February proved to be a profitable month for equities, particularly in Japan. The Nikkei 225 index surpassed its previous high set in 1989. It was up by 7.9 per cent in February, and has risen by 20 per cent since the beginning of this year. The Nikkei 225 is an unusual index, as it is weighted based on the price of its constituents, meaning that a small company with a large share price has a higher weight than a large company with a smaller share price. On the other hand, the Topix index is a more traditional market capitalisation-weighted index and is a better indicator of the market's health. It saw a 4.9 per cent increase in February and has risen by 14.4 per cent this year, but is still 7 per cent below its all-time high achieved in 1989.
Another anomaly is the main German index, the Dax. It is a total return index, so includes dividends. If the FTSE 100 was a total return index, its relative performance would look much better. I wish there was uniformity across markets and a move to using total return indices. After all, you wouldn’t exclude interest payments when calculating the return of a bond holding.
The performance of US and continental European markets followed closely behind Japan, with many indices hitting new highs. In the US, the Nasdaq composite was up 6.1 per cent in the month (8. per cent in the year to date (YTD)) and the S&P 500 was up 5.3 per cent (7.8 per cent YTD). There was a welcome broadening out in the market, with the Russell 2000 up 5.6 per cent. On the continent, the Italian MIB gained 6.3 per cent (7.3 per cent YTD), the Dax 4.6 per cent (5.8 per cent YTD) and the CAC 3.5 per cent (5.6 per cent YTD). All three indices hit all-time highs at the end of the month. We are getting used to the UK bringing up the rear; the FTSE All-Share was up just 0.2 per cent, while the FTSE 250 was down 1.3 per cent, FTSE Small Cap down 1.7 per cent and Aim down 2.3 per cent.