April 2, 2024 — Institutional investors are shifting their attention and trade commission payments back to Japanese equity research in the face of a long-awaited surge in Japanese stocks. This is welcome news for Japanese brokers and research providers, who are hoping for a sustained rebound in revenues after decades of weakness.

On February 22, 2023, the Nikkei 225 climbed to 39,098, topping its previous high of 38,915.87 reached on December 29, 1989. That record-breaking performance followed a 28% gain in the benchmark in 2023—the fastest expansion in a decade.

The rally in Japanese equities is driven by a host of factors, including a weak yen, strong corporate earnings growth and key regulatory and governance reforms that encourage listed companies to boost valuations and earnings and to unwind “cross-shareholding,” or the equity stakes large Japanese companies hold in each other.

These tailwinds have attracted attention from Warren Buffett and other international investors, with resulting foreign investment flows helping drive up equity valuations. 

“Bullish forecasts for the economy and corporate profits for the remainder 2024 have convinced institutional investors in Japan that domestic equities are worth a much closer look,” says Parijat Banerjee, Head of Asia-Pacific at Coalition Greenwich and co-author of Stock Market Rally Drives New Demand for Japanese Equity Research.

Rising Demand for Research, and Research Providers
Coalition Greenwich asked the institutional investors participating in the annual Japanese Equity Investors Study to identify how they use the commissions paid to brokers on trades of Japanese equities across research, sales trading and execution, broker capital commitment, and other factors. In the 2023 results, these institutions, which represent a sample of the biggest and most active investors in the Japanese stock market, increased their allocation to research, advisory services, sales coverage, and corporate access by 11 percentage points, to 55% of the total spend.

“While Japanese institutional investors overall have reduced the number of research providers, they use every year since 2019, they are now projecting an increase in 2024,” says Tarun Hariharan, Research Manager at Coalition Greenwich and report co-author. “As the year unfolds, we will be watching to see if this continues and whether it will translate to increased execution spend and a boost in revenues for brokers and other research providers.”