Japanese stocks continue to soar, but the market seems to be overestimating the representation of the Nikkei.
On Tuesday, the Nikkei 225 index once again approached the all-time high set during the 1989 bubble and was at 38,957At 44 points, the difference was only 16%。
Since the beginning of this year, factors such as a weakening yen, record corporate profits, and a relatively loose policy environment have pushed Japanese stocks to new highs, and the Nikkei Stock Average has approached record highs several times, rising nearly 15% so far, showing signs of the economy "returning to prosperity".
While the market rejoices, there is a ** opinion warning that the Nikkei is "flawed" and it is too early to celebrate.
Similar to the S&P 500, a large blue-chip index in the United States, the Nikkei 225 is also a broad-based index that measures the overall level of the market, founded by the Nihon Keizai Shimbun in 1950, and is compiled using the geometric averaging method, that is, the simple average of the sample*** is used as the basis for calculation.
As a result, the higher the share price of **, the greater the impact on the Nikkei。Currently, the largest constituent of the Nikkei is Uniqlo's parent company, Fast Retailing, with a weight of nearly 11 percent — but if you sort by market capitalization, Fast Retailing has less than 2 percent.
According to the analysis, although the trading volume of the stock index** contract is far less than that of the Nikkei, the Topix index compiled by the Tokyo ** exchange may be a more appropriate measure. At present, the Topix index is still more than 8% below its peak in December 1989.
Secondly,The Nikkei does not account for dividend returns and does not exclude the effects of inflation, and the index has been more than 80% since 1989, and it seems that the current increase is not convincing enough to measure the change in the return level in the past 34 years, and it is not a reference for the expected market outlook.
In the long run, the compounding effect of dividend reinvestment has a huge impact on returns. Data shows that over the past half-century, U.S. stocks have returned 62 times without dividends, but as high as 250 times if dividends are included. Japan's current dividend yield of 2% is much higher than that of the United States.
Inflation also had a significant impact on the growth of stock indexes. Although the Japanese economy fell into deflation during the "lost decade", inflation outside of that period largely contributed to the gains of major stock indices. Adjusted for inflation, the Nikkei 225 and the Topix index are still rising well below their peak in 1989, excluding inflation.
At the same time, investors' money is becoming less and less valuable, as the long period of easing has weakened the yen to 1989 levels.
So when the market is celebrating the return of Japanese stocks to their highs, it doesn't mean that the boom era is happening again. But despite the "flaws" of the stock index, the year-on-year high inflation and high corporate profits do send a signal of recovery, and the market can begin to believe that the haze after the bursting of the asset bubble has dissipated.
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