Japanese equity indices had been heavily reliant on the artificial intelligence and banking sectors, while the unwinding of cross-shareholdings continued to accelerate in FY25

Overview

The report focuses on two main themes: first, the contribution of artificial intelligence-related stocks and bank stocks to the performance of the TOPIX and Nikkei 225, as well as the risk of a momentum reversal caused by thematic concentration; second, the continued acceleration of the unwinding of cross-shareholdings among Japanese companies in FY25. The report also updates its screens for cross-shareholding holders and investee companies and provides additional views on market fund flows, index targets, exchange-rate assumptions, and sector allocation.

Core views

The report first breaks down the performance of the TOPIX and Nikkei 225 since January 2024. Artificial intelligence-related stocks and bank stocks broadly moved in line with their respective indices from early 2024 through mid-2025, but beginning in September 2025, the performance gap between these two groups and the rest of the market widened significantly and persisted through the end of June 2026. Goldman Sachs therefore believes that investors without sufficient exposure to the artificial intelligence and banking themes found it difficult to keep pace with the TOPIX or Nikkei 225 during this period. At the same time, the concentration of market performance in a small number of themes also implies a more fragile structure: if momentum in the leading sectors suddenly reverses, the indices and related positions could face a more pronounced impact. For the week covered by the report, the TOPIX stood at 4,067.29 points, down 3.1%, while the Nikkei 225 stood at 66,016.36 points, down 3.9%. The leading industries were marine transportation and mining, while the laggards were electric machinery and glass and ceramics. The second main theme is the unwinding of cross-shareholdings. The report notes that cross-shareholding sales continued to accelerate in FY25, and following further unwinding, the shareholding ratio of Japan's “stable shareholders” fell to 33%. As of August 19, 2026, broadly defined cross-shareholdings still accounted for 8.4% of the Japanese equity market's total capitalization, indicating that although the unwinding trend is strong, the remaining holdings continue to have market significance. The report also notes that its cross-shareholding screen portfolio continued to outperform the TOPIX through March 2026, indicating that the relevant companies had exhibited a distinct relative performance pattern, although the report does not promise that this would continue thereafter. Goldman Sachs updated two sets of screens based on the latest annual disclosures. The holder screen includes 51 companies with market capitalizations exceeding ¥100 billion, strategic shareholdings representing more than 15% of net assets, and a reduction of more than 10% in the number of strategic shareholding names during the latest fiscal year. This screen is intended to identify companies with relatively heavy cross-shareholding burdens that are nevertheless continuing to reduce those holdings. The investee company screen selects the 50 companies with the highest ownership ratios held by strategic shareholders from among companies with market capitalizations exceeding ¥200 billion, providing a way to monitor the principal stocks potentially affected by cross-shareholding unwinds. Goldman Sachs also cautions that the screens are based on annual securities filings and may not reflect the latest changes. The investee data cover fiscal years corresponding approximately to May 2025 through June 2026, and subsequent transactions are not included, resulting in a time lag in the relevant lists. Regarding fund flows, Tokyo Stock Exchange data show that during the week of August 10–14, 2026, overseas investors were net buyers of ¥210 billion in TSE Prime cash equities, domestic institutions were net buyers of ¥75 billion, and individual investors were net sellers of ¥638 billion. These data reveal a divergence between net institutional inflows and substantial individual investor outflows, supplementing the report's observations on recent market positioning and trading behavior. Regarding the market outlook, Goldman Sachs sets three-, six-, and twelve-month TOPIX targets of 4,200, 4,300, and 4,500 points, respectively. Its USD/JPY assumptions for FY26, FY27, and FY28 are 162, 160, and 155, respectively, and this exchange-rate path is used alongside top-down earnings forecasts and sector views. In sector allocation, the report identifies machinery, IT and services, banks, electrical equipment and precision instruments, and steel and nonferrous metals as overweight areas. Underweight areas include electric power and gas, food, pharmaceuticals, and transportation and logistics. The report's market-monitoring framework covers valuations, earnings revisions, fund flows, styles, and sector performance. Its liquid-stock universe is defined as Japanese stocks with six-month average daily trading value exceeding US$20 million; it comprised 271 stocks as of December 17, 2025, and is scheduled to be updated annually. Goldman Sachs divides this universe into 45 equal-weighted industry, sub-industry, or cross-industry thematic indices. Constituents are selected based on MSCI industry classifications, quantitative metrics, and the views of Goldman Sachs equity analysts; the same stock may be included in multiple indices. The report continuously tracks the performance of these indices and the return spread between the best- and worst-performing constituents within each index, while excluding trading performance during the first 12 months after an IPO to reduce the impact of early post-listing volatility on index comparisons.

