Some Stock Markets Never Recover. See Japan & Taiwan.

Posted by: Bruce Einhorn on October 29, 2008

Many investors in the U.S. brave enough to look at their latest 401k statements are telling themselves not to worry, since in the long run investing in equities is the best way to go. Let’s hope so. But blogger Matt Yglesias at ThinkProgress, a D.C. think tank, points to a piece in the Atlantic by Megan McArdle about the troubling example of post-bubble Japan. “For years, it’s been a watchword warning to people who say ‘in the long run, stocks always go up,’” she writes. Japan’s Nikkei index peaked at 38915 in December 1989. “In the past two decades, it has struggled back towards 20,000 several times, but never anywhere near its former peak.”

The same holds true for Taiwan. Like Japan, Taiwan enjoyed a gigantic bull market in the late 1980s. And like Japan, post-bubble Taiwan has never come close to recovering. The Taiwan Weighted Index peaked at 12495 on Feb 10, 1990. It then collapsed in a race to zero, falling to 2560 by the beginning of October that same year. In the years after, the best the index could do was during the dot-com craze in 2000; Taiwan and its tech-heavy stock index got a lift, closing above 10,000. But then that bubble popped and the market sank again. Today, the Taiex trades at about 4400, almost two-thirds off its all-time high from 18 years ago.

Luckily, the same thing that Yglesias notices with Japan is true for Taiwan. Yes, the stock market’s boom days are long gone and likely never to return. But people are OK. “The weird thing about it is that though one knows Japan has had some rough economic times, the situation hardly seems as cataclysmic as the stock trends make it out to be. It’s not as if the country’s been bombed into smithereens or suffered wars and revolution. People aren’t starving in the streets. Japan’s citizens continue to enjoy some of the highest living standards in the world. They’re number eight on the UN Human Development Index. They’re ahead of France, Germany, Italy, and Spain in per capita GDP. They have the longest life expectancy in the world. In the greater scheme of things they’re doing fine. And yet the stock market — not so much.”

Likewise, Taiwan today is a far better place than it was back in 1990, when the KMT still enjoyed effective one-party rule, the environment was awful and Taipei a dump. Today, Taiwan has a thriving democracy. Heavily polluting factories have mostly shipped out to China. Taipei is still not about to get confused for Paris but its new parks and subways and shopping districts make it a much more pleasant city. And Taiwanese have some of the best health care in the world.

Something to think about when considering the ups and downs of the Dow and the S&P.

Reader Comments

Bob

October 30, 2008 9:06 PM

Taiwan is not Japan. Taiwanese is still much poorer than Japanese. A decade ago, Taiwanese is richer than South Korean. Now they are somewhat poorer than Korean also. Taiwan wasted a golden decade of opportunity. Instead of taking full advantage of their language and cultural advantage to ride China's economic rise, Taiwan businessman and professionals were restrained by political deadbeats at home. Handing the Korean's an opportunity to leverage China's growth to upgrade their entire economy which zoomed pass Taiwan in the last decade and produced global top companies such as Samsung, LG.

Robert

October 31, 2008 12:46 AM

Taiwan's industrial structure was based on OEM manufacturing for foreign brands. So they did not need to invest huge capitals that South Korea did. As foreign companies move OEM to China, Taiwan lost all together, other than plenty of capitals. It's Taiwan's failure not doing the hard ones. Samsung and LG worked hard for decades to reach the current status!

Infuse

October 31, 2008 3:54 AM

Koreans only have companies like Samsung and LG because of government anti-trust policies that do not allow the import of foerign brands. The Taiwanese have made some successful efforts of building rising global brands, such as Acer, Asus and HTC. But in most newly developed countries it is not possible to build huge conglomerates without the mostly corrupt policies Korea made.

Albert

October 31, 2008 4:03 AM

The thing is that almost all the OEM factories in China are owned by the Taiwanese, and if I remember reading correctly sixty percent of all China's electronics output are owned by Taiwanese comapnies. While South Korea may have brands such as Samsung, Taiwan's foreign reserves are still higher among the world's fourth largest and enjoy a higher average pay.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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