Japan - From Observation to Conviction and Two Quality Investment Ideas Alphinity Investment Management  May 2026 4-minute read

Japan is changing -- and the pace of that change is easy to underestimate from a desk in Sydney. Global Portfolio Manager Chris Willcocks recently completed a week-long investor trip through Osaka, Tokyo, Kyoto and Nagoya, meeting management teams across Industrial, Consumer, Property and Technology companies. The on-the-ground experience reinforced and deepened a thesis already forming in our portfolios. Below we share the highlights from those observations -- and two quality Japanese companies which are in an earnings upgrade cycle. Three forces reshaping Japan Japan's transformation rests on three structural pillars that are now compounding positively for the first time in decades. Each alone would be noteworthy; together, they represent the most significant fundamental improvement recent memory. The End of 40 Years of Deflation Japan has been broadly deflationary for the better part of four decades. Deflation becomes embedded in behaviour; consumers defer purchases, companies avoid price increases and wages stagnate. Japan has now sustained inflation for three consecutive years, and the behavioural shift is tangible. Rail companies are raising fares for the first time in their corporate history. Convenience stores are putting through price increases of up to 50% on select products, with minimal demand destruction. Wages are rising 5-10% at many companies and with poor demographics, job security is high. Inflation Has Finally Arrived & Wages are Keeping Pace Corporate Governance Reform Reaches a Tipping Point Pressure from the Tokyo Stock Exchange to improve capital efficiency and investor returns has been building for ten years and we are now seeing the results. Several companies we met had launched their first-ever share buybacks. Cross-shareholdings are being unwound. Non-core assets are being divested -- with one consumer company even selling its marriage counselling business as part of a strategic clean-up. Others were hosting their inaugural investor days. These may sound like trivial changes, but they reflect a fundamental reorientation towards minority shareholders, and most importantly, they are driving improved returns on equity. A Populist, Pro-Growth Political Mandate Prime Minister Takaichi has secured a strong political mandate to drive her nationalistic, pro-growth agenda. For investors, this matters because it provides policy stability and support for the economic reflation already underway. Taken together these macro forces are driving up asset prices and boosting consumer confidence. You see evidence of this across the cities and financial markets. House prices in parts of Tokyo have appreciated ~40% in six months, the Nikkei has surpassed its 1989 all-time high, inbound tourism is at record levels. There were more Ferraris and Lamborghinis on the streets of Tokyo than we have seen in any city recently. Mirroring global trends, the lower-end consumer is less buoyant, and construction faces increasing cost headwinds, but the broader picture is one of a country regaining its economic confidence. The Japanese stock market in context Against this macro backdrop, the question for active investors is not whether Japan is changing -- it is which companies are best placed to capture that change. Two high quality Japanese companies Alphinity invests in Earnings Leaders -- quality businesses, trading at reasonable valuations, that are entering or sustaining an earnings upgrade cycle. Japan, at this point in its structural reset, is generating exactly that kind of opportunity. The two companies we discuss below are held across our global funds. Fast Retailing -- the Japanese apparel giant behind the UNIQLO brand -- has quietly evolved from a domestic discount retailer into one of the world's most compelling consumer growth stories. Founded in 1949 and listed in Tokyo since 1999, the company today generates ¥3.4 trillion in annual revenue across over 2,500 stores in more than 25 countries, with a long-term revenue target of ¥10 trillion. At the helm is founder Tadashi Yanai, who retains a ~40% stake and remains as deeply invested in the business as ever -- in every sense. A Deliberately Simple Business Model Where brands like Zara carry over 20,000 product lines (SKUs), Uniqlo only sells 4,000 different items -- and this includes multiple colour variants of the same item. This discipline sounds limiting, but it is a strategic strength. Fewer lines mean tighter inventory management, less markdown risk, and structurally higher margins. Uniqlo focuses on what might be called 'technical basics': quality, functional casualwear with