The Nikkei rebound eases pessimism, but AI semiconductors have not yet returned as the leading market theme

Overview

This report focuses on the sharp rebound in Japanese equities in late July, assessing whether the Nikkei 225 rebound means the worst phase is over and whether AI semiconductor-related stocks are in a position to lead the market again. The report argues that the recent pullback was not primarily driven by downward revisions to earnings expectations, but rather by changes in the AI narrative, momentum trader repositioning, and CTA futures stop-loss selling. Although downside pressure is easing, the AI semiconductor sector is still some distance away from becoming the market leader again.

Core views

The core judgments are: first, pessimism in the Japanese equity market has already been substantially released, while TOPIX forward 12-month EPS has not clearly collapsed, making it difficult for current factors alone to drive further deterioration in sentiment; second, forced selling pressure from CTA positions in Nikkei and KOSPI 200 futures may be moving past its worst phase; third, in the cash equity market, high-beta high-momentum stocks, especially those related to semiconductors and AI infrastructure, are showing signs of technical rebound and peaking selling pressure, but active buyback strength and the breadth of excess returns remain insufficient; fourth, ahead of earnings releases from major global AI-related companies, the market is more likely to stay in wait-and-see mode rather than immediately turn broadly bullish.

Analysis framework

The report uses a quantitative strategy framework to group Japanese and Korean equities by momentum, beta, residual SOX beta, relative market performance, and basket contribution, and combines this with CTA futures positioning, equity sentiment, NTM EPS changes, market breadth, selling pressure indicators, and individual stock contributions to judge whether selling pressure is easing and whether the leading style is recovering.

Methodology notes

• Quantitative Style GroupingLong-short performance of high-momentum/high-beta versus low-momentum/low-beta

  Using TOPIX 500 and KOSPI 200 constituents, stocks in the top and bottom 30% are selected at month-end based on 12-month minus 1-month price return and beta, and the performance of high-momentum high-beta versus low-momentum low-beta portfolios is compared.

  This framework is used to judge whether previously sold-off risk-on stocks have started to recover and whether short covering in the low-beta low-momentum segment is nearing completion.

• AI Semiconductor SensitivityResidual SOX beta

  After adjusting for TOPIX beta, residual sensitivity to the SOX index is used to measure a stock's connection to semiconductor and AI trends.

  Stocks with high residual SOX beta are viewed as more sensitive to the AI semiconductor narrative, and the report uses this metric to further break down the Old Winners that were hit in June.

• Trading Flows and PositioningCTA futures positioning and stop-loss trigger levels

  Observe changes in CTA positioning in Nikkei futures and KOSPI 200 futures, as well as whether breaks below key levels trigger forced deleveraging.

  This method is used to judge whether passive selling pressure from the futures side may continue to spread or is nearing its end.

• Market BreadthRebound Breadth and 5-Day Breadth

  Rebound Breadth measures the share of stocks in the sample trading above the previous day's close, while 5-Day Breadth measures the share of stocks outperforming TOPIX 500 over the past five days.

  This framework is used to distinguish between a short-term bounce off the lows and a more sustainable phase of broad-based outperformance.

Asset mapping & comparison

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

• Nikkei 225 futures

  Core asset for observing CTA positioning and stop-loss selling pressure

  Strengths

  The rebound to 66,000 shows short-term selling pressure is easing, and some CTA long positions have already deleveraged.

  Weaknesses

  If it falls below 64,600 again, it may retrigger CTA position unwinding.

  Comparison

  Compared with cash equities, futures were not the sole cause of the July sell-off, but they amplified beta-related selling pressure.

  Risks

  External AI narrative shifts or global risk events could trigger another rapid decline in the index.

• KOSPI 200 futures

  Indicator of Korean market risk appetite and semiconductor trading pressure

  Strengths

  The report believes the CTA long positions accumulated since March have largely been unwound.

  Weaknesses

  Sentiment toward Korean equities remains significantly worse, and semiconductor volatility may still spill over into Japan.

  Comparison

  Market sentiment in Korea is weaker than in Japan; Japanese equity sentiment is already close to zero while earnings expectations are more stable.

  Risks

  If KOSPI 200 fails to recover and stabilize, semiconductor instability during Asian trading hours may persist.