Analysis framework

The report first divides the TOPIX and Nikkei 225 into artificial intelligence and banking theme constituents and the remainder of the market, comparing indexed performance since January 2024 to identify periods of widening relative performance gaps and risks from concentrated positioning. It then uses the latest annual securities disclosures to measure the stable shareholding ratio, the pace of cross-shareholding sales, and the share of broadly defined cross-shareholdings in market capitalization, while updating the lists of holders and investee companies based on market capitalization, strategic shareholdings as a percentage of net assets, and the extent of reductions in the number of holdings. Finally, it combines TSE investor trading data, top-down earnings forecasts, exchange-rate assumptions, sector recommendations, and the performance, valuations, earnings revisions, and best-to-worst return spreads of equal-weighted industry and thematic indices to form a market-monitoring framework.

Methodology notes

• Quantitative/Factor/Portfolio TheoryStyle factor analysis

  Analysis of relative style and thematic performance in the Japanese market

  The report compares styles such as value versus growth, large-cap versus mid-cap, and cyclical versus defensive, while separating the performance of the artificial intelligence and banking themes from that of the remaining TOPIX and Nikkei 225 constituents to determine whether market returns are concentrated in a small number of styles or themes.

• Quantitative/Factor/Portfolio Theory

  Equal-weighted industry, sub-industry, and thematic indices

  Goldman Sachs constructs 45 equal-weighted indices from Japanese stocks with six-month average daily trading value exceeding US$20 million, assigning equal weights to constituents within each index to compare the performance of different sectors and themes; the same stock may be included in multiple indices.

• Event-Driven Strategies and Behavioral FinanceFund Flow/Positioning Analysis

  TSE net trading statistics by investor type

  The report separately examines net purchases and sales by overseas investors, domestic institutions, and individual investors to characterize the recent positioning and direction of fund flows among different investor groups in Japanese equities.

• Quantitative/Factor/Portfolio Theory

  Two-way cross-shareholding screens

  The holder screen combines market capitalization, strategic shareholdings as a percentage of net assets, and reductions in the number of holding names to identify companies with high cross-shareholdings that are continuing to unwind them; the investee screen identifies stocks with concentrated cross-shareholdings based on the ownership ratios held by strategic shareholders.

• Quantitative/Factor/Portfolio Theory

  Best-to-worst constituent return spread

  This metric is the difference between the returns of the best- and worst-performing constituents in each index and is used to observe performance dispersion within a sector; the report tracks both equal-weighted average performance and this return spread.

• Quantitative/Factor/Portfolio Theory

  Earnings forecast revision index

  The report subtracts the number of analyst forecast downgrades from the number of upgrades over the past month and divides the result by the total number of forecasts to measure the net direction of earnings expectation revisions for the TOPIX and related markets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TOPIX

  The report uses the TOPIX as the Japanese large-cap benchmark, analyzes the contribution of the artificial intelligence and banking themes to index performance, and provides three-, six-, and twelve-month targets.

  Strengths

  The three-, six-, and twelve-month targets rise sequentially to 4,200, 4,300, and 4,500 points.

  Weaknesses

  Performance from September 2025 through the end of June 2026 was concentrated to a considerable extent in artificial intelligence-related stocks and bank stocks.

  Comparison

  Artificial intelligence and banking constituents significantly outperformed the remainder of the TOPIX beginning in September 2025; the cross-shareholding screen portfolio's outperformance relative to the TOPIX continued through March 2026.

  Risks

  Concentrated positioning in the two major themes could make the index more vulnerable to a sudden momentum reversal.

