Nomura Says Japan Small-Caps May Outperform Large Manufacturers

Nomura Holdings Inc. (8604) said smaller Japanese companies able to respond quickly to change offer more profit growth and stock gains than large enterprises in the wake of the March 11 natural disaster.

“A side-effect of Japan’s quake and nuclear crisis appears to have been to accelerate the pace of change in the country’s social structure,” Nomura analysts Kyoichiro Shigemura and Masaki Motomura wrote in a report dated yesterday. “We are focusing on small caps able to tap opportunities relating to Japan’s advanced elderly society and revisions to energy policy. We think some high-growth small cap companies could become global brand names over the longer term.”

The brokerage recommends stocks including Message Co., an operator of elderly-care facilities, Tocalo Co., which supplies thermal spraying technology for metals and ceramics, and Start Today Co., an online apparel retailer. These companies may benefit from an aging society, increased use of solar energy and overseas expansion, Nomura said.

The Jasdaq stock index of smaller companies has fallen 6.7 percent since March 10, about half the 13 percent plunge by the Topix Core 30 Index of the nation’s largest stocks in the same period. Big manufacturers such as Toyota Motor Co. and Sony Corp. (6758) suffered supply-chain problems.

“Post-quake recovery is an opportunity for small caps to heighten their presences in Japan and abroad,” wrote the analysts. “We see small caps as offering better prospects for high returns than large caps.”

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