Investors chasing Asia’s rise in artificial intelligence may want to look past the region’s strongest stock market and consider Japan instead, Barclays said. South Korea and Taiwan have emerged as the biggest beneficiaries of the AI-driven semiconductor boom, but their stock markets are increasingly concentrated in a handful of chip makers, making them more vulnerable to fluctuations in technology cycles, Barclays strategist Ajay Rajadhyaksha said in a recent note. “The best value in AI may be hiding in Tokyo,” he said, noting that the Japanese market provides exposure to multiple parts of the AI supply chain without relying on a single segment such as memory chips or foundry services. The Nikkei Stock Average has risen about 32% this year, lagging behind South Korea and Taiwan but providing broader sector diversification. Semiconductor companies such as Advantest and Tokyo Electron are among the benchmark’s largest constituents, with other major holdings spanning retail, communications, pharmaceuticals and chemicals. The top 10 stocks account for about 45% of the index, far below the concentration levels seen in Taiwan and South Korea. Samsung Electronics and SK Hynix account for more than half of Kospi, and Taiwan Semiconductor Manufacturing Co., Ltd. accounts for about 40% of ThaiEx. “Kospi and Tyex delivered better returns,” Rajadhyaksha wrote. “The Nikkei 225 is now likely to offer better risk-reward.” Barclays says Japanese companies play a key role in the entire semiconductor value chain, from manufacturing equipment and specialty materials to the production of NAND flash memory. “The Nikkei 225 has a preponderance of stocks that are levered and leveraged around the AI theme. Part of the reason we’re seeing big moves in the Nikkei is because AI stocks are doing well,” said Chetan Seth, equity strategist at Nomura. “And if you look at the biggest stock right now, it’s SoftBank,” Seth told CNBC at the Nomura Investment Forum Asia. “There’s still room in the AI technology rally. Japan should also benefit.” Beyond AI, Barclays believes broader changes in Japan’s economy and corporate sector will help. Governance reforms, increased shareholder returns, accelerated stock buybacks and the elimination of cross-shareholdings are helping to improve capital efficiency, while inflation is rebounding after decades of stagnation and boosting nominal profit growth.
