Citi believes that the sharp decline in the Japanese stock market in early November already reflects expectations of a recession that far exceeds fundamental expectations, and the market is expected to gradually rebound by the end of 2026. According to Citi's estimates, according to the closing price on November 6, the implied earnings per share forecast in the Japanese stock market is about 20% lower than the current market's consensus forecast, which is equivalent to a possible drop of nearly 30% in overall corporate profits in the 2027 fiscal year; the implied profit decline in the technology sector is more than 50%. Citi pointed out that such a drastic decline in profits usually only occurs during economic recessions, and it is currently not expected that Japan or the global economy will fall into recession. Technology stocks only account for about 23% of the Eastern Stock Exchange Index. Even if their profits are halved, as long as other industries remain stable, it is difficult to cause overall profits to drop by 30%. Therefore, the current stock price has actually taken into account the situation where the profits of companies outside the technology industry deteriorate drastically, and the market reaction is clearly excessive. Citi believes that although short-term fluctuations may continue, the Japanese stock market is expected to recover before the end of the year as pessimistic expectations are revised.

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