Tokyo Stock Rally, Who Led It? ...Examining the 'Japanese Version of the Magnificent 7'

If the United States has the 'Magnificent 7 (M7),' Japan has the 'Samurai 7 (Seven Samurai).' The seven major companies leading the Japanese stock market, which recently hit an all-time high, include Toyota Motor Corporation and others.

[Image source=Reuters Yonhap News]

On the 22nd (local time), economic media CNBC reported that Goldman Sachs recently named seven companies?Toyota Motor Corporation, Mitsubishi, Advantest, Tokyo Electron, Subaru, Screen Holdings, and Disco?as the Samurai 7, likening them to the Magnificent 7. This name is derived from the 2004 remake of Akira Kurosawa's film "Seven Samurai."

The Magnificent 7 refers to seven major tech stocks listed on the New York Stock Exchange: Apple, Amazon, Google Alphabet, Meta Platforms, Microsoft (MS), Nvidia, and Tesla. These stocks played a key role in the S&P 500 index soaring 24% last year and have a significant influence on market trends. Goldman Sachs selected seven major companies on the Tokyo Stock Exchange that can be compared to these stocks, reflecting the recent rally.

Looking closely at the Samurai 7, the sectors represented include Japanese automobile manufacturers, semiconductor equipment makers, and general trading companies. Goldman Sachs explained the selection criteria as focusing on highly liquid stocks with an average trading volume exceeding $50 million on the Japanese stock market, the best-performing stocks over the past year, and those that have not recorded operating or net losses since 2020. They added that liquidity, performance indicators, and future growth potential were all considered based on data. This year, the stock prices of these seven companies have risen between 23% and 51%.

The first company named by Goldman Sachs as part of the Samurai 7 is Toyota, a representative Japanese company. Toyota, which has ranked first in global sales for four consecutive years, recently became the first Japanese company to surpass a market capitalization of 50 trillion yen. Despite quality certification controversies involving its affiliates, the company’s improved performance supported by a weak yen and purchases by overseas investors have driven this growth. On the day before the Nikkei 225, Japan’s representative stock index, hit an all-time high, Toyota’s stock price also reached a record high. The consolidated net profit forecast for the fiscal year ending March 2023 is estimated to increase by more than 80% compared to the previous year.

The second company selected by Goldman Sachs is Mitsubishi Corporation. As one of Japan’s five major general trading companies, Mitsubishi is well known for Warren Buffett, chairman of Berkshire Hathaway and dubbed the 'investment genius,' increasing his stake by identifying it as an undervalued stock. Since Berkshire Hathaway’s stake purchase was disclosed, Mitsubishi’s stock price has tripled.

Semiconductor equipment companies Screen Holdings, Advantest, and Tokyo Electron are considered leading stocks in the AI rally on the Tokyo Stock Exchange. Over the past year, Screen Holdings’ stock price has surged nearly 290%. This year alone, its increase of 51% is the highest among the Samurai 7 companies. Tokyo Electron has continued its rally as it recently raised its earnings forecast. Automobile manufacturer Subaru is accelerating its efforts by planning to invest more than $10.5 billion in electric vehicles over the next decade. Its stock price has also risen nearly 29% this year. Additionally, Disco, a leading company in precision cutting and grinding, holds a significant global market share in semiconductor wafer cutting grinders.

Foreign media have evaluated Goldman Sachs’ selection as "not mere flattery," describing these companies as "standing at the forefront of innovation and leading future growth."

Bloomberg News, on the same day, selected its own Samurai 7 in a column, in addition to Goldman Sachs’ list. Besides Toyota Motor Corporation, which was included in Goldman Sachs’ list, companies such as Nintendo, SoftBank Group, factory automation specialist Keyence, Sony Group, Japan’s largest secondhand trading platform Mercari, and Recruit Holdings were named. The news agency commented, "These companies represent Japan’s situation," and noted that Toyota is the only company included in both lists, "and for good reason." However, the media also added that this list represents companies that have stood the test of time and is not investment advice.

Market sentiment confirms optimism that the Japanese stock market will continue its rally for some time. CNBC mentioned that many companies on the Tokyo Stock Exchange are trading below their price-to-book ratios (PBR) and that a corporate governance reform campaign is underway, indicating many undervalued companies.

The previous day, Japan’s representative stock index, the Nikkei, closed at 39,098.68, up 2.19% from the previous session, setting a new all-time high. The rally is attributed to solid corporate earnings and the inflow of foreign capital due to the weak yen. Experts predict that the Nikkei could surpass the 40,000 mark this year. Bank of America (BoA) has raised its year-end Nikkei forecast from 38,500 to 41,000. The Tokyo Stock Exchange was closed on this day in observance of the Emperor’s birthday.