Japan Strategy Q326: The bright spot in the region - Ample opportunities for value & growth managers

研报英文原文证据摘录

Japan Strategy Q326: The bright spot in the region - Ample opportunities for value & growth managers

23 July 2026

Asia Quantitative Strategy

Japan Strategy Q326: The bright spot in the region - Ample

opportunities for value & growth managers

Japanese equities delivered robust returns in 1H26 with MSCI Japan up 16% and NK225 Rupal Agarwal

+65 6326 7641 up 29%. While markets have been under pressure in July, we believe Japan still remains a

rupal.agarwal@bernsteinsg.com bright spot within the region with reasonable valuations, broad-based earnings upgrade

cycle, strong foreign investor sentiment and AI+non-AI opportunities.

Cheng Zhang, CFA, CQF

+852 2123 2636 Valuations, earnings, flow remain supportive: The market has de-rated from 17x fwd. cheng.zhang@bernsteinsg.com

PE to 14.9x ie. 10yr avg levels. Outside of KR/TW, Japan has been the only big Asian market

seeing a broad-based upgrade cycle (see Asia Quant Strategy Deck) with most sectors

seeing net upgrades. The trends look most positive for Healthcare, Materials, Financials,

Tech, and Industrial; though earnings expectations for Tech, Financials, Industrial are now at

record high. Japan has been the most favored Asian market this year, seeing +57.5bn USD

of FII flow and global active funds have reduced their UW from -1.6% in Jan26 to -0.48%

by May26. We expect foreign investor sentiment to be supportive and more recently, even

retail sentiment seem to be coming back.

Domestic vs. exporters. We have been recommending balanced exposure across

exporters and domestics. While 1H exporters outperformed domestics (35% vs. 20%),

more number of domestic sectors have done well such as Banks, Insurance, Retailing,

Materials, Commercial & Pro services and F&B. Domestics continue to offer stronger