limited fashion-season risk and a balanced offering across genders and age groups. A track record of consistent margin expansion with more expected Strong Earnings Momentum Fast Retailing just reported second-quarter results that beat expectations on both sales and margins, across all major geographies. Revenue is growing at close to 15% per annum, driven by robust Japan same-store growth, accelerating store expansion in Europe and the US, and a recovering contribution from China. The Market Is Underestimating the Western Opportunity Uniqlo remains meaningfully underpenetrated in Europe and the United States relative to its footprint in Asia. We believe sell-side analysts are consistently underestimating the long-term earnings potential from this geographic expansion. Ultimately, this is a high-quality global brand in the early stages of becoming a genuine western retail force -- and the market is not fully pricing that in. Mitsubishi UFJ Financial Group (MUFG) is Japan's largest bank by deposits and loans, with significant operations in the US and Southeast Asia. The Core Thesis: Rising Rates Change Everything for Japanese Banks Japanese banks have operated in a near-zero or negative interest rate environment for over a decade. This structurally compressed net interest margins and suppressed profitability. As the Bank of Japan normalises monetary policy -- which is now underway -- the earnings leverage is significant. A sustained shift to positive real rates in Japan is, arguably, the single most powerful earnings tailwind available in global banking today. MUFG, as the largest Japanese bank, is a direct expression of this trade. Quality and Diversification Often Underappreciated MUFG generates approximately 40% of group profits outside Japan -- roughly 20% from the US (excluding a stake in Morgan Stanley), 10% from Korea, and the remainder from Asia and EMEA. This geographic diversification is not always reflected in how the stock is discussed. Corporate governance has also improved substantially: the board now includes 10 non-executive directors, shareholder returns are rising, and the company has a clear target to reduce legacy equity cross-holdings. Valuation Remains Attractive Despite the re-rating underway, MUFG continues to trade at a modest multiple. Improving ROE, rising dividends, and a growing buyback program are catalysts for further re-rating. For advisers seeking broad Japan macro exposure with financial sector ballast, MUFG is our preferred vehicle. MUFG - Strong earnings upgrade cycle underpinned by normalised monetary policy Japan's transformation has been a long time coming -- and that is precisely what makes it compelling. Structural change of this magnitude does not reprice overnight. The combination of persistent inflation, genuine corporate behaviour change, and a politically-supported growth agenda creates the conditions for a multi-year earnings upgrade cycle -- exactly the environment in which Alphinity's investment approach is designed to add value. We will continue to seek opportunities as Japan's reset deepens.

Funds operated by this manager: Alphinity Australian Share Fund , Alphinity Concentrated Australian Share Fund , Alphinity Sustainable Share Fund , Alphinity Global Equity Fund , Alphinity Global Sustainable Equity Fund This material has been prepared by Alphinity Investment Management ABN 12 140 833 709 AFSL 356 895 (Alphinity). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed.

When the Map Changes Mid-Journey Alphinity Investment Management  April 2026 4-minute read

The macro has taken over. Here's how we're navigating it Markets don't wait for certainty. They reprice the expectation. After a strong run into February 2026, led by Materials and Banks, two of the most economically sensitive corners of the Australian market, the landscape has shifted quickly. The Middle East conflict has moved markets from micro to macro almost overnight, raising a familiar and uncomfortable question: what happens to growth from here? The short answer is that it likely slows; certainly, from what expectations were only a few months ago. The longer answer depends heavily on one man, and as anyone watching closely will attest, predicting Trump in the space of a single news cycle is ambitious, never mind longer term. The Australian backdrop is more complicated than most Australia entered this period with a problem most markets didn't have to the same extent: a persistent lift in underlying inflation that had already forced the RBA's hand. Two rate rises into a new cycle, and central bank credibility was already being tested. Consumer confidence had begun to wobble, and spending was pulling back even before the uncertainty and inflation caused by