No “bull market” in transition?Review Japan and South Korea’s performance that year

No “bull market” in transition?Review Japan and South Korea’s performance that year
Author: Changjiang Securities fixed income macro Zhao team, Source: Yangtze macroscopic solid income China is currently in the transition phase, and Japan in the late 1970s and early 1990s, Korea highly similar.On the review date, the performance of the capital market during South Korea’s transition may play an important role in guiding future investments.  Japan and South Korea have similar and similar starting points for transition. The policy guides the upgrading of the industrial structure and the smooth realization of shifting gears. As a typical catch-up economy, South Korea has certain similarities in growth paths and transition starting points.Japan and South Korea are rapidly catching up. Exports and investments are driving economic growth and the heavy chemical industry is leading.Around 1970, Japan’s resource constraints were increasing, demographic dividends gradually disappeared, and the economy was under pressure to change under the external Nixon shock and the oil crisis.Korea also faced a similar breakthrough before the transition in the early 1990s.  During the transition period, Japan and South Korea’s economic growth mode turned to technology and innovation drive, and the industrial structure tended to optimize.During the transition period in Japan and South Korea, the government vigorously supported the development of strategic emerging industries through industrial, fiscal, tax, financial, and talent policies.During the transition period in Japan, we vigorously supported knowledge-intensive industries such as computers, precision machinery, and aviation; during the transition period in South Korea, we focused on the development of strategic emerging industries such as electronics, fine chemicals, and biotechnology.  During the transition period, Japan and South Korea’s stock market trends were quite different, but not as the “transition-free bull market” as some views suggest. Japan ‘s mid-to-late transition period and the stock market ‘s “ten-year slow cow”; during the transition period in South Korea, almost zero returns in ten years.Come long cow.During the initial period of Japan’s transition from 1971 to 1974, the stock market rose first and then fell, with overall shocks. From 1975 to 1984, the stock market rose unilaterally, with a compound annual growth rate of 12%.During the 1993-2003 transition period in South Korea, the stock market fluctuated violently, and the overall yield was almost zero. After the successful conversion, we ushered in a long-term bull market.  Japan and South Korea’s stock markets performed differently, related to the macro environment and policy choices during the transition period.In the middle and late stages of Japan’s transition, policies no longer blindly stimulate, and under the condition of relatively stable internal environment, the support of the industrial upgrade to the economy and expectations has brought quite smooth to the stock market.In the early stage of the transition, Korea excessively increased leverage to stimulate the economy; in the later stage of the transition, it experienced the impact of the external financial crisis, deleveraging internal reforms, and suppressed economic and risk appetite in stages.  The bull market has no obstacles to the transformation of the “structural bull”: strategic emerging industries and consumption upgrades have long outperformed the market day. During the Korean transition, the strategic emerging industries that have been supported by policies and accelerated promotion have long-term excess returns.During the transition period, the market performance reflects the adjustment direction of the industrial structure to a certain extent.In the middle and late stages of Japan’s transition, information and communications, and precision instrument indexes led the market.During the transformation of South Korea, electronic equipment and chemicals led the rise, and electronic midstream and upstream metal products also had excess earnings. After the successful conversion, they still performed well.  The electrical and pharmaceutical consumption upgrade sector outperformed the market for a long time; the traditional transportation services and banking financial sectors performed relatively flat during the conversion phase.During the transformation stage, Japan’s electronics and pharmaceuticals, and South Korea’s medical sector all significantly outperformed the market and performed well after the successful transformation.During the transformation of the Korean food and beverage consumption sector, there were also excessive returns.In addition, traditional transportation services such as banking financial services and ocean shipping performed poorly during the transition period.  China’s current stage of economic transformation is highly similar to Japan in the late 1970s and South Korea in the early 1990s.On the review date, the performance of the capital market during the transition period in Korea is of great significance for future long-term restructuring investments.  At the end of the last century, Japan and South Korea successively transformed, with gear shifts, structural optimization, and traditional growth models facing exhaustion. Japan and South Korea successively started economic transformation.Japan and South Korea are rapidly catching up and the heavy chemical industry is leading the economic growth.  