Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. >> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 12 to 14. The Flow Show Rising Suns & Setting Suns Scores on the Doors: US dollar 2.1%, crypto 2.0%, oil 1.3%, cash 0.2%, commodities -0.4%, HY bonds -0.8%, IG bonds -1.7%, stocks -2.0%, gov bonds -2.8%, gold -3.2% YTD. Zeitgeist: "Foreign brokers tell me Nikkei in '24 will do what Nvidia did in '23, while Japanese brokers tell me Nikkei will do what China did in '23" – global investor on Japan. The Biggest Picture: Nikkei at 34-year highs, China at 2008 GFC lows (Chart 2 – Nikkei was 7k at GFC low, now 36k); true bull in Japan when yen up, stocks up, but in ’24 its prospect of deeper yen depreciation that amps the bulls (note leadership shifting from asset reflation plays i.e. banks to weak yen plays i.e. exporters), plus Nikkei beneficiary of ABC "anywhere but China" liquidity and investors structurally underweight (Japan = 5.5% of ACWI vs. 44% in 1989 – Chart 3). Tale of the Tape: sellers strike in IG, tech, Japan but Jan price action in everything else “sloppy” as bond yields move back up on labor market (US unemployment claims at 50-year lows), deficits & politics; UST 10-year >4¼% and further US dollar strength thus negative in lightly positioned market but market still pricing in 140bps Fed cuts in '24, and zeitgeist firmly buy-the-dip as Powell pivot means H1 upside bigger than downside. The Price is Right: new 10-year UST trading range 3¾% to 4¼%, investors revert to "own” growth, tech, AI-bubble, monopolies (new highs in Magnificent Seven) and resume "buyers strike" in banks, REITs, small cap, leverage; continues until range breaks; note Jan stumble in long duration renewables, biotech hints breakout ultimately >4¼%. Chart 2: Rising Suns & Setting Suns Japan stocks (Nikkei 225) vs China stocks (Hang Seng China Enterprises) Source: BofA Global Investment Strategy, Bloomberg BofA GLOBAL RESEARCH 100040007000100001300016000190005000100001500020000250003000035000'03'05'07'09'11'13'15'17'1...
