Is Japanese Stock Promising in 2024? Or Is US Stock Better? - Judging Relative Strength with 4 Indicators

On February 22nd, the Nikkei 225 Stock Average, a Japanese stock market index, reached a record high of 39,098 yen. This marked the first time in 34 years that it surpassed the previous peak of 38,915 yen, which was reached during the 1989 bubble. On the same day, the Dow Jones Industrial Average in the United States also broke through the 39,000-dollar mark for the first time in history. With both Japanese and US stock market indices hitting record highs simultaneously, it is necessary to assess the relative strength of the two countries to determine future stock investment destinations.

Indicators such as the ND Ratio, ST Ratio, and NT Ratio can help us make this judgment. By using these indicators, we can compare the relative strength of Japanese and US stocks.

First, the ND Ratio is an indicator that shows the relative strength of the Japanese and US stock markets. It is calculated by dividing the Nikkei 225 Stock Average by the Dow Jones Industrial Average. A value greater than 1 indicates that Japanese stocks are relatively stronger, while a value less than 1 signifies that US stocks are stronger.

With the Nikkei 225 reaching a record high on February 22nd, the ND Ratio also exceeded 1. This was the first time since April 2016, and it served as a signal that Japanese stocks are relatively stronger than US stocks once again.

Meanwhile, the ST Ratio is calculated by dividing the S&P 500 index by the TOPIX index, and it can also be used to compare the relative strength of the two countries' stock markets. As of March 2024, the ST Ratio stands at approximately 2.0, suggesting that US stocks are still outperforming Japanese stocks.

Another indicator, the NT Ratio, is calculated by dividing the Nikkei 225 Stock Average by the TOPIX index, allowing us to assess the relative strength of large-cap and small-cap stocks within the Japanese stock market. As of March 2024, the NT Ratio is around 0.7, indicating that small-cap stocks are outperforming large-cap stocks.

These various ratio indicators help us assess the relative strength of Japanese and US stocks. The Nikkei 225's record high and the rise in the ND Ratio suggest that Japanese stocks may be a more favorable investment destination compared to US stocks. However, it is important to consider other indicators as well.

When making investment decisions, it's crucial to consider macroeconomic factors such as economic growth prospects, interest rate policies, and monetary policies, as well as individual company growth, investor risk appetite, and investment horizon. Generally, US stocks tend to have higher growth potential but also greater volatility, while Japanese stocks are considered more stable.

Therefore, investors should consider their investment goals and risk tolerance when constructing a portfolio that includes both Japanese and US stocks. By carefully examining various factors such as stock market indices, ratio indicators, company performance, valuations, and the macroeconomic environment, investors can expect to achieve stable and long-term investment returns.