Page 13 - ISQ - April 2022

INVESTMENT STRATEGY QUARTERLY

Lost in Translation

Chris Bailey, European Strategist, Raymond James Investment Services Ltd*

“ Lost time is never found again ”

- Benjamin Franklin

So far 2022 has not been a straightforward year for the last trading day of that year - today’s equity market level (despite
average investor, however global stock market total returns improvements over the last twenty years) is still over 30% below
if divided by an index of 10-year government bond total that high. Today the Japanese stock market is not fundamen-
tally expensive, it is just a market you need to carefully pick and
returns, a measure of relative performance, is currently at an choose investments in. After all the combination of heightened
all-time high. For the average, investor it has not just been a government debt levels and a continued desire by the country’s
remarkably remunerative last decade, but the last genera- central bank to not only maintain negative interest rates but
tion or two. also continue government bond - and other - stimulus pur-
chasing.
There have been changes. I was born during the time of an oil
crisis, but what has been striking since the first few years of the COUNTRY WEIGHTS
1970s is the steady improvement of global energy efficiency
around the world. The best initial improvement came in Japan, 6.35% 4.32% 3.51%
an economy that less than fifteen years later had a world equity 3.22%
index country weighting of over 50%. Japan still has the 14.1%
strongest real output per gigajoule measurement - which is of
help during the current backdrop of heightened energy prices -
but the country’s world equity index weighting is now below
7%. Times do change.
It is not that the Japanese economy has not grown or innovated
over the last thirty years. It is just that the domestic combina- 68.5%
tion of firm multiples, high debt and an ageing population had a
significant effect even before the heightened competition from
the United States, Europe, South Korea, Taiwan and - inevitably
- China and India started to impact. So, what became a globally
popular bull market in the 1980s? With the Nikkei 225 index Source: MSCI World Index (USD) 28/02/22
reaching an all-time high of 38,915 on December 29, 1989, the There are two key insights for global investors. The first is cen-
tred on the likely rising importance of active management
*An affiliate of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc.

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