, 2024. 1) YoY, 2) GDP weighted average of US, Eurozone, Japan, UK, Canada, Australia, 3) GDP weighted average of China, India,
Brazil, Korea, Taiwan, Indonesia, Thailand, Malaysia, the Philippines, Hungary, Poland, Russia, Turkey, Mexico, and South Africa, 4) GDP weighted average of 2)
and 3), 5) core consumer price, 6) for Japan the policy interest rate imposed on the current account deposits held by financial institutions at the Bank of Japan, for the
US the upper limit of the FF target range, for the Eurozone the central bank deposit interest rate, for China the 1-year loan prime rate, for Turkey, weighted averagefunding ratio of the central bank, *As for forecast columns, actuals are prioritized if available.
Source: Oxford Economics, Bloomberg, and Nomura Asset Management

18Index Hedge Clause
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Index values, marks, and trademarks related to the Tokyo Stock Price Index (TOPIX) are the intellectual property of JPX
Market Innovation & Research, Inc. and its affiliates (hereinafter referred to as “JPX”). JPX retains all rights related to thecalculation of the index, releases of its values, and its usage, in addition to rights related to all relevant know-how, marks,
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