The rapid economic growth of Japan and South Korea is highly dependent on export expansion and domestic investment expansion.In the 1950s, the Japanese government formally established an “export-oriented nation” economic strategy and introduced a series of industrial rationalization policies to improve industrial production efficiency and develop alternative industries with international competitiveness.In order to promote the improvement of industrial efficiency, the government strongly encourages enterprises to carry out equipment renewal and investment, leading to the rapid expansion of internal investment.Similar policies were introduced during the take-off phase in South Korea.In 1962, the South Korean government announced the first five-year economic plan, formally proposing “economic growth first”, “industrial nation” and “trade nation”, and clarified the export-oriented development strategy.  The rapid industrialization led by the heavy chemical industry was an important way for Japan and South Korea to maintain rapid growth for a time.Japan and South Korea’s industrial policies and supporting measures have played an important role in tandeming changes in the industrial structure.From the 1950s to the early 1970s, Japan promoted the improvement of production efficiency in the basic sectors of steel, electricity, and shipbuilding. At the same time, it vigorously developed heavy-chemical industries such as automobiles, synthetic fibers, petroleum smelting, petrochemicals, and pulp, which have higher value-added production.The industry is expanding at an average annual rate of nearly 15%.In the 1960s, South Korea used labor-driven industries such as light industry as its industries; in the middle and late stages of the catch-up phase, the economy shifted to capital-driven industries. In the 1970s, it was dominated by heavy chemical industries such as steel and petrochemicals. In the 1980s, it was dominated by heavy industries such as shipbuilding and automobiles.  Under the influence of internal and external factors, catching up is at the end, and the economy is in urgent need of transformation. In the early 1970s, Japan ‘s demographic dividend gradually disappeared, environmental constraints gradually changed, and the traditional traditional growth model of high energy-consuming heavy chemical industry was unsustainable; the first oil crisis broke out.To further promote the transformation and upgrading of Japan’s industrial structure.In the early 1970s, Japan’s population dependency ratio bottomed out, and the birth rate increased from a gradual high in 1973. 217% continued to fall, the traditional demographic dividend advantage gradually disappeared, the re-financing of labor funding began to appear, and pressure on the cost side of manufacturing continued to accumulate.During this period, the extensive environmental damage caused by the extensive expansion of Japan’s heavy chemical industry, air pollution, and water pollution affected the health of Japanese residents, and caused great concern in Japan.The disappearance of the demographic dividend and the continuous expansion of environmental and resource constraints have increased the urgency of Japan’s pursuit of transformation and upgrading.The significant increase in crude oil prices brought about by the oil crisis in the 1970s has impacted Japan’s heavy chemical industry, which is highly energy-dependent, and has further promoted the transformation and upgrading of Japan’s industrial structure.  In the early 1990s, South Korea also faced conflicts such as demographic changes, rising labor costs, and the decline of traditional dividends, as well as opening the road to economic transformation.During the catch-up phase from the 1960s to the end of the 1980s, the proportion of the working population aged 15-64 in South Korea increased from less than 55% to about 70%, which provided a lot of human resources for the rapid development of South Korea ‘s labor-intensive industries, and the demographic dividend advantage was significant.In the catch-up phase, South Korean labor wage levels have continued to rise. Due to the relatively sufficient load supply, cost-side pressure has even fully emerged, which has a relatively limited impact on the competitive advantage of South Korean manufacturing.In the early 1990s, the growth rate of the Korean labor force population slowed down and remained at a level of 70%. Truck wages accelerated, eroded corporate profits, demographic dividends gradually disappeared, and the competitive advantage of the manufacturing industry weakened.  During the transition period, the traditional heavy and chemical industries in Japan and South Korea continued to shrink, the industrialization rate tended to transition, and the economic growth rate naturally dropped from the high-growth interval in the early catch-up phase to the low-mid-growth interval.In the catch-up phase, Japan and South Korea are fast industrializing with heavy industries as their starting point, and achieving rapid economic growth.During the transition phase, Japan and South Korea ‘s heavy industries continued to shrink, dragging down the industrialization rate, and economic growth also shifted from high-speed growth to low-medium speed growth.For example, from the early 1970s to the late 1980s, Japan’s industrialization rate continued to fall from more than 40%, and the economic growth center fell from about 10% to about 4%.  In the transition stage, growth shifted to innovation-driven, and the industrial structure moved towards high-end. From the introduction of technology to independent innovation, economic growth shifted to innovation-driven introduction and absorption of overseas advanced technologies. It is an important driving force for Japan and South Korea to catch up with technological progress and industrial structure upgrade.After the end of World War II, in order to rapidly upgrade its technological level, Japan formulated an “absorptive” technology development strategy, vigorously introduced advanced foreign technology, and achieved technological catch-up with a small cost.From 1950 to 1975, Japan introduced a total of 25,777 foreign technologies, and has mastered almost all the technologies invented in the world for half a century.More importantly, after Japan introduced overseas technology, it attached great importance to the absorption and digestion of technology, and further innovated on this basis.During the catch-up phase, the number of overseas technologies dating to South Korea has also increased rapidly, mainly from countries such as the United States and Japan, and concentrated in machinery (27.8%), electrical and electronic (20.5%), petrochemical (16.3%) and other sectors.  