How to Read the Nikkei: Decoding the Article 'Domestic Demand Stocks Buck the Trend as Funds Flee AI Semiconductor Weakness'

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"Domestic Demand Stocks Buck the Trend as Funds Flee AI Semiconductor Weakness"

On July 29, 2026, the Nikkei newspaper published an article titled "Domestic Demand Stocks Buck the Trend as Funds Flee AI Semiconductor Weakness." I will examine the relationship between AI semiconductors and domestic demand.

The phenomenon of "declining AI semiconductor stocks" and "domestic demand stocks bucking the trend" indicates that capital flight (risk aversion) and sector rotation are occurring simultaneously in the stock market.

I will verify the relationship between these two and the background and mechanisms behind such stock price movements.

(1). Differences in the nature of the two types of stocks

First, I will organize the differences in the nature of AI semiconductor stocks and domestic demand stocks.

AI semiconductor-related stocks (High-tech/External demand)
Semiconductor manufacturing equipment, electronic components, AI servers, etc.
Factors affecting performance: Global economy, high-tech investment cycle, US IT stock prices
Stock price characteristics: High growth potential, but high volatility

Domestic demand stocks (Defensive/Domestic demand)
Land transport/railways, dining out, retail, electric power/gas, real estate, etc.
Factors affecting performance: Domestic personal consumption, human traffic, domestic economy
Stock price characteristics: Slow growth, but stable performance and firm downside

(2). Why does capital flow into "domestic demand stocks" when "AI semiconductors are weak"?

① Sector rotation (movement of funds)

Institutional investors (funds, etc.) do not completely withdraw funds from the entire stock market, but rather shift their holdings from "high-risk sectors" to "safe sectors."

Profit-taking in AI semiconductor stocks: AI semiconductor stocks that have risen sharply are prone to overheating, and selling tends to occur all at once triggered by declines in US high-tech stocks or exchange rate fluctuations.

Switching to domestic demand stocks: The proceeds (cash) from selling semiconductor stocks are directed toward domestic demand stocks, which are relatively undervalued and whose performance is less susceptible to the global economy.

② Defensive nature

When concerns about an overseas economic downturn or a decline in US stocks arise, Japanese domestic demand companies have the strength that "sales are unlikely to drop sharply as long as life and economic activities continue within Japan."

For investors, they are easily chosen as a temporary "safe haven (defensive measure)" in a turbulent market.

③ Distortion of indices (Nikkei Stock Average and TOPIX)

The Nikkei Stock Average is strongly influenced by "high-priced semiconductor stocks" such as Tokyo Electron and Advantest.

Therefore, when semiconductor stocks fall, the Nikkei Stock Average itself drops significantly.

On the other hand, TOPIX, which has a wider range of constituent stocks, and domestic demand-related stocks are more likely to buck the trend (rising while the overall market is falling),

creating a situation where "stock indices are low, but familiar domestic demand stocks are being bought."

Summary

The structure of "domestic demand stocks bucking the trend due to AI semiconductor weakness" is not a case of funds fleeing the stock market,

but rather a phenomenon where the protagonist of the market has temporarily passed the baton from "global growth expectations (high-tech)" to "domestic stability and undervaluation (domestic demand)."

Representative domestic demand stock sectors

Let's look at representative domestic demand stock sectors (stocks whose performance depends on domestic demand and consumption) in the Japanese stock market and their characteristics.

Domestic demand stocks generally tend to be less affected by economic trends and overseas risks (exchange rate fluctuations, geopolitical risks, etc.), and many sectors are included that boast stable performance and high dividends.

In that day's newspaper article, companies that saw notable gains in domestic demand stocks on July 28 included Nitori Holdings, Sanrio, Fast Retailing, Nintendo, Sapporo, Pan Pacific International Holdings, JR East, Keihan Holdings, Odakyu, and Kirin Holdings.

《List of Representative Domestic Demand Sectors》

Sector: Land Transport/Railways
Main business/industry: JR companies, major private railways, truck transport
Main characteristics/strengths: Supported by the recovery of human traffic and commuting/tourism demand. Characterized by stable cash flow.
Main risks/concerns: Soaring fuel prices, long-term demand decline due to domestic population decline.

Sector: Retail/Dining
Main business/industry: Supermarkets, convenience stores, department stores, restaurant chains
Main characteristics/strengths: Directly linked to personal consumption. Inbound (foreign visitor) demand can also be captured.
Main risks/concerns: Gross margin pressure due to rising raw material and logistics costs, labor shortages.

Sector: Information/Communications
Main business/industry: Telecommunications carriers (NTT, KDDI, etc.), IT services
Main characteristics/strengths: Extremely stable performance due to contract-based stock business. Many high-dividend stocks.
Main risks/concerns: Government pressure for price cuts, massive capital investment such as 5G/6G.

Sector: Electric Power/Gas (Infrastructure)
Main business/industry: Electric power companies, city gas
Main characteristics/strengths: Public infrastructure essential for daily life. Typical "defensive stocks" with slow price movements.
Main risks/concerns: Sudden spikes in resource prices such as crude oil and natural gas, regulatory/policy changes.

Sector: Real Estate/Construction
Main business/industry: Developers, house manufacturers, general contractors
Main characteristics/strengths: Centered on domestic redevelopment projects and housing demand. Rising asset values are a tailwind.
Main risks/concerns: Interest rate hike risk (increased borrowing costs and rising mortgage rates).

Sector: Food/Pharmaceuticals
Main business/industry: Food manufacturers, pharmaceutical companies, drugstores
Main characteristics/strengths: "Daily necessities/medical care" that are not easily influenced by the economy. Very firm downside.
Main risks/concerns: Soaring raw material costs, drug price revisions (in the case of pharmaceuticals).

Three major properties (characteristics) of domestic demand stocks

1. Defensive aspect

Even when the economy worsens, spending on essentials like electricity, telecommunications, food, and transportation is difficult to cut, which is why these sectors tend to be bought during recessions or when overseas economies stall.

2. Resilience to Exchange Rates (Yen Appreciation)

Because their ratio of overseas revenue is low, the negative impact on earnings is limited even if the yen appreciates.

In fact, for companies that import raw materials and energy (such as electric power, gas, and food), a stronger yen acts as a tailwind for cost reduction (the benefit of a strong yen).

3. Relationship with Interest Rate Trends

In recent years, as the Bank of Japan moves toward normalizing monetary policy (raising interest rates), caution is required for the real estate and construction sectors, which carry high interest-bearing debt, while the financial sector, including banks and insurance, tends to be bought due to expectations of improved interest margins.

[Disclaimer]
This article summarizes the author's personal views based on research and analysis and does not recommend the purchase or sale of any specific financial products or stocks.

Trading financial products, including stock investments, involves risks such as price fluctuations, exchange rate risks, and performance volatility, and there is a possibility that the principal investment may be lost.

While the information in this article is based on materials considered reliable at the time of writing, its accuracy, completeness, and timeliness are not guaranteed.

Please make final investment decisions based on your own objectives, financial situation, and risk tolerance, and at your own responsibility.

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