Japan in the News, But It’s Nothing New
Japan’s stock market has been in the news lately for setting “a new market high.” While its stock market did exceed the 1989 high-water mark, this strains the definition of “news.” Using a market-cap-weighted index that includes dividends, that threshold was cleared back in May 2017.
Japan’s stock market history is an important talking point but for a different reason: the prospect of a market going decades without a positive cumulative return. Many investors, who expect the US stock market’s recent dominance to continue, have questioned the benefits of global diversification. They would do well to view Japan as a cautionary tale. I doubt many investors in the late 1980s would have expected the broad Japanese market to go nearly three decades without a new high. Even some of the concerns about Japan in 1989—high valuations, top-heavy performance—resemble today’s concerns about the US market.
History says it’s challenging to pick which countries will outperform. Japan’s experience suggests there’s a lot of uncertainty around individual markets. Global diversification helps mitigate that uncertainty.