Daily Commentary

MarketMinder’s View: Private equity is a category we have been watching for a long time for potential excess and capital misallocation that could threaten stocks if its problems were to spill over. As this article details, it has struggled all year. Returns are weak, more clients want to get out than in, higher interest rates are making fundraising difficult and funds have had difficulty selling portfolio companies to realize returns and meet redemption requests. Many have resorted to selling companies to one another, basically playing hot potato. The excess is getting squeezed, and the industry is in a big reset. And yet, this has all happened against the backdrop of a continued stock bull market. Private vehicles’ struggles haven’t spilled over. Investors haven’t resorted to selling more liquid holdings to meet cash needs. So far, at least, there doesn’t appear to be much of a transmission mechanism to the broader market. Perhaps that changes if the industry’s troubles worsen and liquidity needs get more acute. However, for now, this is a good reminder that extant risks, on their own, isn’t enough to derail a bull market. In this case, investors appear to be managing the risks. (Oh and given this article mentions several companies, a friendly reminder that MarketMinder doesn’t make individual security recommendations, and we highlight this for the broader theme only.)

MarketMinder’s View: We often note that gridlock is generally positive for markets because it reduces legislative risk. Sometimes it leads to major initiatives getting scrapped. Sometimes it sands them down into something less disruptive. The latter is the case here, and it is an example of intraparty gridlock providing this balance. In the UK’s 2024 Budget, Chancellor of the Exchequer Rachel Reeves and Prime Minister Keir Starmer broadened the inheritance tax (IHT) dragnet. One measure, designed to curb a tax avoidance strategy reportedly used by some very wealthy folks, cut the IHT exemption on farms to £1 million. Perhaps sound logic, but it risked catching a boatload of family farms, causing a huge backlash. And now, after a year of testimonials from farmers and persistent urging from backbench Labour Members of Parliament (MPs), the government is making a partial U-turn and raising the threshold to £2.5 million. “The climbdown is the latest policy U-turn by Reeves. The government previously abandoned plans to axe winter fuel allowance for most pensioners and ditched mooted cuts to disability benefits after a parliamentary backlash. The change means married couples with estates of up to £5m will now pay no inheritance tax on them, as they can combine two £2.5m allowances. It will cost the exchequer £130m, meaning the changes are still expected to raise nearly £300m a year.” Now, agricultural policy generally has little to do with stocks. At its core, this was a personal finance and estate planning issue, not something directly related to returns. Yet the change could help reduce uncertainty and improve sentiment by easing a major pain point, which can benefit markets indirectly.

MarketMinder’s View: This is kind of three articles in one, so here is a loose ranking of its topics. The look back at Japan’s 2025 stock returns is handy, and indeed, it is noteworthy returns in yen and dollars didn’t diverge. Maybe this will help put to bed the notion that Japan’s stocks and economy depend on a weak yen boosting exports (it doesn’t, as exports’ frequent weakness in volume terms when the yen is weak demonstrates). The look forward at 2026 returns is very meeeeeh and boring, focusing on widely known factors. We don’t dismiss Japan’s positives, but returns depend more on global factors and whether expectations are too high. The more attention its economic drivers get, the more those get priced in, making it vital to take a deeper and wider-ranging look when forecasting. Which brings us to the most sensible and useful piece of the article: Its debunking of global concerns about Japan’s high debt. While everyone is concerned about new Prime Minister Sanae Takaichi’s supplemental budget raising the deficit, Japan has plenty of bandwidth to absorb it. And not just because faster GDP growth has cut the debt-to-GDP ratio. That is an apples-and-oranges comparison. More important is that Japan can easily service its debt. “For one thing, the average duration of the government’s debt outstanding is relatively long at over nine years, according to Fitch Ratings. That compares with around six years in the U.S. So movements in bond yields will have only a gradual impact on financing costs as already-issued debt takes a long time to roll over. And Japan’s Ministry of Finance earlier this year cut its planned issuance of ultralong-term debt that has seen the greatest rise in rates.” With interest payments’ share of tax revenues already down in recent years, Japan’s fiscal footing seems just fine. For more, see our 12/11/2025 commentary, “Why Rising Japanese Bond Yields Aren’t Bearish.”