The overlooked opportunity: Japan small- and mid-caps

Japan equities hit another record high in March, and many factors currently support the country’s stock market: ongoing corporate reforms, supportive fiscal and monetary policies, and the fact that Japanese stocks remain relatively cheap compared to their global peers. Within the market, Japan small- and mid-caps present an attractive opportunity that is, however, often overlooked, says Eastspring Investments.

Max Godwin, Portfolio Manager at Eastspring says that small- and mid-caps are the largest potential beneficiaries of the Tokyo stock exchange (TSE) reforms. “Unlike the large caps, the momentum has not taken off for Japan’s small to mid-caps (SMIDs). But once it does, it can offer equally attractive returns,” says Godwin.

“We believe the impact of the TSE reforms will be a key trigger to unlock value in the SMIDs. There are far more of them in terms of absolute numbers of companies in the small to mid-cap space compared to large caps. A higher proportion of SMID stocks are trading below book compared to large caps,” he adds.

As per Eastspring, hundreds of Japanese SMIDs have solid balance sheets with net cash to market capitalisation as high as 70%.

Read the full insight at eastspring.com/lu.