For over a decade, Wall Street has driven global growth, but U.S. dominance in the stock markets is beginning to show signs of vulnerability. The S&P 500, fueled by a tech boom and exceptional corporate earnings, has hit new highs, with double-digit gains in 2025–2026. Corporate earnings have skyrocketed (the Bloomberg consensus estimates a 26.4% increase for all of 2026), thanks to massive investments in artificial intelligence and consumer spending that remains solid despite oil price shocks. Even so, valuations remain very high: the S&P 500’s forward P/E stands at around 20.1, down from 22.2 at the end of 2025; investors are paying 20 times tomorrow’s expected earnings, nearly double that of European stocks.
So far, U.S. momentum has been supported by a monetary policy that remains tight but is on edge, and by falling inflation, now around 3.5%. However, with markets already pricing in extremely high profit margins, any slowdown in earnings or tech spending could trigger significant corrections: any disappointment could set off sudden sell-offs. Against this backdrop of high valuations and questions about the future rebound, the idea of exploring alternatives to Wall Street makes sense.
Japan
The Japanese stock market presents interesting prospects in the medium term thanks to an improvement in the economic and financial framework. In 2026, real GDP is expected to grow by between 0.5% and 1%, while core inflation remains around 2%. The Bank of Japan began monetary normalization by raising its benchmark rate to 1% in June, and the market expects further gains. The weakness of the yen and global demand for semiconductors also support the profits of more export-oriented companies.
Quantitatively, the market favors strategies based on Value and Quality, while Momentum showed weaker results during the 2023 rally. The evolution of corporate governance and improved valuations reinforce this dynamic, creating favorable conditions for multifactor strategies.
The composition of the indices is also relevant: the Nikkei has greater exposure to technology and consumer durables, while the TOPIX offers a higher financial weight. After years of underperformance, the Japanese market experienced a strong recovery in 2023, supported by both the macroeconomic environment and the revaluation of companies. The main variables to monitor remain the yen, interest rates, and trends in global technology demand.
The quantitative analysis supports an allocation focused on the Value and Quality factors in Japan. Local proprietary studies by SuMi Trust highlight how Japan’s Momentum factor, based on price deviations and earnings momentum, has historically offered little added value but underperformed during value market rallies. The momentum portfolio’s excess return against the MSCI Japan Index has shown particularly evident phases of weakness over time; the factor suffered significant losses during the 2008-09 financial crisis and, more recently, in the two-year period 2022-23, when market rotation favored value stocks, both cyclical and financial: these episodes show how the momentum strategy can generate value in the long term, but also go through prolonged periods of underperformance when the market regime changes.
By contrast, the Quality factor, made up of high-profitability, low-leverage companies, generated robust performance. As shown by the chart below, the accumulated excess return of the Quality SuMi strategy was clearly positive and stable over time. The strategy balances exposure to more defensive sectors, such as healthcare and consumer staples, with companies that generate strong cash flow, providing greater resilience during periods of market volatility. SuMi Trust notes that this factor has “consistently outperformed the market index” in the long run.
Finally, considering a low-turnover, i.e. less frequently rebalanced, multi-factor portfolio, SuMi Trust highlights that the three factors Value, Momentum and Quality work well together. The following chart shows the cumulative excess returns of each factor: the Value Factor achieved the best overall performance, around +30%, while the Momentum remained almost neutral after the 2023 decline: although momentum and quality struggled after 2021, the multi-factor ensemble generates consistent returns.
The Japanese Value Factor, characterized by stocks with low P/E and P/B, has shown a strong recovery: the iShares MSCI Japan Value EWJV ETF returned approximately +33.9% in the last 12 months as of June 30, 2026, and approximately +13.8% annually in the last 5 years, recording over +33% in USD in 2025. The Quality Factor has also performed well; for example, The Global X Governance-Quality Japan ETF, ISIN JP3049280005, launched in 2021, has doubled its NAV since launch, with a cumulative return of +102.9% as of September 2026. On the other hand, Momentum has struggled: SuMi’s proprietary trend stock strategy has been in slightly negative territory since 2021, as the chart above shows. Regarding volatility, the broad rally coincided with phases of moderate turbulence: the Nikkei’s implicit VNK index in 2023 remained subdued, while Topix’s historical 3-year volatility stood at around 12–14%.