the war was a risk. Now layer on a material rise in petrol prices, supply-side shocks across energy and key commodities, and growing uncertainty about where this end -- and you have a consumer likely under genuine pressure. The RBA finds itself in a difficult position. Raise rates further to fight inflation and you risk choking an already potentially slowing economy. Hold and you risk losing the inflation fight altogether. Neither is comfortable. This is the definition of a stagflationary environment, and the risks are starker in Australia than in many developed markets that this takes hold. The Federal Government's budget will also play a role in dictating how much the interest rate lever will need to be pulled. We don't want to overstate the negatives -- there is still momentum in parts of the economy, companies are on average conservatively positioned, and household balance sheets retain meaningful buffers. But slower growth is now more likely, and the risk distribution has skewed to the downside. The chance of a policy misstep has increased. What we're watching Earnings. Full stop. Australia had a genuinely strong six months of earnings upgrades heading into this period. That momentum is now at risk. We're watching closely for where cost pressures and supply chain disruptions begin to feed through, particularly across the large-cap miners and banks, which have driven the bulk of recent earnings momentum. The good news: market valuations have reset to more reasonable territory (ASX200 & ASX300 now at 17.5x PE forward vs recent highs of 20x). That cushion matters. But it disappears quickly if earnings downgrades follow. We're not there yet, but we're watching. How the portfolio is positioned With genuine uncertainty elevated, this is not the environment for bold, concentrated bets. Instead, we've been making deliberate, measured tilts -- reducing exposure to emerging risks and adding to areas with more resilient earnings • We've taken profits in global and domestic cyclicals -- metals and mining, discretionary, and banks -- where earnings are most exposed to an economic slowdown. In their place, we've added to defensive earnings streams: Staples (Woolworths), Telecommunications (Superloop, Telstra), and Insurance (Insurance Australia Group, Medibank). On Energy, we remain broadly neutral but with a slight tilt toward spot-price and refiner exposure (Woodside and Ampol). Even if the conflict resolves quickly, structural damage to supply infrastructure suggests oil prices are unlikely to return to recent lows anytime soon. We retain a modest overweight to Metals and Mining, but well below recent highs and highly selective in where we're positioned. Where commodity deficits have genuinely widened -- aluminium being a clear example, with the supply gap widening materially since January -- we see better-supported prices and potential for more earnings upgrades (Newmont, Rio Tinto, BHP, Alcoa). REITs remain underweight, with a preference for Charter Hall within the sector. Its high-quality portfolio and strong balance sheet provide relative insulation in a higher-for-longer rate environment relative to the broader REIT sector. Our Technology exposure, while modest, stays at the defensive end of the spectrum -- businesses with durable, recurring earnings streams (Technology One and Life360). The domestic consumer remains at risk with demand growth clearly slowing. Both Business and Consumer confidence slumped during March'26 to levels last seen during the Covid pandemic. We're underweight the Consumer overall -- more so in Discretionary, offset somewhat by an overweight in the more defensive Staples (Woolworths). We've moved to small underweight on Banks, shifting exposure a bit toward Insurance -- a less beta-sensitive part of the sector. Bank valuations look stretched; ex-CBA the picture improves, but recent market moves make even a relative value argument difficult to sustain. The bottom line This is an autumn for patience. The macro uncertainty is real, and we won't pretend otherwise. But uncertainty is not the same as paralysis -- it's an invitation to think carefully about where earnings are genuinely supported and where they are not. We are tilting. Slowly, purposefully. And we will keep tilting in the direction the evidence points. As always, we'll let the earnings do the talking.

Funds operated by this manager: Alphinity Australian Share Fund , Alphinity Concentrated Australian Share Fund , Alphinity Sustainable Share Fund , Alphinity Global Equity Fund , Alphinity Global Sustainable Equity Fund This material has been prepared by Alphinity Investment Management ABN 12 140 833 709 AFSL 356 895 (Alphinity). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed.

