Nikkei’s drop this past week caps incredible 5-year run-up
NEW YORK » The Nikkei's plunge this past week made the headlines around the world, but what's really worth noting is how well Japanese stocks have done since 2000.
While U.S. stocks spent much of 2005 supine, Japan and other foreign markets, especially the Euro-zone countries, booked superb performances. Their outlook for this year is just as upbeat.
Japanese stocks rose 24.8 percent between 2000 and 2005. And despite the Nikkei's 6.7 percent decline in the three days of trading ending with Tuesday's early close, the market is expected to have another solid performance for the year.
European equities have been marching up since March 2003; today they are roughly 90 percent higher than they were then, according to Merrill Lynch. German stocks rose 50 percent in 2005.
U.S. investors have been putting their money where the growth is. In 2005, they put more money into international stock funds than domestic funds for the first time in more than 20 years, according to Merrill Lynch.
It looks like that trend is continuing. During the four weeks that ended Jan. 4, 2006, investors pulled $2.07 billion out of U.S. domestic equity funds, while they invested $802.5 million in international stock funds, according to a report by Bank of America.
The trends "remain consistent so far in 2006: International and emerging market equities are seeing much better demand than the domestic equity market," Bank of America strategist Thomas McManus wrote in a recent report.
Japan's "current recovery is the real deal," Merrill Lynch North American economist David A. Rosenberg wrote recently. "For the first time in 15 years, we have a pickup in domestic demand that's not hinging exclusively on government building of bridges and paving of river beds that nobody needs."
Signs of growth include rising golf membership fees and land prices as well as increasing amount of bank loans, he wrote. Merrill's Tokyo-based economist, Jesper Koll, sees capital spending growth among small- and mid-sized companies and new homes.
"Strengthening spending patterns are being underpinned by capital expenditure, job creation, and rising wages in Japan," Koll wrote in a recent report.
Martin Jansen, a senior portfolio manager in international equities at ING Investment Management agrees that Japanese retail sales are rising and corporate sentiment has improved markedly.
As for markets in the Euro zone, their biggest similarity to U.S. markets is that analysts' have been consistently underestimating corporate earnings. Their biggest difference: European economies lack some of the worries that persist in the United States.
Europe's savings ratio is high and has risen in recent years, according to Merrill. European nations don't have the towering trade deficit the U.S. faces. Household debt is low by international standards. And most European countries haven't experienced ballooning housing prices in recent years.