• Nikkei 225 (NK225)

  The report similarly separates the Nikkei 225 into artificial intelligence and banking constituents and the remaining constituents to identify the impact of thematic concentration on index performance.

  Strengths

  Artificial intelligence-related stocks and bank stocks were important sources of keeping pace with index performance from September 2025 through the end of June 2026.

  Weaknesses

  Index performance is highly dependent on a small number of themes, making it difficult for investors without sufficient exposure to these two groups of stocks to keep pace with the index.

  Comparison

  The relative performance gap of the artificial intelligence and banking themes widened significantly in both the TOPIX and Nikkei 225 beginning in September 2025.

  Risks

  If the leading themes experience a sudden momentum reversal, the concentrated structure may amplify market vulnerability.

Key data

• TOPIX weekly performance4,067.29 points, -3.1%Weekly market summary in the report
• Nikkei 225 weekly performance66,016.36 points, -3.9%Presented as NK225 in the report
• Stable shareholding ratio33%Fell to this level after further cross-shareholding unwinds in FY25
• Broad cross-shareholdings as a percentage of market capitalization8.4%As of August 19, 2026, as a percentage of the Japanese market's total capitalization
• Number of holder-screen stocks51 stocksMarket capitalization exceeding ¥100 billion, strategic shareholdings exceeding 15% of net assets, and a reduction of more than 10% in the number of holding names during the latest fiscal year
• Number of investee-screen stocks50 stocksRanked by the ownership ratio held by strategic shareholders among companies with market capitalizations exceeding ¥200 billion
• Overseas investor net tradingNet purchases of ¥210 billionAugust 10–14, 2026, TSE Prime cash equities
• Domestic institution net tradingNet purchases of ¥75 billionAugust 10–14, 2026, TSE Prime cash equities
• Individual investor net tradingNet sales of ¥638 billionAugust 10–14, 2026, TSE Prime cash equities
• TOPIX targets4,200 points in three months, 4,300 points in six months, and 4,500 points in twelve monthsGoldman Sachs index target path
• USD/JPY assumptionsFY26/FY27/FY28: 162/160/155Exchange-rate assumptions used in Goldman Sachs' top-down earnings forecasts
• Liquid-stock universe271 stocksAs of December 17, 2025, with six-month average daily trading value exceeding US$20 million
• Equal-weighted monitoring indices45Covering industries, sub-industries, and cross-industry themes; stocks may be included in multiple indices

Impact & implications

The report believes that the previous gains in Japan's major equity indices were highly concentrated in the artificial intelligence and banking themes. This both explains why investors without exposure to these themes found it difficult to keep pace with the indices and makes the market more vulnerable to a momentum reversal. Accelerating cross-shareholding sales and the declining stable shareholding ratio indicate that corporate ownership structures remain in flux, and both holders and investee companies may continue to be affected by asset disposals and shareholder structure adjustments. However, because the screens rely on annual disclosures, the data lag must be considered when interpreting them. The TOPIX target path reflects Goldman Sachs' positive view on the index's medium-term direction, while sector allocation favors machinery, IT and services, banks, and selected manufacturing industries.

Risks

• The leading performance of Japanese equities is concentrated in the artificial intelligence and banking themes, potentially making the market particularly vulnerable to a sudden momentum reversal.
• The cross-shareholding screens are based on annual securities filings and may not reflect the latest changes; transactions occurring after the fiscal years corresponding approximately to May 2025 through June 2026 have not yet been incorporated.

What to watch

• Monitor whether the performance gap between artificial intelligence-related stocks and bank stocks and the rest of the Japanese market continues to widen or undergoes a momentum reversal.
• Monitor subsequent changes in the pace of cross-shareholding sales, the stable shareholding ratio, and broadly defined cross-shareholdings as a percentage of market capitalization.
• Monitor the direction of net trading by overseas investors, domestic institutions, and individual investors in the TSE Prime market.
• Monitor the TOPIX's progress toward the three-stage targets of 4,200, 4,300, and 4,500 points, as well as changes in the FY26–FY28 USD/JPY assumptions of 162/160/155.