During the transition period, while Japan continued to introduce overseas technologies, it increased domestic R & D efforts to support and guide the accelerated development of technology-intensive industries such as electrical machinery.Since the transition, the proportion of Japanese R & D investment in GDP has continued to increase, since 1970.3% continued to rise to 2 in 1988.6%; among them, the expansion ratio of the development of technology-intensive industries such as electrical machinery and precision equipment significantly exceeds the level of all manufacturing industries, accumulating rich technical advantages for the rapid expansion of technology-intensive industries in Japan, and further driving the industry to be capital-intensiveUpgrade to technology intensive.Under the background of continuous improvement of R & D and promotion, some industries such as electrical machinery continue to accelerate the appointment of external advanced technologies to achieve catch-up development in emerging fields.  During the transformation stage, the Korean government increased investment in education, attached importance to personnel training, strengthened scientific research and promotion, and significantly improved the capacity for independent innovation and growth. The global competitiveness of some industries represented by electrical engineering was gradually strengthened.During the transition period, South Korea increased investment in education and implemented a talent strategy to reserve high-tech human capital for South Korea’s economic transition.In fact, South Korea has also vigorously strengthened its investment in science and technology research and development, and its research and development expenditure has also increased significantly as a proportion of its GDP. Research institutes and scientific researchers have also maintained rapid growth.Along with the growth of education and scientific research, South Korea’s independent innovation and growth capacity has increased significantly, the number of applied PCT patents has increased significantly, and an innovation-driven growth model has gradually emerged.In terms of different industries, the number of Korean electrical engineering patent applications has continued to increase, accounting for the highest proportion. The transitional technology research and development capabilities support the electrical engineering industry to maintain a high global competitiveness.  Policies guide technological progress, the industrial structure is undergoing accelerated transformation and upgrading, and Japanese industries are leaning towards knowledge-intensive industries, focusing on supporting the accelerated development of “advanced technologies” such as precision instruments and electronics, and becoming an alternative industry supporting economic growth.Since 1971, Japan’s industrial policy has been adjusted in a timely manner. It will focus on changing the industry from high expectations, high pollution, and chemical industries to knowledge-intensive industries centered on cutting-edge technologies to enhance the international competitiveness of Japanese industries and reduce imports.Degree of energy dependence.Specifically, Japan proposed a plan for the promotion of semiconductors and computers in 1971, and formally proposed the promotion of low-growth, high-value-added knowledge-intensive industries in the “Long-term Outlook for Industrial Structure” in 1975.Circuit, computer, aviation and other “advanced technology” support, and then further determined the “technology-based” policy.Under the orderly guidance of policies, in the transition period in Japan, technology-intensive industries such as electrical machinery have gradually become the leading industries supporting economic growth.  During Korea’s transition, the industry was gradually upgraded to high-end manufacturing industries such as electronic equipment manufacturing, transforming economic growth into long-term support.During the transition period, South Korea’s policy to support the development of science and technology was intensive, focusing on supporting the development of technology and knowledge-intensive strategic emerging industries such as computers, semiconductors, and biotechnology.In 1999, South Korea released the 青岛夜网 “Long-term Scientific and Technological Development Plan-2025 Conception”, which proposed that “scientific and technological guidance” lead the national economy and industrial development model, and more prominently the role of scientific and technological progress in supporting industrial transformation.Under the guidance of the policy, during the transition period, South Korea’s industry gradually upgraded to high-end manufacturing industries such as electronic equipment manufacturing, and gradually formed economic growth to form a support.Among them, semiconductors, data processing equipment, consumer electronics and other industries that Korea has focused on leading and nurturing have significant leading advantages in the global market.  