Japan stocks outperform US, Europe markets

In the end, it was a good year for stock markets worldwide. All major bourses saw their prices rebound from their lows reached in March, as the United States prepared to attack Iraq.

Prospects of war rattled investors worldwide, even in those countries which chose to stay out of the coalition of the willing, including France and Germany. Nearly eight months since the attacks, the situation in Iraq remains uneasy at best, even with the capture of the country's former leader Saddam Hussein. But for financial markets, Iraq has become less of a risk. Moreover, the surge in economic growth in the United States in the third quarter, with GDP coming in at 8.2 percent, bourses worldwide have become far more optimistic about future prospects, which has led to an increase in share prices across the globe over the past few months.

But the biggest winner of 2003 was not the European or U.S. markets. Rather, it was the Japanese, even though analysts are still divided on whether the country's recent gains can actually be sustained into next year.

The Financial Times on Wednesday found that of the 500 companies on their international blue-chip list, three of the top four places actually went to Japanese companies. Not only that, but two out of the three biggest Japanese gainers were actually banks.

Of course, the financial sector has long been seen as Japan's Achilles heel, as the accumulation of non-performing loans since the burst of the bubble economy over a decade ago has kept a lid on the availability of credit.

But as major banks merged, consolidated their assets, and generally endeavored to trim down the fat, their attractiveness to investors increased, particularly in the latter half of this year. To be sure, the fact that Japan's economic growth prospects have been on the rise helped bolster demand for financial issues as well, given that an improved economic climate would boost both business and consumer sentiment, which in turn would increase spending and the need for credit.

As a result, UFJ Holdings, created in 2002 as a merger between Sanwa and Tokai banks, saw its share price soar 354 percent in dollar terms over the year. Meanwhile, Mizuho Holdings which was born as a result of a merger between the Industrial Bank of Japan, Fuji Bank, and Dai-Ichi Kangyo Bank, saw its stock gain a whopping 214 percent over the course of the year to rank in as the fourth-biggest gainer among blue-chips worldwide.

Meanwhile, shares of internet provider Yahoo Japan saw its shares gain 326 percent and ranked in at second place, reflected in the overall global optimism about the internet's future prospects. Third position went to U.S. manufacturer Corning, which is the world's biggest fiber-optic maker.

Granted, it's not just the Japanese market that has done well steadily over the past 12 months. In the United States, the Dow Jones Industrial Average had been on a gradual incline since it reached a low of 7,416.64 in March, and actually hit the year-high of 10,456 last week. Nasdaq too has gained steadily from its bottom of 1,253.22 earlier this year, rising above 2,010 this week. Investors' appetites for shares across the board, including high-tech issues which were largely shunned since the burst of the market bubble in March 2000, has been clearly signaled by Nasdaq's rebound.

Across the Atlantic, European equities fared well too, with the FTSE-100 index rising close to 4,500, after hitting a year low of 3,277.50 in March. Meanwhile, the French CAC-40 reached over 3,500 from its nadir for the year at 2,401.15 and the German Dax index closed at its highest level for the year at 3,965.16, up from the 2,188.75 floor reached in spring.

But Tokyo's benchmark index outperformed them all, though it was a fairly close call. The Nikkei-225 average ended the year at 10,676.64, having bottomed at 7,603.76, which marks a 40 percent increase from March. Moreover, the fact that the Financial Times' survey was conducted on a dollar-denominated term also favored Japanese companies, due to the strengthening of the yen over the past few months. Indeed, the U.S. dollar has depreciated to its lowest level in three years earlier in December, and currently hovers around 107 yen.

As for declining shares, their losses were significantly milder compared to the surge seen in the year's biggest gainers. The single biggest declining share this year was Dutch supermarket group Ahold, but its fall was limited to about 30 percent as it struggled with its accounting struggle over the course of the year.