Harris Associates is a Chicago-based investment company that had $95 billion in assets under management as of the end of September. The firm, known for "value investing", is an affiliate of French Natixis Investment Managers.

Vice Chairman David Herro said the company's Oakmark International funds were overweight Europe, with a particular interest in financial stocks.

"Our attraction to the values is based on price and quality (of the company). Right now, the biggest pocket of value that we see is European equities," he said.

Herro said European stocks, especially the German market, are undervalued in terms of their return on equity and price-earnings ratio, as equity prices have been driven down by energy prices and global events such as the war in Ukraine.

Harris Associates, however, is approaching Japanese stocks more selectively, Herro said, adding the company's holdings have fallen as stock prices rose in the "Abenomics" rally.

Compared to Europe, the Japanese market was not as undervalued and there is room for the return on equity to grow, he added.

However, while the overall market might not present the same opportunities as Europe, Harris Associates finds stocks in certain sectors, such as IT services and human resource services, attractive. Drugstore stocks like Sugi Holdings and Sundrug were also worthwhile, he said.

The price of stocks in Japan was one of the barriers preventing Harris Associates from taking a more bullish stance, Herro said, as these have ticked up since the early 2010s.

As a result, Harris Associates' proportion of Japanese stocks dropped from as high as 23-24% to nearly zero at one point. Its most recent ratio stood around 3-4%.

Herro said Harris Associates would like to see more pressure from the Tokyo Stock Exchange and shareholders, including Japan's Government Investment Pension Fund, on companies to improve capital efficiency and balance sheets.

"There is opportunity, but you just have to remove a lot of dirt and a lot of rocks, and filter to find gold. So it's there, it's just hard to find it," adding that the conditions to find such nuggets of gold in Japan are "getting better".

(Reporting by Tomo Uetake; Writing by Brigid Riley; editing by Miral Fahmy)

By Tomo Uetake