During the transition period, Japan and South Korea experienced a phased bull market. During the different transition periods, Japan and South Korea’s securities trends were very different: during the middle and late period of Japan’s transition, the stock market was “ten years of slow bulls”; during the South Korean transition period, almost zero returns in ten years.Usher in the long cow.Japan and South Korea’s stock markets performed differently and were related to the macroeconomic environment and policy choices during the transition period.  During the transition period, the Japanese stock market slowed down for ten years, and the Korean stock market fluctuated severely. The Japanese stock market fluctuated in the early stages of the transition. In the middle and late stages of the ten-year long period, the Japanese stock market rose first and then fell, and the overall shock;Slow Bull Quotes.Comprehensive consideration of economic growth, changes in industrial structure, and policy responses can predict the starting point of Japan’s transformation in 1971.From 1971 to 1974, Japan’s stock market fluctuated during the initial period of the transition: the Nikkei 225 index increased by 37% in 1971, and rose by 92% in 1972, while it fell by 17% and 11% in 1973 and 1974, respectively.From 1975 to 1984, Japan ushered in a unilateral rising bull market for ten years: from 1975 to 1982, the Nikkei 225 index averaged a compound annual growth rate of 10%; from 1983 to 1984, the average compound annual growth rate was 20%.From 1985 to 1989, Japan ‘s excessive monetary policy led to an asset bubble. The Nikkei 225 index grew at a compound growth rate of 28%. In 1990, the stock market bubble burst after a long period of downturn.  In the mid-to-late period of Japan’s transition, the improvement of earnings is the basis of the slow-moving stock market, and the estimated increase is the main thrust; in the 1980s, the low interest rate environment played a role in the estimated increase.From 1971 to 1974, Japan experienced a sudden increase in economic growth during the pre-transition period, and the stock market and economic trends performed at the same time.From 1975 to 1984, Japan ‘s economic growth shifted smoothly, achieving steady growth at medium and high speeds, and maintaining rapid growth in profits, which is an important basis for Japan ‘s ten-year slow bull.Even during the second oil crisis, the Japanese stock market was significantly affected.From the perspective of expectation, the mid-to-late transition period, the rising price-earnings ratio is an important thrust of the slow bull market.The rise in the price-earnings ratio has a certain relationship with the improvement in economic expectations and the low-interest-rate environment, and the help of the low-interest-rate environment to the estimated rise has shown a great landing in the 1980s.  During the transition period in South Korea, the stock market fluctuated sharply. After the successful transition, the long-term bull market was different from Japan. During the transition period in South Korea, the stock market severely fluctuated and the ten-year return was basically zero. After the successful transition, the South Korean stock market ushered in a long-term bull market.In the early 1990s, the Korean economy was under pressure to transform; considering economic growth, industrial structure, and policy responses, 1993 could be the starting point for a formal Korean economic transformation.However, unlike the stock market performance of “slow bulls after the shock” during the transition period in Japan, the stock market continued to undergo severe shocks during the transition period in Korea. The continuous staged bull market has only maintained for about two years, and the returns have been basically zero for ten years.In 2003, South Korea successfully transformed, the economic growth shifted smoothly, the international competition in emerging industries such as electronics increased significantly, and the stock market also ushered in a trending bull market.  During South Korea’s transition, the stock market performance was basically consistent with the fundamentals, mainly driven by earnings; the low interest rate environment and international capital inflows pushed up stock market returns.During the transition period from 1993 to 2003, the performance of the South Korean stock market remained consistent with the fundamentals, and the KOSPI index trended in sync, or slightly ahead of GDP growth.During the transition period, interest rate changes have some short-term disturbances on the stock market.From the perspective of expectation, the growth rate of the stock market tends to rise and rise in the early period of the transition. In the later period of the conversion from 1998 to 2003, interest rates fell rapidly, and the influence of factors such as the inflow of international capital has significantly increased and increased.After the transition was completed in 2003, the estimated level of the stock market gradually stabilized, with the center at about 13 times.  Japan and South Korea’s stock markets performed differently, or related to the macro environment and policy choices. At the initial stage of the transition, the implementation of traditional stimulus policies, economic and stock market shocks. In the early 1970s, Japan gradually realized the objective laws of shifting economic growth and used stimulating finances.And monetary policy, leading to ups and downs in the economy and the stock market.At the beginning of 1970, under the pressure of internal transformation and the external “Nixon shock”, the yen appreciated significantly and the economy fell significantly.However, the Japanese government has re-recognized the objective law of shifting economic growth, and has expanded its fiscal and accommodative currencies to hedge the impact of the appreciation of the yen on the economy.In 1973, the Japanese government once set the GDP growth target to 9.3%.However, the expansion of both fiscal and monetary policies led to severe inflation, which coincided with the outbreak of the first oil crisis, which gradually intensified, and Japan had to tighten monetary policy, resulting in large fluctuations in the economy and the stock market.  