Markets In Europe And Japan Fall Apart For The Year, The US Holds Its Own

The Nikkei 225 will end the year down about 11%. The FTSE 100 will be slightly better than flat. The Swiss market will be down 3% and a number of other indices in Europe will close the year in the red.

It is perhaps a bit cruel to compare these markets to the Shanghai Composite, which is up 100% in 2007. Comparing them to the US markets may be more reasonable.

What happened to the old world exchanges? Clearly they had financial shares which fell due to the sub-prime financial troubles. Their car companies may not have done well because of the pullback in spending in many regions. Even shares in Toyota (TM), the most successful car company, are down 20%. The large pharma companies in these regions have done badly because of competition from generics.

But, the real reason that Japan and Europe are down is the same reason that they are not likely to recover. The saving grace for US markets has been tech. Japan and Europe do not have it, and it is almost certainly too late to get it. That is not to say that Sony (SNE) and ST Micro (STM) are not good companies. But, they are not in the league of Microsoft (MSFT), Cisco (CSCO), Google (GOOG), Intel (INTC), or Hewlett-Packard.

Europe and Japan will under-perform the US markets, perhaps from years, because they do not have the key industry that drives growth–tech. It may be an accident of history, but hardware, software, and the internet were largely built in the US and it remains that way.

As a coda, it is worth remembering that much of the rise in the markets in China is based on oil, telecom, and manufacturing companies. They are no less vulnerable than their counterparts in Europe. It is just that the time horizon is different.

Douglas A. McIntyre