Global Equity Outlook 2026: Earnings, Expansion, Excellence Alphinity Investment Management  January 2026 3 minutes read time

As we enter 2026, global equity markets are poised for the next phase of expansion. After a year defined by policy disruption, technological revolution, and geopolitical uncertainty, investors are rightly questioning whether the narrow leadership and momentum-driven returns of recent years can continue. Our view is that 2026 represents an evolution in market dynamics: from surviving tension to capitalising on expansion, from chasing narratives to backing earnings, and from speculative fervour to quality compounding. If 2025 was the year of "Tariffs, Tech, and Tension," we believe 2026 will be remembered as the year of "Earnings, Expansion, and Excellence. Reflecting on 2025: Tariffs, Tech, Tension Last year's market narrative was dominated by three powerful forces. Trump's return to the White House brought immediate focus back to trade policy, creating uncertainty for global supply chains, though corporate earnings ultimately proved resilient. AI infrastructure spending remained the dominant growth narrative, with hyperscalers committing over $200 billion in capex and creating a halo effect across the value chain from semiconductors to power infrastructure. Meanwhile, geopolitical tensions--from ongoing conflicts to monetary policy pivots--kept risk premiums elevated, yet markets demonstrated remarkable resilience with relatively shallow corrections. Judging by the opening weeks of 2026, elements of these three T's appear determined to follow us into the new year. Investors should remember last year's lesson: even in strong years, significant volatility is inevitable. The key is maintaining discipline through the swings rather than reacting to them. 2026 Outlook: Earnings, Expansion, Excellence EARNINGS: A Constructive Global Cycle Broadens The global earnings cycle is exhibiting encouraging breadth and momentum after an extended period of narrow leadership. Earnings revisions are turning positive across regions, with upgrade ratios improving and the percentage of companies seeing earnings upgrades expanding well beyond the mega-cap tech cohort that dominated recent years. Earnings sentiment (diffusion ratio) at a 4-year high with a positive inflection across major regions Technology and Financials continue to lead earnings growth revisions, though they have recently been joined by Materials as higher commodity prices flow through to corporate results. Healthcare, Industrials, and Consumer sectors still lag but are showing signs of stabilisation. Consensus now expects the MSCI World index to deliver healthy double-digit EPS growth of approximately 14.1% in 2026 and 13.8% in 2027. Most major markets are projected to see a rebound in earnings growth over this period, with current laggards like China and Europe positioned to catch up. This broadening earnings picture supports higher equity valuations and reduces the concentration risk that has concerned many investors. Early signs from the 4Q25 reporting season suggest the earnings trajectory remains strong, though market reactions are more subdued as elevated valuations raise the bar for positive surprises. If companies deliver the usual 4-5% beat, this will mark a fifth straight quarter of double-digit earnings growth--a streak not seen since late 2018. Consensus expects strong earnings growth across all key regions in 2026 and 2027 We remain relatively constructive on the outlook for corporate earnings in 2026, which we expect to be supported by generally favourable macroeconomic conditions. Importantly, these supportive conditions are not dependent on a single driver but reflect expansion across multiple fronts. EXPANSION: Multiple Tailwinds Converge The macro backdrop appears constructive across multiple dimensions. Economic growth remains positive, inflation is under control, credit spreads are tight, and both fiscal and monetary policy provide stimulus. The AI capex cycle represents a multi-year growth driver still in early innings, with annual hyperscaler spending expected to exceed $400 billion flowing through to semiconductor manufacturers, data centre infrastructure providers, power utilities, and enterprise software companies. This sustained investment pulse operates largely independent of traditional business cycles, providing a reliable growth anchor for the technology ecosystem. Hyperscaler capex intentions (US$bn) - On track to $500bn in 2026 Consumer fundamentals remain surprisingly robust despite increasing bifurcation. Unemployment sits near historic lows across developed markets, real wage growth persists, and household balance sheets are healthy following pandemic-era deleveraging. The emerging K-shaped pattern--with upper-income households benefiting from wealth effects while lower-income consumers face pressure--creates divergent retail dynamics but hasn't derailed aggregate spending. With consumption representing 70% of US GDP, this resilience provides a critical foundation for corporate earnings. Mergers and acquisitions rebounded sharply in 2025 after hitting 20-year lows in 2023. The catalysts driving this resurgence, lower rates, open capital markets, improving corporate confidence, and more favourable regulation, remain firmly in place. Companies are no longer waiting on the sidelines as they pursue growth and technology capabilities through strategic transactions. Deal activity is forecasted to reach $6.8 trillion in 2026 and $7.8 trillion in 2027*, supported by private markets industry sitting on $4.2 trillion of dry powder (approximately $8 trillion of buying power with leverage), the stage is