Japan Equity Strategy: Market Update Conference: Jul 6, 2026

Research evidence excerpt

Japan Equity Strategy: Market Update Conference: Jul 6, 2026

※ Please also refer to “Japan Equity Strategy: 2H 2026 Outlook: Earnings-driven stock rally to continue:

Investment strategy with rising interest rates vs AI growth “(6/30) Jul 6, 2026Equity Strategy (Rie Nishihara/Yong Guo)

Strategy-driven sector allocation and analyst sector outlooks for 2H 2026

◼ The top-down equity investment strategy for the second half of 2026 centers on the theme of “AI growth vs rising interest rates,” with AI/semiconductors and financials continuing

as core portfolio holdings. For non-AI sectors, in addition to financials (which benefit from accelerated rate hikes, increased lending and fee income, or a steeper yield curve), we

expect:

1) Construction, transportation (airlines), chemicals, and defense to benefit if crude oil prices remain stable;

2) The food sector to absorb price increases through summer and anticipate a reduction in the food consumption tax from next April;

3) Recovery in earnings and share prices for autos and defense around interim results in autumn.

We expect these developments to correct the AI-dominated market toward year-end.

◼ The sector outlooks from our analysts for 2H 2026 are as follows:

➢ Consumer Electronics / Industrial Electronics / Precisions: In the second half, we expect a renewed focus on downstream companies in the AI value chain. Sony Group is likely

to see concerns about memory costs and generative AI risks recede, with strong earnings recognized. Hitachi and Mitsubishi Electric are expected to benefit from expansion in data

center infrastructure businesses, and discussions about business models in new markets such as physical AI and cybersecurity will serve as catalysts. (Junya Ayada)