Japanese Stocks Surge to Record High in Q2, Foreign Capital Net Buy Volume Breaks Record in H1
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Japanese Stocks Surge to Record High in Q2, Foreign Capital Net Buy Volume Breaks Record in H1
Goldman Sachs reviews Japanese stock market performance in Q2 2026, with the Nikkei Index posting a 37% quarterly gain hitting a record high, and foreign capital net buy volume in the first half largest since 1999. The report also analyzes shareholder meeting CEO support rate divergence and latest fund flows.
- Nikkei Index surged 37% quarter-on-quarter in Q2, achieving its best historical quarterly performance; TOPIX rose 14% qoq.
- Foreign capital net purchases in the first half of 2026 hit a new high since 1999, reaching 6.7 trillion yen in just the second quarter.
- Among the 319 high-liquidity companies with results announced, average CEO support rate was 92%, but gaps between companies expanded significantly.
- Electrical Machinery, Steel, and Banking sectors performed strongest in Q2, Energy sector fell the most.
- Recently (late June), foreign capital turned to net selling, while domestic institutions and individual investors turned to net buying.
Report interpretation
Overview
This report is Goldman Sachs' weekly outlook on the Japanese stock market, focusing on reviewing market performance, fund flows, and CEO support rates at listed company shareholder meetings (AGM) for Q2 2026. Core conclusions show the Japanese stock market saw strong gains in the second quarter driven by AI and Bank of Japan normalization themes, with the Nikkei Index posting its best quarterly increase historically. Foreign capital showed historic large-scale net inflows in the first half, despite signs of short-term profit-taking recently. Regarding corporate governance, although overall CEO support rates remained high, score gaps between different companies widened, reflecting differentiated market evaluations on the effectiveness of governance improvements.
Core views
Market Performance and Drivers: The Japanese stock market performed strongly in the second quarter of 2026. The TOPIX index rose 14% quarter-on-quarter, and the Nikkei 225 index surged 37% quarter-on-quarter, achieving its best historical quarterly performance. Year-to-date (YTD), TOPIX rose 19%, and Nikkei 225 rose 38%, both significantly outperforming the S&P 500 Index (+9%). This relative strength continues to positively influence overseas fund net inflows. By sector, the three best-performing TOPIX 17 industry segments were all overweight recommendations by Goldman Sachs: Electrical Machinery and Precision Instruments (+48% qoq), Steel and Non-ferrous Metals (+26% qoq), and Banks (+23% qoq). The worst-performing sectors were Energy (-23% qoq), Commercial and Wholesale Trade (-11% qoq), and Power and Gas (-10% qoq). AI and Bank of Japan monetary policy normalization were the main themes driving the market, while resource-related themes declined in the second quarter after performing strongly in March due to geopolitical concerns. Fund Flows and Shareholding Structure: Foreign capital net purchases in the first half of 2026 reached the highest since records began in 1999, with single-quarter net purchases in the second quarter alone reaching 6.7 trillion yen. According to the Tokyo Stock Exchange (TSE)'s latest shareholding report, foreign investor shareholding ratios rose to 34.7% in fiscal year 2025. Combined with the dissolution of cross-shareholdings, the float ratio has increased further. However, data from the latest week (June 22–26) shows foreign capital net sold 1.2 trillion yen of cash equities on the TSE Prime Market, while individual investors and domestic institutional investors net bought 911 billion yen and 61 billion yen respectively, showing a short-term game of funds. Shareholder Meeting (AGM) CEO Support Rate Analysis: Among the 319 high-liquidity companies with results announced so far (6-month daily turnover > $20 million), the median CEO support rate was 94%, and the average was 92%. Although overall ratings have not noticeably worsened compared to the past two years, the gap between companies is expanding, with the interquartile range rising to 9%, nearly double that of 2021. Additionally, the proportion of companies with support rates exceeding 90% has dropped to 67.1%. Data shows that CEOs of high ROE companies generally have higher support rates, but some companies experienced significant rating changes, such as Mitsubishi UFJ Financial Group seeing a large increase of 23.9 percentage points to 89%, while some companies faced pressure.
Analysis framework
The report adopts a top-down macro and strategic analysis framework. First, assess the global relative attractiveness of the Japanese stock market by comparing quarterly and year-to-date performances of major indices (TOPIX, Nikkei 225, S&P 500). Second, analyze behavioral patterns of different investor groups (foreign, domestic institutions, individuals) and their impact on market liquidity using Tokyo Stock Exchange fund flow and shareholding structure data. Finally, conduct quantitative analysis on samples of high-liquidity companies with announced shareholder meeting results to examine market feedback on corporate governance reforms, specifically the distribution changes in CEO support rates and their correlation with financial metrics (such as ROE), thereby serving as a basis for selecting stocks and evaluating governance premiums.
Methodology notes
CEO Support Rate as a Proxy Indicator for Corporate Governance Effectiveness
The research report quantifies market recognition of management governance effectiveness by analyzing shareholder support rates for CEOs at shareholder meetings. The level and magnitude of change in support rates reflect investors' evaluation of corporate strategic execution and capital allocation efficiency, serving as an important behavioral finance indicator for judging corporate governance premiums.
Construction of Style Baskets Based on Liquidity and Themes
The report constructs an equally weighted index basket based on high-liquidity stocks (6-month daily turnover > $20 million), covering MSCI industry classifications and specific themes (such as high dividends, games, etc.). By tracking the performance of these baskets and the spread between the best and worst internal stocks, it identifies market style rotation and stock selection opportunities.
Key data
- Nikkei 225 Index Q2 Gain+37%Best historical quarterly performance
- TOPIX Index Q2 Gain+14%Quarter-over-quarter growth
- Foreign Capital Q2 Net Purchase Amount6.7 trillion yenPushed H1 net purchase amount to highest since 1999
- Average CEO Support Rate92%Sample of 319 high-liquidity companies, median 94%
- CEO Support Rate Interquartile Range9%Almost double 2021 level, showing widening gaps between companies
- Electrical Machinery Sector Q2 Gain+48%Best performing TOPIX 17 industry sector
Impact & implications
The report suggests that the relative strength of the Japanese stock market globally continues, benefiting from deepening corporate governance reforms and expectations of monetary policy normalization. Historic inflows from foreign capital indicate enhanced confidence from global allocators in Japanese assets, despite potential short-term volatility. Divergence in CEO support rates prompts investors to differentiate corporate governance quality more finely; companies with high support rates and improved ROE may possess greater long-term investment value. Short-term foreign capital profit-taking could lead to market volatility, but the capacity for domestic capital absorption is strengthening.
Risks
- Geopolitical risks causing intensified volatility in resource-related themes
- Short-term large-scale outflow of foreign capital triggering market adjustments
- Corporate governance reform progress falling short of expectations leading to valuation premium reversal
What to watch
- Changes in foreign capital fund flows in subsequent months
- Announcement status of CEO support rates for remaining listed companies' shareholder meetings
- Specific path of Bank of Japan monetary policy normalization and market reaction