To benefit from the expected upside, investors could consider an overweight allocation to Japanese assets in the portfolio, allocating in particular towards the Value/Quality instruments indicated: a modulated portfolio could use 8–12% in Japan exposure, split between a broad ETF such as EWJ/MSCI Japan, the Value ETF EWJV and a quality/min-vol component (iShares MinVol 1477 or Global X). The exact breakdown depends on the fund’s risk/investment profile, but the aim is to increase exposure to Japanese market beta at this stage of the cycle. It is advisable to rebalance the weights semi-annually or annually and consider currency hedges if a significant strengthening of the currency is expected, or to leave partially exposed if one believes in a continuation of the current trend of weakness.
At Unbiased Alpha, we believe that in the medium term (6–18 months) Japanese equities are favorable. Macro indicators support a moderate recovery and further rate hikes, similar to global ones, without compromising home growth. This controlled normalization scenario benefits more than all cycle- and export-sensitive sectors, which also drove stock returns in 2023. Furthermore, internal quantitative analysis shows clear evidence of premiums for Value and Quality factors in Japan: low-P/E and low-leverage stocks performed significantly higher than average. Based on this, we recommend an overweight positioning in the Japan region, with a specific tilt towards these defensive factors: value stocks and low-volatility stocks, characterized by high profitability and balance sheet strength. However, the possibility of unexpected changes in global monetary policy, which could curb world demand, remains at stake. Yen exchange volatility could impact corporate performance if the strengthening were to be sharp, and any international tensions or real rate shocks such as rapidly rising global yields pose additional risks. It should also not be forgotten that Japanese markets, although improved, are no longer economically undervalued as they were a few years ago: the Nikkei’s P/E is now around 18x, close to the historical average, so discipline in entry levels is needed.
China
Interest in quantitative strategies on the Chinese stock market has recently increased, fueled by its openness to foreign investors and the strong diversification of the onshore market. MSCI factor indices on A-shares, based on Value, Quality and Momentum, have historically shown significant outperformance. A concrete example is the BlackRock BGF Systematic China A-Share Opportunities fund, which has recorded around +15.6% in the last year, slightly above the +14.8% of MSCI China A Onshore. Recent global corrections in the technology sector have, however, highlighted the high volatility of quantitative strategies, also creating opportunities for rebalancing.
The macro picture remains marked by a slowdown and sharp sectoral divergences. In Q2 2026, GDP grew by only 4.3% annually, a three-year low and below Beijing’s target. The data highlight continued weakness in domestic consumption, with retail sales in volume growing by just 1.0% year on year in June alone, and a serious decline in real estate investment, with contractions of around -18% YoY in the first half of the year. In contrast, manufacturing industry is driving: in the first half of the year, output grew and exports exploded (+27% year-on-year in June), driven by global demand for high-tech products and the AI boom. The authorities are responding with selective measures: monetary policy remains accommodative and an expanded fiscal deficit of around 4% of GDP is expected, especially for infrastructure and targeted transfers, while the yuan’s exchange rate has gradually stabilized at around USD 6.8/CNY; thanks to this fiscal boost and significant domestic savings, the slowdown is expected to ease.
In recent months, quantitative analysts have detected one “two-speed China” between the new economy and traditional sectors. Tech and AI stocks led the rally in late 2026, while firms in the heavyweight, real estate, and retail sectors lagged behind. The difference is evident in indices based on Rayliant/Caixin factors: in Q2 the CSI Caixin Rayliant New Economic Engine Index, tracked by the ETF Premia China New Economy, rose +18.9% in CNY compared to the previous quarter, while the CSI Caixin Rayliant Bedrock Economy Index, followed by the ETF Premia China Bedrock Economy, fell -11.3%.
Growth and Momentum factors outperformed over the period, while more defensive factors such as Value and Low Risk underperformed. These data highlight a strong seasonal rotation: tilts towards low P/E and low volatility stocks were penalized, while exposure to the winners of the technology cycle, with indicators of growth and high profitability, rewarded performance.
