Markets
Japan Officially Gets Leapfrogged by the Four Asian Tigers
Japan Officially Gets Leapfrogged by the Four Asian Tigers
Throughout the decades in the 1950s and 1960s, the Japanese economy was envied for its unrelenting growth.
Dubbed the “Post-War Miracle”, this period of time saw Japan become a global center of manufacturing and exports. Japanese brands such as Toyota, Sony, Honda, Mitsubishi, Panasonic, and Canon would become household names worldwide. By the 1960s, Japan catapulted to become the second largest economy in the world.
Today, Japan has the third largest economy in terms of total nominal GDP, and the fourth largest by GDP adjusted for Purchasing Power Parity (PPP). This doesn’t seem so bad on paper, but Japan also has nearly 130 million people.
What do those amounts look like per capita? It turns out to be not so good.
After over two decades of economic stagnation, the most recent GDP per capita (PPP) numbers for 2014 by the IMF had the Japanese economy in 29th place globally. As you saw in the opening chart, even more recent projections from another source show that all four Asian Tigers have now all officially leapfrogged Japan in terms of GDP per capita (PPP).
The “Four Asian Tigers”, a term used to reference the highly free-market and developed economies of Hong Kong, Singapore, South Korea, and Taiwan, have continued to grow despite Japan’s struggles. Singapore, a significant Asian banking center, passed Japan in GDP per capita (PPP) back in 1979. Hong Kong would be the next to do so in 1993, and Taiwan would jump ahead during the Financial Crisis. The last of the leapfrogging happened when South Korea passed Japan this year.
This shouldn’t be too surprising, as the struggles of Japan over the last 25 years have been well-documented. However, a point of interest may be the context of how these challenges began.
In the mid-80s, the yen had basically doubled in value against the dollar. For a manufacturing and exporting nation (similar to how China is today), this was less than ideal. While this was happening, the Bank of Japan intervened with five sessions of monetary easing starting in January 1986 to weaken the yen, cutting interest rates from 5.0% to 2.5% in just one year.
During this time, monetary growth was much quicker than anticipated. More-than-sufficient liquidity and ultra low interest rates fueled speculation, which helped lead to inflate a classic asset bubble. In the early 90s, the BOJ hiked rates to counter speculation and curb inflation.
The asset bubble popped, and Japan’s economy would be sent into the “Lost Decade” – a “decade” which has lasted 25 years.
You can see the drastic increase in money supply leading up to the crisis here:
Japan now has the world’s highest debt-to-GDP ratio of 243% as well as the world’s highest debt-to-revenue ratio.
Despite this, they’ve started an even more potentially dangerous experiment known as Abenomics, which is the three-headed beast of unprecedented quantitative easing, monetary stimulus, and reforms.
Original graphics by: Utopia – You’re Standing In It (blog), Trading Economics
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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