Japanese Equities - A Global View from Europe

Japanese equities can attract global investors as a diversifier from crowded U.S. and AI exposures, but a durable rerating depends on clearer corporate portfolios and capital-allocation plans.

• Nomura’s Project BRIDGE held seminars and one-on-one meetings with investors in London, Geneva and Madrid; participation appeared higher than the previous year, while Madrid investors generally had limited exposure to Japanese equities.
• Investors were divided on whether Japan offered diversification from U.S. AI concentration or represented another leg of the same trade, especially after the sharp fall in CoreWeave shares; some investors who had turned positive on Japan had since returned to neutral.
• Repeated questions concerned the effects of higher rates, the yen’s direction, energy markets, corporate profits and household behavior, although investors generally viewed Japan’s economy and earnings as resilient.
• Corporate reform is moving beyond shareholder returns toward portfolio reshaping and growth investment, with shareholder activism and private equity increasing pressure on companies to reconsider their assets, competitive scope and capital allocation.
• Nomura’s comparison of JPX 150 and S&P 500 companies found operating margins of 20.2% for large-focused Japanese companies and 20.7% for large-focused U.S. companies, versus 11.4% and 19.4% respectively for large-diversified companies; the samples were dated August 23, 2024, and October 6, 2024.

Takeaway: Japanese equities may benefit as investors reassess U.S. and AI concentration, but companies must explain more clearly what they will retain, divest and fund; the article presents this as a potential catalyst rather than a guaranteed market outcome.