日本2026年第三季度策略：区域亮点，价值与成长管理人机会充足

Japan Strategy Q326: The bright spot in the region - Ampleopportunities for value & growth managers Japanese equities delivered robust returns in 1H26 with MSCI Japan up 16% and NK225up 29%. While markets have been under pressure in July, we believe Japan still remains abright spot within the region with reasonable valuations, broad-based earnings upgradecycle, strong foreign investor sentiment and AI+non-AI opportunities. Rupal Agarwal+65 6326 7641rupal.agarwal@bernsteinsg.com Cheng Zhang, CFA, CQF+852 2123 2636cheng.zhang@bernsteinsg.com Valuations, earnings, flow remain supportive:The market has de-rated from 17x fwd.PE to 14.9x ie. 10yr avg levels. Outside of KR/TW, Japan has been the only big Asian marketseeing a broad-based upgrade cycle (see Asia Quant Strategy Deck) with most sectorsseeing net upgrades. The trends look most positive for Healthcare, Materials, Financials,Tech, and Industrial; though earnings expectations for Tech, Financials, Industrial are now atrecord high. Japan has been the most favored Asian market this year, seeing +57.5bn USDof 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, evenretail sentiment seem to be coming back. Domestic vs. exporters.We have been recommending balanced exposure acrossexporters 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 strongerrevenue growth (23% vs 12% for exporters), higher dividend yield (2.2% vs. 1.7%), buybackyield (1.3% vs 0.5%) and cheaper valuations; however, exporters have superior ROE(11.2% vs. 9.3%) and better relative earnings revisions. Given these mixed signals, wemaintain our preference for both exporters and domestics, though we believe the case fordomestics is improving as extreme weak Yen support for exporters is largely behind us. Industry outlook.We remain positive on tech sector with a preference towards chasingmomentum names selectively but also diversifying into undervalued opportunities. See-Japan Tech Strategy 3Q26. Based on our updated industry scorecard and its historicalefficacy, we recommend being positive on Capital Goods, Banks, Diversified Financials,Insurance, Energy and Household & Personal products while being cautious towardsPharma, Transportation, F&B, Food & Staples Retailing and Software & Services. Style positioning.We maintain our value and growth barbell. Leadership in 2026 hasbeen driven by growth/momentum factors, while quality, low volatility and small Capshave lagged. While Japan momentum has not been as vulnerable as TW/KR momentum;the high correlation of the AI trade has created pressure on Japan momentum basket aswell. Instead of taking direct momentum exposure in Japan, we have been chasing nameswhere momentum is likely to increase; which is growth stocks on price momentum aspectand value stocks on earnings momentum. Both these baskets are cheap and while growthstocks are looking better on continued upward revisions, value has dropped to extremebearish sentiment which is likely to bottom. Value also has the macro tailwind from rate hikecycle. We believe large-cap leadership is likely to continue given better earnings support,however, opportunities within small/mid-caps are also emerging.We show our preferredscreens in Exhibit 29–Exhibit 30. DETAILS PERFORMANCE SO FAR Japanese equities delivered robust returns in 1H26 with MSCI Japan up 16% and NK225 up 29%. Since April, NK225 surgedahead of Topix/MSCI Japan, implying strong large-cap leadership. Within Japan, AI theme has been a key driver with Semisup 101% followed by Tech Hardware up 58%. However, even domestic sectors like Banks, Insurance have done well alongwith Commercial & Pro Services. The worst hit industries have been Food & Staples Retailing (-29%) and Software & Services(-23%). 1H26, exporters have done better, up 35% vs. domestics up 20%. In Jul, however, Domestics (+4%) outperformedexporters (-6%). From factor perspective, GARP (+28%) has been the winning factor in Japan in 1H26 relative to the market,followed by Growth (27%), price momentum (18%) and earnings momentum (16%). The worst styles in 1H26, have beenquality, low vol and small-caps, down -14%, -14% and -13% respectively vs. market. In Jul MTD, Low vol (6%), value (6%), highyield (6%) outperformed while momentum (-14%) saw sharp unwind followed by growth/GARP (-4%/-8%). Within Tech sector,1H 2026, GARP (35-47%) led followed by Momentum with 29% returns relative to market. Other styles other than momentumand growth have underperformed the market, and ROIC (-18%) and Low vol (-21%) saw the weakest performance. In Jul, highyield (+5%) has outperformed the most. (Exhibit 1-Exhibit 5) VALUATIONS, EARNINGS AND SENTIMENT Japan market saw sharp de-rating since June, dropping from