Asian stocks: how to read a top-quality score outside the US

2026-06-16 · By Lubin Danilo, founder of Lubin Investment

An Asian stock rated 10/10 by our screener meets the same financial criteria as a US stock: solid FCF, high margins, clean balance sheet. But three points deserve attention: corporate governance (often different), withholding tax on dividends at source, and sometimes limited liquidity on smaller names.

• Our screener covers Japan (TOPIX), South Korea (KOSPI) and Hong Kong (HKEX): three massive markets home to world-class companies often ignored by Western investors.
• The quality score uses the same 10 criteria everywhere: local accounting can affect some ratios, but FCF and margins remain the most reliable signals.
• Corporate governance in Asia is improving fast: Japan and South Korea have launched deep reforms since 2023 to better protect minority shareholders.
• Dividend withholding tax varies by country: Japan withholds 15.315% at source for non-residents, South Korea 22%, Hong Kong 0%.
• Liquidity: some smaller Japanese or Korean companies have thin daily volumes. Always check before buying.

Why I look at Asian markets

Most retail investors concentrate their portfolios on the US and Europe. That is understandable: data is accessible, companies are familiar, reports come in English. But this geographic short-sightedness creates an opportunity. Japan, South Korea and Hong Kong are home to hundreds of excellent companies that Western markets systematically under-analyze.

Japan's TOPIX has risen 42% over the past twelve months, driven by historic governance reforms and a massive return of Japanese households to equities. South Korea's KOSPI surged 118% over twelve months, fuelled by capital market reforms and the AI boom. These are no longer niche markets.

Which markets our screener covers

Our screener analyzes stocks listed on the Tokyo Stock Exchange (.T suffix), Korea Stock Exchange (.KS suffix) and Hong Kong Stock Exchange (.HK suffix). These three exchanges together represent a market cap of over 10 trillion dollars, more than the entire eurozone.

The score I assign to each stock relies on 10 objective financial criteria: revenue growth, FCF growth (cash actually generated after all expenses, including capital investment), FCF margin, Cash ROCE (capital return measured in real cash, not accounting profit), debt levels, share buybacks, and a few other soundness indicators. These criteria apply in exactly the same way to a Japanese stock as to an American one.

Four differences to factor in before investing

First: accounting. Japanese and Korean companies follow IFRS or their own local standards, broadly aligned with international norms but with some nuances. FCF, however, is quite robust to these gaps: cash in the bank is concrete, whatever the accounting standard.

Second: governance. This has historically been the weak point of Asian companies. In Japan, keiretsu (cross-ownership networks between related companies) diluted minority shareholder interests for decades. But the Tokyo Stock Exchange launched a wave of reforms in 2023: companies with a price-to-book ratio below 1 are now pushed to better allocate capital, buy back shares, and distribute more. Honda, for example, maintained its dividend forecast even after announcing a 15.7 billion dollar EV write-down. That is a discipline signal.

Third: dividend withholding tax at source. Japan withholds 15.315% at source on dividends paid to non-residents. South Korea withholds 22%. Hong Kong, by contrast, withholds nothing. For a French investor, these withholdings are partially creditable against French tax under double tax treaties, but the mechanics are more complex than with a US stock.

Fourth: liquidity. Large-cap Japanese names (Toyota, Sony, Keyence) and Korean names (Samsung, SK Hynix) trade massive daily volumes. But the screener also covers mid-size companies that are little known outside their home market. On these names, daily volumes can be thin and bid-ask spreads wider. I always use limit orders, not market orders.

How I adjust the P/FCF valuation reading

P/FCF (price-to-free-cash-flow) is the ratio I use to judge whether a stock is expensive or not. Concretely: it is the stock price divided by the cash the company genuinely generates each year after all its expenses. A P/FCF of 12 means you are paying today the equivalent of 12 years of that cash. The lower the number, the cheaper the stock.

Asian markets historically had lower average P/FCF ratios than the US for two reasons: investor distrust of governance, and low international visibility. With governance reforms in Japan and South Korea, this valuation gap is gradually narrowing. Top-quality Asian names that traded at very low valuations three years ago are now seeing their P/FCF rise, not because they got worse, but because the market understands them better.

What I keep for my own portfolio

I invest in highly-rated Asian stocks with the same logic as everywhere else: quality first, price second. The four specific points I described are not blockers. They are adjustments to factor into the thinking. Western markets still under-analyze these names, and that is precisely where the best opportunities can arise.

If you want to see the Asian stocks currently in our screener, with their quality scores and up-to-date P/FCF valuations, you can check them on our online screener. That is the tool I built to analyze exactly these kinds of files in seconds.

FAQ

Can you easily buy Japanese or Korean stocks from Europe?

Yes. Most online brokers (IBKR, Degiro, Saxo) provide access to the Tokyo and Korea stock exchanges. Fees are slightly higher than on European or US markets. Some large Japanese companies are also available as ADRs on the NYSE.

Is the quality score comparable between a US stock and a Japanese stock?

Yes, the 10 criteria are identical. The score measures objective financial strength: FCF, margins, growth, balance sheet, capital allocation. A Japanese stock rated 10/10 meets the same requirements as a US 10/10. The only nuance relates to certain ratios affected by local accounting standards, but FCF remains the most universal signal.

Is the weak yen a risk for Japanese stocks?

It is a point to monitor. A weak yen benefits Japanese exporters (Toyota, Sony, Fanuc) but can erode returns for a European investor receiving yen dividends. I mentally convert FCF to euros to get an accurate picture of real valuation.

Why is South Korea often discounted despite its quality companies?

Historically, Korea suffered from a governance discount: chaebols (family conglomerates like Samsung or LG) favored the founding family over minority shareholders. Reforms launched since 2023 are changing this, with increased dividend and buyback requirements. The KOSPI surged 118% over twelve months partly for this reason.

How does Japanese dividend withholding tax work?

Japan withholds 15.315% at source on dividends paid to non-residents (under the France-Japan tax treaty). This withholding is in principle recoverable via a tax credit in your French return. The exact mechanics depend on your broker and your tax situation.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).