It’s not too late to profit from the renaissance, says Alex Rankine
Markets
Not since the Berlin Wall fell has the Nikkei been this high, says William Pesek in Nikkei Asia. Japan’s Nikkei 225 stock index has finally surpassed its December 1989 record peak, breaking through the 39,000-point barrier late last week. Long cited as a “cautionary tale”, the land of the rising sun is suddenly in vogue as an “investment hotspot”.
The Nikkei hits new highs
Much has changed in the 34 years since the Nikkei last traded at these levels, says Eir Nolsøe in The Telegraph. Back in 1989, Japan was feeling hubristic. Its leading tech firms “were churning out Gameboys, chunky computers and Walkman stereos”. Japanese equities then accounted for nearly two-fifths of global stockmarkets, dwarfing the US share.
“A whole generation of investors were scarred by the brutal sell-off” that followed, says Dan Boardman-Weston of BRI Wealth Management. Stagnation persisted for decades; the Nikkei only finally bottomed out in 2009 during the global financial crisis. Reforms initiated by prime minister Shinzo Abe in the early 2010s initiated a slow but steady recovery. Now the Nikkei is finally back, gaining more than 17% already this year to make it the world’s best-performing major index. “Psychologically, it is a huge moment” for Japanese investors.
By 2022 Japan’s share of the global equities universe had shrunk to a mere 6.3%, with the US dominant at 58%, say Leo Lewis and Kana Inagaki in the Financial Times. It has been a gruelling climb back – since 1990, there have been six big rallies in Tokyo, “all of which ultimately fizzled out”. Some analysts caution that the local market may again be running ahead of economic fundamentals: Japan slipped into recession at the end of last year and recently ceded the title of world’s third-biggest economy to Germany. Yet it is this very lack of “exuberance” that suggests the market is not overheating and that the rally still has room to run.
Although widely cited in the media, the Nikkei is a deeply “flawed measure” of the health of Japan’s stockmarket, says James Mackintosh in The Wall Street Journal. Much like America’s similarly outdated Dow Jones, it weights higher priced stocks more heavily than lower priced ones. That’s “silly” because “the price of a stock is an arbitrary result of how many shares the company chooses to issue”. T