In the early stage of the transition, South Korea was faced with gear shifts, mainly by accelerating financial liberalization and encouraging companies to leverage overseas borrowing to stimulate investment and economic growth.In the 1990s, the center of South Korea’s economic growth moved down and entered a transition phase of gear shifting.However, the South Korean government has always considered the objective law of economic growth to decline, and continues to encourage enterprises to expand debt and investment, and relax the requirements for foreign consumption of enterprises, resulting in rapid growth in the scale of external debt.At this stage, corporate leverage rose sharply. In 1997, the leverage of the non-financial corporate sector was as high as 110%, which was close to the highest point in history. The average corporate debt ratio exceeded 400%.At this stage, the government’s fiscal expenditure maintained a relatively high growth rate, and the growth rate of money supply and interest rates remained stable overall.  In the middle and late period of the transition, Japan ‘s internal and external environment stabilized. After the first turmoil of the Korean economic turmoil, Japan accelerated its economic structural transformation and upgrading, and its fiscal and monetary policies no longer blindly stimulated.Strong.After the first oil crisis broke out, Japan accelerated industrial transformation and upgrading, issued intensive industrial policies and supporting fiscal and tax policies, accelerated the clearing of excess capacity such as steel, shipbuilding, nonferrous metals, and chemical fertilizers, and strongly supported knowledge-intensive computer and high-end equipment and energy conservation.Industry development.From 1975 to 1984, Japan incorporated the objective law of the decline in growth rate, fiscal and monetary policies also became stable, and price stability was taken as the policy objective of monetary policy, and the economy was no longer stimulated blindly.From 1975 to 1984, the growth rate of money supply M2 declined from 15% to 7%, with minimal fluctuations.  In the middle and late stages of the transition, unlike Japan ‘s conventional stable policy environment, South Korea ‘s “high-leverage” growth model faced external shocks and collapses, subsequent deleveraging of the transition, and financial reforms formed a period of repression on the economy and the stock market.Under the impact of the Asian financial crisis in 1997, South Korea ‘s long-term “high-leverage” growth model was unsustainable, forcing South Korea to carry out a thorough economic system and structural reform.From 1998 to 2003, South Korea closed a large number of poorly managed financial institutions, and guided financial institutions and enterprises to merge and restructure.At the same time as the reform of the system, the Korean government has accelerated the transformation and upgrading of its industrial structure and guided the economy to an innovation-driven growth model.After the end of the transition, since 2003, the Korean economy has entered a stage of stable growth, the quality of economic growth has improved, the international competitive advantage has increased, and the stock market has opened a long-term bull market.  During the transition period, emerging industries led the rise, and consumption upgrades outperformed the market. During the transition period, two types of sectors clearly outperformed the market: The first category was the rapid development of strategic emerging industries supported by policies, such as precision instruments in Japan, electronics and electrical appliances in South Korea.Equipment; the second category is related to consumer upgrades such as electrical appliances and medicine.  During the transition period, Japan, South Korea, strategic emerging sectors, and long-term gains in excess income. Japan’s mid-to-late transition period, information and communications, precision instruments led the market. Japan’s pre-transition, mining, steel, paper products and other traditional alternative industrial sectors led the market.Strategic emerging industries in the direction of industrial upgrading have not yet exerted their efforts.From 1971 to 1974, in the early stage of the transition of Japan, the growth rate was the highest. The manufacturing sectors that outperformed the market were mining (217%), rubber products (142%), information and communication (142%), and pulp and paper products (132%), Metal products (128%), iron and steel (123%), transportation equipment (102%), etc., most of which are traditional rail plates. Among them, the advantages of the mining industry penetrating plate are greatly prominent.The steel sector may benefit from Japan ‘s fiscal expansion at this stage and increase support for infrastructure investment.At this stage, in addition to the information and communications sector or benefiting from policy support in 1971 to outperform the broader market, it is clear that the strategic emerging industries sector has not yet exerted its strength.  From 1975 to 1984, in the mid-to-late period of Japan’s transition, strategic emerging industries such as information and communications, and precision instruments led the market and continued to achieve excess returns.At this stage, the top three sectors in Japan’s gains were information and communications (1046%), precision instruments (524%), and electrical appliances (507%). Therefore, strong policy support and international competition significantly promoted strategic emerging industries.At this stage, Japan vigorously developed the electronics industry of “advanced technology industries” centered on semiconductors and integrated circuits.For example, Canon cameras, Sony Electronics, Matsushita Electric, etc., have accelerated the development and application of advanced technologies such as microelectronics, and have grown into international manufacturing giants in corresponding fields.  