The Momentum, Growth, and Quality factors have clearly outperformed in the A-share market, confirmed by both factor ETF performance data and research reports. Rayliant also highlights that in the early months of 2026, the value and low risk tilts represented a significant headwind for performance, while the Growth factor outperformance supported the New Economy portfolio. The dynamic reflects the sharp divergence between segments of the Chinese market: companies linked to the new economy and characterized by greater growth benefited from strong interest in technology and AI, while more valuable and defensive stocks remained penalized.
Among systematic onshore managers, several quantitative funds have successfully applied these insights. A case in point is the BlackRock BGF Systematic China A-Share Opportunities: this is a quantitative fund dedicated to Chinese A-shares, which invests at least 70% of its assets in Chinese onshore securities. The strategy is style-agnostic, combining fundamental and sentiment signals, including alternative data, aiming to generate stable alpha over time. According to the fund’s documentation, the strategy has historically outperformed the MSCI China A Onshore Index over the long term (3–5 years). Recent performance confirms this: the SGD-hedged class returned approximately +20.2% in 2025, signaling an ability to capture gains related to the technology sector and AI.
The fund’s monthly profile also highlights its inherent high volatility: after strong gains at the beginning of 2026 (January +4.6%, April +10.1%), it underwent a significant correction in July 2026 (-9.8% in a single month) due to the profit-taking phase on Chinese techs. This reflects how systematic models, while effective in the tech bull cycle, can undergo sharp drawdowns when sentiment changes. In any case, the existence of such movements creates opportunities for mechanical rebalancing, a feature sought by quant managers. Other systematic onshore hedge funds exploit similar dynamics, benefiting from the opening of Chinese markets to onshore data (commodity futures, currencies, etc.) and applying factors such as momentum, value, and quality. Research by operators such as Man Group and MSCI highlights that factor indices on A-shares (value, quality, momentum) have historically generated alpha. In this context, the arbitrage between retail volatility, government vs. private securities, and Chinese industrial policies, such as the government’s emphasis on “quality growth”, fuels long- and short-term opportunities through multi-factor strategies.
On the macro front, China is experiencing a slowdown with strong sectoral imbalances. At the market level, Chinese stocks appear undervalued compared to global peers: to date, the MSCI China Index trade at significantly lower price/earnings multiples than the US index. The quality growth policies indicated by Xi Jinping indicate support for companies with high profitability and innovation, a favorable context for the Quality and Momentum factors. At the same time, cyclical stocks linked to real estate or heavy industry could remain under pressure.
Overall, we at Unbiased Alpha believe that tactical exposure to Chinese growth factors and technology stocks can be justified by the current environment. Low valuations may provide a margin of safety, while structural themes, such as AI, industrial transformation, and targeted public support, serve as medium-term catalysts. For a global factor-conscious investor, selectively increasing positions in China through systematic/factor strategies can improve diversification and offer returns independent of those of the USA and Japan. This does not mean ignoring the risks, as a policy reversal, credit shock, or geopolitical tensions could quickly reverse market sentiment, making portfolio construction and exposure to technology and quality Chinese companies particularly important. Ultimately, even with the economy slowing down China remains a market that, thanks to attractive valuations and potential sectoral catalysts, deserves thoughtful attention from quantitative managers.
Conclusions
Quantitative analysis suggests that the Chinese stock market currently offers significant cross-sectional dispersion that can be exploited through systematic stock selection, rather than simple index exposure. The sharp divergence between the new economy and traditional sectors and the recent strength of Growth and Momentum show how the dispersion of returns across firms and factors is large enough to create room for active and market-neutral strategies.
In this context, the most consistent approach is to favor models capable of combining Momentum and Quality, while maintaining the flexibility needed to adapt to rapid market rotations. The recent experience of the BlackRock BGF Systematic China A-Share Opportunities also shows that a quantitative process applied directly to A-shares can generate significant results, albeit with significant drawdowns in the sentiment reversal phases.
The thesis therefore does not depend on the prediction of a widespread recovery in China, but on the ability of the models to identify the companies that benefit most from technological transformation and quality growth. The main risk is a rapid reversal of factor leadership, which makes a disciplined selection and rebalancing process essential.
