Japanese stocks have hit a new milestone – one not seen since 1990
The Nikkei 225 – Japan’s oldest stockmarket index – has finally hit 30,000 for the first time in 30 years. It’s just one more reason to invest in one of our favourite markets, says John Stepek.
We've long been fans of the Japanese stockmarket here at MoneyWeek magazine.It's an obvious side effect of our contrarian tendencies –it's hard to think of any other relatively mainstream asset class that has been treated with more apathy by investors in general, over the two-decade lifetime of the magazine.
So it's nice to see that Japan's stockmarket hit a bit of a milestone this morning. Again. For the first time in more than 30 years. The Nikkei 225 burst past the 30,000 mark for the first time since 1990. I mean, wow – 1990. Some of you weren't even born then.
The Nikkei is a daft index but that's no reason to ignore it
To be absolutely clear, as an index, the Nikkei has its flaws – lots of them. It's very similar to the Dow Jones index in the US from that point of view. The Nikkei has 225 companies in it – the Dow only has 30 – but they both do this rather deranged thing of ranking the stocks in the index by their share price, rather than their market capitalisation. So for example, a company with a million shares outstanding at $1 a share would have a market cap of $1m. A company with 250,000 shares outstanding at $2 a share would have a market cap of $500,000. But the latter company would outrank the former in the Nikkei (or the Dow). Because its share price is bigger.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The only reason people pay attention to the Nikkei is because it's the oldest Japanese stock index. It's been around since 1950. Again, it's the same story for the Dow Jones index. If you want to get a sensible reading of the Japanese or US markets, you shouldn't turn to the Nikkei or the Dow. You should turn to the Topix (Tokyo Price Index), which includes all of the stocks on the Tokyo Stock Exchange, and is weighted in the sensible way, by market cap. Similarly in the US, the S&P 500 is far more representative of the US market.
The counterargument to this is that, for all their flaws, people pay attention to these indices. They go in roughly the same direction as the others that represent their respective nations (indeed you might start to wonder why anyone worries about index composition). For example, the Topix hit its highest level since 1991 too. And when big headline indices hit big eye-catching round numbers, people pay attention. That's because people are people, not narrowly rational automatons. That should be pretty clear by now, given the fun and games we've seen with GameStop recently.
So, Nikkei 30,000, just over 30 years on from the first time, seems like a good moment to take stock of what's going on with the Japanese market right now.
There are lots of reasons to like Japan, but the simple rebound play is reason enough
Japan has done pretty well in terms of dealing with the Covid-19 pandemic. For reasons that don't appear to be entirely clear (in that its lockdown wasn't notably aggressive), Japan has suffered only a "modest Covid-19 toll" as the Nikkei newspaper puts it.
Meanwhile, its GDP grew at an annualised 12.7% in the fourth quarter of last year. That's a big leap. And the drop in GDP for the whole year was just 4.8%, better than during the financial crisis and better than expected by most economists. In all, the economy is pretty much back to where it was before the coronavirus outbreak. Spending has followed a similar pattern to most other places – consumers spending more on their houses, and a lot less on travelling. That solid pace of recovery has helped to boost cyclical stocks. Capital Economics reckons that first-quarter GDP will turn out to be better than anyone currently expects too. On top of that, "the recovery should get another shot in the arm from the rollout of vaccines".
There are plenty of fundamental reasons to like Japan too – slow but sure corporate governance reforms, the fact that it's one of the few big markets where there are still a lot of "value" stocks. But to be perfectly shallow about it, the rebound potential alone is reason enough. Japan is a market that tends to draw the attention of investors when they're looking for catch-up plays, so anyone who is struggling with FOMO (fear of missing out) right now and is casting about for assets that might deliver big rebounds quickly, will almost certainly alight on Japan at some point in their search.
Last year, Merryn interviewed one of our favourite long-time Japan strategists, Jonathan Allum – you can read more here. And we'll have a lot more on all of this in MoneyWeek magazine in the near future. Get your first six issues free here.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
Cash hoarders take total UK savings to £2 trillion – why aren’t we investing?
Investment-shy Brits are hoarding huge amounts of cash in their savings accounts. We look at the case for saving versus investing.
By Katie Williams Published
-
The MoneyWeek Christmas Charity Appeal: who are we supporting and how to donate
This year MoneyWeek is supporting YoungMinds, tackling mental health for children and young people. Here’s why we are partnering with YoungMinds and how you can help.
By Kalpana Fitzpatrick Published
-
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
-
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
-
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
-
Best investing apps
Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
By Ruth Emery Last updated
-
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
-
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published
-
UK recession: How to protect your portfolio
As the UK recession is confirmed, we look at ways to protect your wealth.
By Henry Sandercock Last updated