In the mid-to-late period of the Japanese transition, the performance of the traditional sector stock indexes showed that the steel and machinery industries entered a substantial contraction stage, and the stock index performance continued to be sluggish; in the non-ferrous metals, petroleum and coal products industries, the stock index outperformed the broader market.In the middle and late stages of the transition, Japan’s industrial structure accelerated its transition and upgrading, and traditional industries such as steel and machinery overcapacity accelerated their decommissioning and entered a substantial contraction phase. The performance of the corresponding stock market sector was also very sluggish.The non-ferrous metal industry has benefited from technological transformation and upgrading to improve production efficiency, and the restructuring has benefited from the strong pull of emerging industries such as electronics and appliances, which have continued to outperform the market.  During the Korean transformation, the electrical, electronics, and chemicals sectors outperformed the market During the Korean transformation, the electrical and electronics sectors significantly outperformed the market, and the chemical sector also had relative gains, with strategic emerging industries focusing on development.During the transition period, the South Korean electrical and electronics sector continued to lead the rise, which has always benefited from the rapid development of the semiconductor and other electronics industries under the guidance of policies.At this stage, South Korea’s Samsung and SK Hynix electronics companies are growing rapidly, and their global competitiveness is increasing.The iron and metal products sector, or benefiting from the demand for upstream raw materials from electrical and electronic products, can also increase significantly.In addition, South Korea has gradually transitioned, and chemicals have also outperformed the market to some extent, thanks to South Korea’s further support for strategic emerging industries such as fine chemicals in the late 1990s.  Similar to the late Japanese transition period, during the Korean transition period, traditional heavy industries such as machinery and construction, and labor-intensive industries such as textiles and clothing, the stock index performance was significantly weaker than the market average.During the transitional period, Korea ‘s labor force advantage was gradually lost, and the export competitive advantage of the textile and apparel industry was gradually reduced. The industry fundamentals and stock market performance were flat.During the transition period, the Korean economy turned to innovation-driven, the growth rate of fixed asset investment slowed down, and capital-intensive industries such as traditional machinery, construction and non-metallic minerals entered a contraction phase. After the transition phase and the completion of the transition, the performance of such industry segments continued to lag behindBelow the market average.  During the transition period, the electrical appliances and medical consumption upgrade sector have long outperformed the market. Japan ‘s consumption upgrade demand has been released. The electrical appliances and pharmaceutical sectors have outperformed the market.It is basically consistent with the trend of the Nikkei 225 Index, and the overall steady growth.In the mid-to-late transition period, Japan ‘s per capita income grew rapidly, and the proportion of consumption in GDP also increased.Mid-to-high-end appliances are typical examples of consumption upgrades, and their proportion in social sales and retail sales has increased significantly. Corresponding stock indexes continue to outperform the market.Since the transition, the proportion of Japan’s elderly population has tended to rise, driving the growth of pharmaceutical consumption. The pharmaceutical stock index has grown rapidly relative to the Nikkei 225 index, and has obtained excessive returns for a long time.The food industry is a mass consumer sector with relatively small elasticity, which is basically in line with the market trend, and there is no obvious excess income.  In the middle and late period of Japan’s transition, its dependence on energy decreased significantly, and the traditional transportation service industry represented by maritime transportation fell accordingly; the reduction in deposit and loan spreads reduced bank profits, and the traditional financial sector performed weakly.After the first oil crisis broke out, Japan accelerated the transformation and upgrading of its industrial structure, shrank traditional high-energy-consuming industries, and reduced its reliance on traditional energy sources such as oil. As a result, demand from the traditional shipping industry also declined.Reflected in the stock market, that is, the marine transportation sector continued to underperform.Since 1973, the banking industry has experienced excess returns during the asset bubble in the mid-to-late 1980s, and has underperformed the market for many times.  Since the transition in Korea, there have been long-term excess returns in food, beverages, and medical services. The Korean medical and food and beverage consumption upgrade sectors have harvested excess returns during the transition period, and have continued to perform well after the successful transition.During the 1993-2003 transition period in Korea, the food and beverage sector index gradually increased by 66%, and the medical sector index increased by 11%, far exceeding the KOSPI index’s 6% change, outperforming the broader market.From the perspective of relative returns, the food and beverage and medical sectors have long-term excess returns and underperformed the market only during the Asian financial crisis.After the transition of South Korea in 2003, the food and beverage and pharmaceutical sectors still have long-term excess returns in the broader market.  