• TOPIX 500 high-beta high-momentum stocks

  Key asset group for style recovery in Japanese equities

  Strengths

  Some Old Winners have rebounded from their lows around July 17, and selling pressure appears to be peaking.

  Weaknesses

  The recovery in excess returns versus the market is slow, and active buybacks have not yet generated enough momentum.

  Comparison

  June-hit Old Winners still lag the broader Old Winners group, indicating that the hardest-hit stocks have not yet regained market leadership.

  Risks

  If investor interest fails to broaden, the rebound may remain only a technical repair phase.

• AI semiconductor-sensitive stocks

  Core thematic assets highlighted in the report

  Strengths

  The share of stocks rising in the short term has improved, and downside concerns are beginning to fade.

  Weaknesses

  High residual SOX beta stocks still lag significantly, and 5-day breadth outperforming TOPIX 500 remains low.

  Comparison

  Stocks with lower AI or lower chip sensitivity are showing greater resilience, while the high chip-sensitivity group has not yet regained leadership.

  Risks

  Earnings from major global AI-related companies, SOX performance, and changes in the AI narrative may determine the next direction.

Key data

• Nikkei Average rebound level66,000The report states that the Nikkei Average rebounded sharply to around 66,000 on July 21, 2026.
• Nikkei level that would retrigger CTA risk64,600If the index falls below 64,600 again, the report warns that CTA position unwinding may resume.
• KOSPI 200 stop-loss trigger zone1,100以下The report states that KOSPI 200 futures triggered stop-loss selling after falling below 1,100, but the long positions accumulated since March have largely been unwound.
• Equity sample universeTOPIX 500、KOSPI 200The report uses Japan's TOPIX 500 and Korea's KOSPI 200 to construct groupings by momentum, beta, and AI sensitivity.
• Definition of Old WinnersHigh-momentum and high-beta stocks at the end of JuneThe report defines as Old Winners the intersection of stocks ranked in the top 30% for both 12-month minus 1-month returns and beta.
• Definition of June-hit Old WinnersThe 50% of Old Winners with the largest declines from their June peak to June 30This group is used to observe whether the stocks hit in June are regaining their ability to lead the market.
• Representative drag stocksIbiden (4062.JT)、Kioxia (285A.JT)、Yaskawa Electric (6506.JT)The report points out that these stocks are still dragging cumulative returns for the equal-weight basket.

Impact & implications

For portfolio implications, the worst selling pressure in the Japanese equity market may be passing, and short-selling or de-risking pressure is easing at the margin, but this does not mean AI semiconductors and high-beta high-momentum trades have already resumed their upward primary trend. In the short term, it is more appropriate to focus on easing selling pressure, improving market breadth, and key earnings catalysts, rather than simply chasing AI semiconductor stocks that previously fell the most. Only if breadth of outperformance expands and the drag from key individual stocks weakens is the market more likely to shift from a technical rebound to a more sustainable style recovery.

Risks

• If the Nikkei Average falls below 64,600 again, CTA stop-loss selling and position unwinding may resume.
• If global AI-related narratives continue to weaken, Japanese memory semiconductors and AI infrastructure-related stocks may come under renewed pressure.
• Ahead of earnings from major global AI-related companies, the market may remain in wait-and-see mode, leading to insufficient buyback strength in high-beta high-momentum stocks.
• Breadth of outperformance among high residual SOX beta stocks remains low; if market interest does not broaden, the rebound will have limited sustainability.
• If KOSPI 200 and sentiment toward Korean equities continue to deteriorate, this may affect the Japanese market through the Asian semiconductor trading chain.

What to watch

• Whether the Nikkei 225 stabilizes around 66,000 and whether it again approaches or falls below 64,600.
• Whether the KOSPI 200 can recover and stabilize above 1,100.
• Whether the performance gap between June-hit Old Winners and the broader Old Winners group within TOPIX 500 narrows.
• Whether Rebound Breadth and 5-Day Breadth for high residual SOX beta stocks continue to rise to healthier levels.
• Whether drag stocks such as Ibiden (4062.JT), Kioxia (285A.JT), and Yaskawa Electric (6506.JT) stop weighing on the equal-weight basket.
• Whether earnings from major global AI-related companies can improve the AI semiconductor narrative and investor risk appetite.