Japanese equities have been the star performer since September - rising more dramatically than their global peers in a response to a perceived thaw in U.S.-China trade tensions. Yet we maintain our underweight on Japanese equities: They are particularly vulnerable to a growth slowdown in China, and we see no sustained letup in the protectionist push. Yet the recent rally offers a preview of the potential upside in Japanese equities if trade tensions were to fade substantively and growth to reaccelerate.
Japan has been the best performer in major equity markets since midyear. The MSCI