Japan’s stock market has been in the news lately for setting “a new market high.”1 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.
Exhibit 1 – Growth of $1
MSCI Japan Index (net div., USD), January 1, 1980–February 29, 2024
Past performance, including hypothetical performance, is no guarantee of future results.
Data presented in the growth of $1 chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment.
MSCI data © MSCI 2024, all rights reserved.
This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients. It was not written, created, or published by Summit Financial Partners.
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