A growing focus on shareholder returns

Japan (Long/Short) Equity: Outlook 2026

December 2025 | Arcus |

The one question that clients and investors could ask in 2026 is:

We would respond that after a strong 2025 for global equities, we acknowledge that there are clear areas of the market that are overvalued. There has also been a narrowing of the valuation dispersion between growth and value. However, in Japan, we see a significant disparity of valuations between the mega and large-cap names versus the mid and small-cap names, where we believe that there are still opportunities.

In 2025 and going into 2026 we believe that the current environment reinforces the importance of active portfolio management. Arcus’s strategy is built around disciplined recycling of capital from successful investments into new undervalued opportunities. This disciplined approach helps avoid extending into expensive holdings and maintains a valuation-sensitive portfolio.

We believe Japan’s stock market remains attractively priced despite improving fundamentals and rising investor interest. Valuations have stayed flat for a decade while earnings per share steadily increased, creating what we consider an opportunity to invest in a developed economy with strong corporate cash flows and structural tailwinds without the usual premium. Compared to US and European markets, Japanese equities offer, in our opinion, a compelling mix of modest valuations, solid asset quality and reform-driven momentum. In 2025, we believe Japan stood out as one of the few major economies where genuine value was still accessible, and heading into 2026, the asset class appears well-positioned for strong performance.

Corporate governance is evolving, with mandates from the Tokyo Stock Exchange driving meaningful change. Share buybacks have surged 85% in 12 months*, reflecting a growing focus on shareholder returns. Rising wages and inflation mark a clear shift from the deflationary past, while the Bank of Japan’s cautious approach to tightening supports steady growth. Foreign investors are re-engaging, drawn by Japan’s relative stability, and institutional interest is climbing, particularly in overlooked small and mid-sized companies with high alpha potential.

GAM partners with Arcus to distribute its Japan (Long/Short) Equity Strategy.