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Land of the rising shares.

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If you’re not a Japanese investor, you may not have heard of BASE. 4477 -3.88% It’s your loss: The small-cap tech stock, a sort of Japanese Shopify, has beaten Tesla’s rally this year by several hundred percentage points.

It isn’t alone. Japan’s high-growth small-cap stocks are having a roaring year, easily beating the Nasdaq. That the surge is happening largely without Western investors’ noticing speaks to the paucity of attention they pay to the world’s third-largest equity market—particularly its smaller companies.

The TSE Mothers Index, a perplexing acronym for “market of the high-growth and emerging stocks,” is up 156% since its March low, making its gain for the year 55%. That compares with a 33% gain this year for the Nasdaq, the best-performing large U.S. equity index.

Several of the companies—such as like BASE, cloud-based accounting-software provider freee K.K., or biopharmaceutical firm AnGes 4563 -1.06% —were ideally placed to perform during the pandemic. With a market value of a little over $35 billion, the index is small but not so minuscule as to merit ignoring totally. It has a well-developed derivatives market, provided by Japan Exchange Group.

Such opportunities pass most American investors by because they’re not covered by sell-side analysts in the Western world. According to Matthews Asia, 75% of Japanese small-cap stocks are covered by no more than one analyst—in some cases, by none—while 70% of U.S. small-caps are covered by at least three. Coverage of small stocks is thinner in Japan than in the rest of Asia, as well.

Some of the boom this year is down to frenetic trading by individual investors, but the same is true for the U.S. and many other countries. And the Mothers Index isn’t Japan’s only outperformer: The first section of the Topix index has beaten European stocks and most emerging markets outside of China, after offering some downside protection in March, when Japan’s cash-rich companies suffered smaller share-price declines than their U.S. peers.

The point isn’t that Japan’s small-cap growth stocks offer huge potential upside—but that most Western fund managers would be unable to identify them even if they did. Judging whether they might hold value requires first knowing they exist. It might be time for potential buyers, and research houses, to pay a bit more attention.

Write to Mike Bird at Mike.Bird@wsj.com

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