International Investing: The Diverging Fortunes of China and Japan

Posted on 4-09-2024

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how investing internationally can help increase portfolio diversification and provide access to opportunities that may differ from those in the United States:

The MSCI EAFE Index, which tracks developed markets outside of the United States, advanced 15% in 2023, while U.S. stocks in the S&P 500 Index returned 24%.

One of the world’s hottest developed stock markets was in Japan, where the Nikkei 225 rose 28% in 2023, delivering the best performance in Asia. On the other hand, in China — which is still considered an emerging market — the benchmark CSI 300 Index lost more than 11% over the same period.

A Tale of Two Economies

Ranked by gross domestic product (GDP), a broad measure of a nation’s business activity, China is the world’s second-largest economy after the United States. Japan fell from third place to fourth, behind Germany, at the end of 2023.

In February 2024, the Nikkei surpassed a peak last seen in 1989. Conversely, Chinese stocks fell more than 40% from their peak in June 2021, before turning up slightly in February and March.

GDP growth in Japan has been lackluster; in fact, the nation barely averted a recession at the end of 2023.8 What has been driving the market’s outperformance? After battling deflation (or falling prices) for more than two decades, the emergence of inflation in Japan has been good for businesses. Japanese companies have been putting their capital to work, growing profits, and returning them to shareholders, which has attracted foreign investors. A weaker yen helped by…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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