e e J apalese equities Preference: neutral ) Recommendations Topix (27 June): 745 (last month: 721) . UBS View Topix (6-month target): 780 Tactical (6 months) ; ; ; : } } e The earthquake in Japan and recent ° We expect earnings growth of about 45% over the coming 12 months. This exceptional high growth is floods in Thailand have impacted mainly due to the two natural disasters last year, as well as tax regulation changes which caused a Japanese earnings negatively. A recovery number of one-time losses to be booked in the fiscal year that ended in March 2012. from these disasters should benefit auto e In our base case scenario, we see only limited scope for an additional earnings boost from the local and industrial stocks in particular. economic recovery, given the slowing in export markets. Japanese companies are expected to continue ° We prefer companies that continue cost their cost reduction efforts to counter the impact of a strong yen. reduction initiatives to maintain price ¢ The Japanese government has started implementing its JPY 18tn recovery budget in 4Q 2011, and we competitiveness during the period of yen expect the budget to boost Japanese GDP by 1-1.5% in FY2012. strength. ¢ Mainly due to the earnings rebound, we expect the TOPIX trailing P/E to drop from around 16.5x to 14x Strategic (1 to 2 years) - 14.5x by year end; still the earnings rebound should provide some room for moderate price increases. e A weaker USDJPY may drive Japanese companies’ earnings recovery beyond a 8 Postiive <eenalis Topix (6-month target): 900 technical recovery from natural disasters. — ; - " e Arapidly aging population and the lack ¢ Stronger global demand and stabilizing European markets provide an additional boost to earnings, and of a powerful and stable government also lead to improved risk taking. Falling risk aversion is likely to lead to a weaker yen, providing further remain negative for the country's longer- upside to earnings. TOPIX target is based on 16.0x trai