Weekly Buzz: 🏅 The economic marathon for third place

16 February 2024

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Among the biggest economies of the world, in terms of GDP, Japan just lost its third place standing to Germany. India, on the other hand, is shaping up to beat them both.

What’s going on here?

In US dollar terms, the Japanese economy shrank from $6.3 trillion in 2012 to $4.2 trillion in 2023. But that’s mainly because the Japanese yen weakened against the US dollar during that time. In fact, when you take out the greenback factor, the economy likely picked up by 12% in the span of those 11 years.

So if the yen strengthens enough, Japan could take back its spot. What’s more, with whispers that its central bank may raise interest rates for the first time since 2007, Japan may soon turn its decades-long deflation around.

Keep in mind, Germany’s also stumbling in the race. Production levels in the country’s industrial sector – which tends to lend bragging rights to Europe as a whole – were 1.6% lower in December from the month before, reaching a level that’s 10% below the pre-pandemic rate.

It’s no wonder Japan and Germany are jostling over the same spot on the podium. They both have ageing and shrinking populations, which is weighing heavily on all of their industries.

India, meanwhile, is on a tear: the country’s population not only inched ahead of China’s last year, but it’s younger, too. That spritely workforce is why, according to some analysts, India’s on track to beat Germany’s economy.

As an investor, what does this mean for me?

In the global marathon for the top spot, rankings will always change – that’s just the nature of markets and economies.

But if you’re keeping track of the standings, and wondering which country will pull ahead next – why not bet on all the competitors? Investing in a globally diversified portfolio (shoutout to our General Investing portfolios) lets you keep pace with the growth of the world at large.

💡 Investors’ Corner:

A good market indicator might just be sitting on your coffee table

In some industries, being featured on the cover of a major magazine and touted as “the next big thing” would be seen as a reliable sign that you’re on the rise. In the financial markets, well, it might mean that the story’s reached a saturation point.

Let’s look at some of the greatest hits of the appropriately named “magazine indicator”. The cover of BusinessWeek in 1979 boldly proclaimed “The Death of Equities”, just before a roaring bull market. And The Economist’s 2003 cover claimed “The End of the Oil Age”, when crude was a mere $25 a barrel – and soon began its yearslong rise to $145.

These magazine moments are more than just quirky coincidences: they’re a window into market sentiment at its peak. The usefulness of the magazine indicator boils down to the market’s forward-thinking nature – investors are always trying to stay ahead of the game.

Current prices mostly aren’t about what’s happening now, they’re more about what might happen next (our Simply Finance section below breaks this down). And by the time a price trend hits the cover of a big magazine, chances are it’s old news to the market.

Keep in mind, while it’s a fun way to look back on history, this indicator is also often wrong. So while we wouldn’t base our investment strategies on magazine covers anytime soon, they’re still worth keeping an eye on.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Forward-looking market

Investors and traders often make decisions based on what’s expected in the future, rather than just current or past events – a forward-looking market. It’s the reason why some companies are priced highly in the market, like with tech stocks.

Trying to predict future trends involves a variety of indicators, economic data, and analysis techniques. It's like steering a ship based on weather forecasts, rather than just reacting to the waves, allowing investors to potentially anticipate upcoming opportunities and risks.

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