Small-caps said to offer key to Japanese stock growth

Japanese stocksJapanese small-cap stocks, which tend to serve the domestic market, may offer greater potential for returns than large, export-oriented firms, said a fund manager. Thanks to a weak yen, Japanese exporters have enjoyed profits in recent years, causing their share prices to rise. But as the country embarks on the next step in its economic plan, which is an initiative to boost wages, domestic demand is expected to rise and thereby spur profits at companies serving the local market. Stefanie Mollin-Elliott, fundamental analyst, equities at Unigestion said, “small cap stocks, with their domestic focus, have been strongly outperforming large cap over the past 18 months. With the Japanese economy on the right track with real wage gains driving domestic demand beginning to be reported, small cap, domestically focused stocks are best positioned to benefit.” The analyst said small Japanese companies are less closely watched by analysts than their peers in the US. About 42% of TOPIX, one of the main indices of the Tokyo Stock Exchange, has no coverage at all, she said. “Currently, domestic-oriented sectors are less profitable than their international peers, whereas exporters are already at par with their competitors,” she added. “This implies that there is much more room for improvement for investors in domestic stocks.” ©2018 funds global asia

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