set for sustained M&A momentum. Across our portfolios, serial acquirers like Amphenol, Parker Hannifin, Motorola Solutions, and CRH continued adding value through disciplined consolidation strategies, while investment banks JPMorgan and Morgan Stanley benefit from elevated advisory and underwriting activity. M&A is back and broadening out EXCELLENCE: Quality's Overdue Mean Reversion Quality as a factor has significantly underperformed over the past 18-24 months, left behind as markets chased momentum, AI narratives, and speculative growth-at-any-price stories. The "risk-on" environment favoured leverage and operational gearing over balance sheet strength, with investors willing to overlook fundamental weaknesses for revenue growth. Mega-cap tech concentration meant AI exposure mattered more than traditional quality metrics like high ROE, low debt, and stable earnings. Sector dynamics compounded the challenge. Quality indices traditionally overweight Consumer Staples and Healthcare--both facing significant idiosyncratic headwinds--while underweighting Banks, which strongly outperformed. Elevated valuations, particularly in Europe, and speculative retail activity added further pressure. AI disruption concerns also weighed on Software, Diversified Financials, and Business Services, all typical quality portfolio constituents. However, conditions now favour mean reversion. Relative valuations between quality and lower-quality stocks have normalized. Sector-specific headwinds are easing. Most importantly, as geopolitical and policy volatility persists, investors are increasingly valuing downside protection. Quality companies--those with sustainable competitive advantages, pricing power, and capable management teams with proven capital allocation track records--are better positioned to navigate uncertainty and deliver consistent returns. In an environment where fundamental differentiation matters again, excellence in business quality should separate winners from pretenders. Quality as a factor had its worst year in decades during 2025 Positioning for 2026 Our portfolios are positioned to capture the broadening earnings leadership while maintaining rigorous quality standards. We combine exposure to secular growth trends--particularly AI infrastructure and healthcare innovation--with established leaders in Financials, select Industrials, and defensive Consumer franchises. The unifying theme is earnings visibility supported by competitive advantages, pricing power, and superior management teams. AI and Technology: We maintain selective exposure across the value chain, balancing opportunity with execution risk. Our Magnificent Seven exposure include Nvidia and Microsoft for their AI leadership and supportive valuations. Beyond mega-cap tech, TSMC offers dominant semiconductor positioning with fortress balance sheet strength, Tencent combines gaming and cloud growth with exceptional cash generation, and Amphenol provides mission-critical connectivity solutions with high switching costs. We remain thoughtful about position sizes given the technology's rapid evolution, uncertain ROI timelines for hyperscalers, and disruption risks to incumbent business models. Financials: Global banks represent our primary cyclical exposure, benefiting from sustained net interest margins, robust capital return programs, and improving loan growth. JPMorgan and Morgan Stanley provide diversified financial services leadership, while NatWest and Caixa Bank offer compelling regional banking franchises in the UK and Spain respectively. Healthcare, Industrials, and Quality Defensives: Boston Scientific and AstraZeneca deliver healthcare exposure through innovation pipelines and R&D productivity. Caterpillar captures industrial recovery with pricing power and durable service revenue. Defensive positions in Coca Cola and L'Oreal (Consumer Staples) offer global scale and solid organic growth. Cyclicals such as CBRE (Real Estate) and CRH (Materials) provide quality characteristics and established competitive moats. This positioning reflects our conviction that 2026 favours portfolios combining secular growth exposure with business quality--companies that can compound earnings through volatility rather than merely benefit from beta. A diversified portfolio of earnings leaders Conclusion The transition from 2025's Tariffs, Tech, and Tension to 2026's Earnings, Expansion, and Excellence represents more than clever alliteration--it reflects our conviction that market leadership is evolving toward a more sustainable foundation. The broadening earnings cycle, supportive macro tailwinds, and quality's likely mean reversion create an environment where active management focused on business fundamentals should generate alpha. The "free money" period for low-quality momentum plays appears to be ending. While volatility and policy uncertainty will undoubtedly persist, portfolios that combine exposure to secular growth trends with an emphasis on earnings certainty, balance sheet strength, and management excellence are well-positioned to deliver superior risk-adjusted returns. For investors willing to look beyond the narrow leadership that dominated recent years, 2026 offers compelling opportunities across a broadening set of quality businesses with genuine earnings power.

Funds operated by this manager: Alphinity Australian Share Fund , Alphinity Concentrated Australian Share Fund , Alphinity Sustainable Share Fund , Alphinity Global Equity Fund , Alphinity Global Sustainable Equity Fund This material has been prepared by Alphinity Investment Management ABN 12 140 833 709 AFSL 356 895 (Alphinity). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed.