Why Japanese stocks are outshining the U.S. market
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The reelection of Japan's popular prime minister, Sanae Takaichi, earlier this week pushed the country's long-languishing stock market to new heights.
Why it matters: The Nikkei is just one of the foreign stock indexes beating the major U.S. benchmarks this year — as investors "Sell America" and look to buy elsewhere in the world.
Catch up quick: The "buy something outside America" trend is more than a year in the making.
- In the first half of last year, more money was going into European markets, while interest rose in emerging markets in the second half, says Indrani De, head of global investment research at FTSE Russell.
- More recently, the Japanese and South Korean stock markets have surged.
By the numbers: The Nikkei 225 is up 49% over the last 12 months, compared with 15% for the S&P 500.
- Even more eye-popping? Check out South Korea:
Zoom in: The Korea Composite Stock Price Index, the KOSPI, tracks the performance of all the common stocks listed on Korea's exchange.
- It's up 110% over the past year, largely because investors see it as a strong AI play. You can buy AI stocks — particularly in the semiconductor space — at a cheaper valuation than in the U.S., De says.
- Two of the biggest names on the KOSPI: Samsung and SK Hynix, which make memory chips
The big picture: It's not that a big rush of money is leaving U.S. markets; instead, investors are just looking to diversify a bit away from the U.S. at the margins, and other markets are doing better.
- The S&P 500 is up just 1.4% this year so far.
- The MSCI ex-U.S. index, a basket of international stocks that excludes American companies, is up nearly 9% — and last year saw record growth.
Zoom out: The weaker dollar is playing a big role here. Foreign investors who buy stocks with dollars see returns that don't look as great when they cash out and convert back into their own currency.
- But Japan's market story is primarily about politics.
Japan first elected Takaichi last October. She's the first woman to serve as the country's prime minister. After just a few months, she called for a snap election — it was a gamble; prediction markets gave her a 50% chance of winning a simple majority.
- On Sunday, she won a two-thirds supermajority.
- The Nikkei 225 hit new records in the days following her win.
Follow the money: The stock market appears to like Takaichi's aggressive spending proposals, including one that would temporarily suspend sales taxes on food for two years.
- That rhymes with the market reaction to President Trump's reelection, a gain that's largely evaporated as his policy choices have roiled the markets.
The bottom line: Stock markets can fall out of love with political leaders fast.
