Domestic Firms Still Dominate Japanese Equity Research

A quartet of local research providers led by Daiwa Securities Group tops II’s All-Japan Research Team — with one global firm cracking the top five.

Daiwa Securities Group headquarters in Tokyo, Japan (Toru Hanai/Bloomberg)

Daiwa Securities Group headquarters in Tokyo, Japan

(Toru Hanai/Bloomberg)

Japan’s top research providers are looking to the future.

At SMBC Nikko Securities, the research team is “keen to cultivate young analysts to write reports and initiate coverage,” according to director or research Takaaki Muramatsu, director of research at SMBC Nikko Securities. He cited this as key to the firm’s innovation plan, and reported hiring several junior analysts to initiate small and growth stock coverage.

“We built a great training system for them,” guided by management, Muramatsu added.

In a competitive domestic field, with the Covid-19 pandemic and distributed workforces entering their third year, investing in young talent can be a key differentiator, said Hidekatsu Watanabe, head of Japan equity research at Mizuho Securities Co.

“While it may be difficult to effectively stand out among the major brokerages, we have been focused on creating collaborative reports and in-depth reports and leveraging IT and virtual seminars in this era of work-from-home,” Watanabe said. “At the same time, I believe we are ahead of the curve when it comes to passing on the baton to the next generation, training our younger analysts, and bolstering their capabilities.”


Clients appear to agree: Mizuho and SMBC Nikko rank among a quartet of domestic firms — led by Daiwa Securities Group and also including Nomura — which top Institutional Investor’s 2022 All-Japan Research Team. More than 1000 directors of research and heads of investment firms with major securities holdings in Japan were asked to rank their top research providers across 32 industry and macroeconomic sectors for the 29th annual survey.

These team rankings closely mirror last year’s results, with Daiwa repeating last year’s No. 1 performance. Mizuho Securities took second, followed by SMBC Nikko Securities in third and Nomura in fourth. JPMorgan Chase & Co. rounded out the top five as the highest-ranking global bank.

These results were weighted by how much each respondent spends in Japanese equity commissions. An additional commission-based leaderboard was produced for a ranking of individual analysts. This differed only slightly from the team results, with Mitsubishi UFJ Morgan Stanley Co. cracking the top five, bumping JPMorgan down to sixth.

Two additional rankings of teams and analysts were also created. These were weighted by each respondent’s assets under management and closely reflected their commission-weighted counterparts.

The consistency in this year’s ranking is in contrast to the “dizzying” trends in the market, according to Mizuho’s Watanabe. This includes investors’ focus on environmental, social, and governance factors, inflation-driven changes in monetary policy, and geopolitical fallout from Russia’s invasion of Ukraine.

“We have been addressing these concerns mainly by bolstering our operations, publishing reports, and holding seminars on these topics,” Watanbe said. Mizuho also reported strengthening its ESG coverage this year, something that SMBC Nikko has also focused on, according to Muramatsu.

“Analysts have to be more capable to discuss ESG matters with top management,” he said.

Muramatsu believes his firm has a competitive edge due to the quality of its in-depth and monthly strategist reports led by chief strategist Masashi Akutsu, which cover all sectors. “This type of collaboration is our key element of differentiation,” he said.

The Covid-19 pandemic and subsequent variants such as Omicron have affected Japan and its economy significantly, “but at the same time Covid can accelerate change of Japan, which had been very slow,” Muramatsu said. “So I expect Japan will innovate post-Covid.”

Watanabe said the variants’ impact on the Japanese economy has differed from that of the West, where the emergence of the highly contagious, but milder viruses has accelerated the economic reopening. “In contrast, these variants have been given as the reason for bolstering movement restrictions in Japan (and China), which still have a zero-tolerance stance on Covid-19,” he said. “As a result, the recent resurgence of Covid-19 cases has kept earnings strong for longer in sectors that benefit from demand from stay-at-home consumers.”

When it comes to the state of sell-side research, Watanabe reported the general outlook has been pessimistic for some time mainly due to 2019’s MiFID II unbundling rules, the shift to passive investing, and the use of artificial intelligence — all global trends that Japan was not immune to. “Over the past year, the environment does not seem to have changed,” he added. “In my opinion, though, sell-side research has been thriving in terms of quality, quantity, and delivery as the internet has increased efficiencies and reduced costs.”

Looking to the future, this year will likely prove to be an unpredictable one given the geopolitical risks and swings in monetary policy following historical inflation, according to Watanabe.

“Mounting uncertainties represent both an opportunity for the research industry overall as well as a challenge as brokerages have to consider how much they are willing to allocate to research,” he said.