How Rich Would You Be If You Had Invested US$100,000 In The Nikkei 225 A Decade Ago?


How Rich Would You Be If You Had Invested US$100,000 In The Nikkei 225 A Decade Ago?

The stock market has surged in the Land of the Rising Sun over the past 10 years.

Published on 23 February 2018

The Nikkei 225 Index is Japan’s benchmark equity index, and if you look back over the past decade, it was at 13,310.37 on 20 February 2008. Today it is almost double that at 21,805.58. The prices on the index have risen steadily as the global economy has recovered. Could Japan finally be coming out of the doldrums?

The Nikkei 225 is made up primarily of Japanese companies, with less than 10 foreign companies currently in the index. Compared to the early 1990s when more than 100 could be found there, you really need to know your Japanese companies to make an educated investment in the index today. The index is weighted by sector, and primarily consists of technology, consumer goods, and materials companies.

Significant Gains

Nikkei 225, property, japan

Although the Nikkei has surged over the last decade, its values are still not up to their 1980s peaks. However, if you would have invested US$100,000 in the index ten years ago, you would have earned US$63,820 – making your investment worth a total of US$163,820. Granted you may have been thinking that investing that much back in 2008 would have been a risky move. The world was in recession, and the Nikkei wasn’t looking much better. It was flat for several years with minor swings that may have made you lose faith.

Property Prices

Nikkei 225, property, japan

Is the Nikkei 225 the best place to have invested that US$100,000 of your hard earned money? Compare it to the Japanese residential housing market and having crashed in the recession, prices have gradually increased over the past decade. According to Trading Economics Japan Residential Property Price Index, in 2008, the residential market was at 108 points before it dived. Today we are close to 109 points. Albeit we are not at the highest point in the past 10 years, as the index hit 112.22 in January of 2017.

Again, with Japanese residential property, your best results would depend on when you hopped on the property ladder. Taking into account the country’s market as a whole, if you invested US$100,000 a decade ago unless you sold it in January of 2017, your returns would be pretty flat. However, if you invested in 2009 when the index was below 98 points then you’ve done well. Interestingly, this can change drastically depending on the type of residential property. The top performer has been condominiums hitting well above 130 points in the index from a bottom of 95 in 2009. At this rate, we may see sales prices hitting highs not seen since the early 1990s. With the Olympics coming up in Tokyo, expect prices there to gradually increase as well for the time being.

If we look at the Japan Commercial Property Price Index, we see again a similar trend. Price drops in 2009 followed by a steady climb to the current level that surpasses where prices were in 2008. Commercial prices are nowhere near their 1980s and early 90s highs, when Tokyo offices were hitting 500 on the index though. Today investors will have to settle in the 140 to 150 range. According to Ziv Nakajima-Magen of Nippon Tradings International, states that residential property is less volatile when it comes to vacancies and rents in the capital and as such, many investors who were in commercial real estate are now changing tack to residential.

The bottom line

As for the Nikkei 225 index, well it’s expected to continue its upward trend. Trading Economics predict it to be in the 23,000 plus range by the end of Q1. However in the next 12 months it’s predicted to be down in the 21,000 range again. Could the Japanese economy be heading back into bearish territory?

Japan’s equity and property markets, historically, have tended to follow each other. Thus if the Nikkei really does drop off this year, it is likely the property market will follow. If you are still confused about where to invest in Japan, you could always follow the eyebrow analysis for further clarification. Invest wisely!