The world’s second-biggest market has rallied strongly, although the weak yen has hurt foreign buyers
Cris Sholto Heaton Investment columnist
If you were trying to guess – without any other information – the relative size of the world’s stockmarkets, you’d probably expect them to be roughly in line with each country’s share of global GDP. If you did, you would be totally wrong.
The world economy will be almost $110trn this year, at market exchange rates, according to the latest IMF estimates. The US will be around $28trn – or 25% of the total. That’s larger than Europe, but not overwhelmingly – the EU plus the UK and Switzerland and other regional economies will be around $25trn. Yet the US is about 63% of the MSCI ACWI index, which includes both developed and emerging markets. All the European markets sum to less than 15%. Meanwhile, emerging markets are a bit over 40% of global GDP, yet roughly 10% of the index.
What does this imply about the main equity holdings in the MoneyWeek exchange traded fund (ETF) portfolio that we’ve been reviewing in recent weeks? In brief, we are underweight the US (we think it’s expensive), we give Europe a bit more clout, and we have more in emerging markets (as a share of our overall stock exposure) than many portfolios – but nowhere near to their share of global GDP. As discussed last week, we want to be optimistic, but not blind to the risks.
Profitability up, currency down
Then there’s Japan, this week’s subject. Japan is 5% of the MSCI ACWI, the second biggest market after the US, and about 4% of global GDP. We have 10% in Vanguard FTSE Japan (LSE: VJPN), so that is a big overweight as a share of our core equity holdings (which add up to 40% of the portfolio) and even as a share of the total portfolio (ie, including bonds, cash and gold).
MoneyWeek’s bullishness on Japan has been one of its main themes from the start. There have been ups and downs, but