Similar to Japan, during the transformation of South Korea, the traditional service industry of transportation and warehousing, and the financial institution sector generally lost market.In the early 1990s, along with the overall economic recovery, transportation and storage were production-supporting industries, and fundamentals were also repaired. The performance of the corresponding stock index was not bad.At this stage, South Korea borrowed a large amount of foreign debt through financial institutions, and financial institutions benefited from it. The corresponding stock index sector also had objective excess returns.In the late 1990s, South Korea’s economic growth pressure increased, the economy was more volatile, and the overall production was sluggish. The transportation and storage service industry, which is a production support industry, also faced tilt, and the corresponding performance of the stock index was weak.With the decline, the financial service sector stock indexes generally underperformed the market.Similar to Japan, after the end of the transition, the financial and transportation sectors in South Korea performed mediocrely, and the excess income no longer existed.  Japan in the late 1970s and South Korea in the early 1990s are similar to China’s current stage of transformation. Their capital market performance may be an important indicator for future investment in the future.By reviewing the economic and stock market performance during the transition period between Japan and South Korea, we found that: 1) Japan and South Korea have similar transition starting points, and the policy has guided the upgrading of the industrial structure to smoothly achieve speed-up shifts.During the transition period between Japan and South Korea, policies guided the rapid development of strategic emerging industries, and economic growth shifted to technology and innovation.During the transition period in Japan, we vigorously supported knowledge-intensive industries such as computers, precision machinery, and aviation; during the transition period in South Korea, we focused on the development of strategic emerging industries such as electronics, fine chemicals, and biotechnology.  2) During the transition period, Japan and South Korea’s stock market movements are quite different, but they are not a “bull-free market” as some views suggest.At the beginning of Japan’s transition from 1971 to 1974, the stock market first rose and then fell, with overall shocks. From 1975 to 1984, the stock market rose unilaterally, with a compound annual growth rate of 12%.During the 1993-2003 transition period in South Korea, the stock market fluctuated violently, and the overall yield was almost zero. After the successful conversion, we ushered in a long-term bull market.  3) Japan and South Korea’s stock markets perform differently and are related to the macroeconomic environment and policy choices during the transition period.In the middle and late stages of Japan’s transition, fiscal policy will no longer be stimulated blindly. Monetary policy will take inflation as the intermediary goal and expand the internal and external environment to be relatively stable. As a result, the upgrading of the industrial structure to support the economy and expectations will greatly increase the smoothness of the stock market.In the early stage of the transition, South Korea excessively increased leverage to stimulate the economy; in the late stage of the transition, it experienced the impact of the Asian financial crisis, deleveraging the overall domestic system reform, and suppressed the economy and risk appetite in stages.After a successful transition in 2003, the South Korean stock market entered a “long cow.”  4) During Japan and South Korea’s transition, strategic emerging industries with key policy support and increased competition, the stock market led the market, and there were long-term excess returns.During the transition period, the market performance reflects the adjustment direction of the industrial structure to a certain extent.In the middle and late stages of Japan’s transition, the information and communications and precision instruments indexes led the market, and the information and communications index increased by more than 10 times in ten years.During South Korea’s transition, electronic equipment led the market, and the chemical and metal products sectors also had excess returns. After the successful conversion, they still performed better.  5) The pharmaceutical consumption upgrade segment has outperformed the market for a long time, and the food and beverage consumption segment has remained flat or outperformed the market; the traditional gradual industry and traditional service segment have performed poorly in the transition stage.During the transformation stage, the Japanese electrical and pharmaceutical sectors and the Korean medical sector outperformed the market and performed well after the successful conversion; the Korean food and beverage sector had excessive returns.During the mid-to-late transition period, the South Korean economy was turbulent and production was generally sluggish. The transportation and storage service industry, which is a production support industry, also faced difficulties, and the stock index performance was relatively weak. During the Asian financial crisis, the financial sector as a whole operated the transportation market.