(Bloomberg) – Japanese stocks are rapidly regaining ground lost to Chinese stocks in the early days of the pandemic as global investors continue to seek alternatives to the world’s second-largest economy.
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The difference in market capitalization between mainland China and Japan has narrowed to $2.7 trillion, the smallest since July 2020, according to data compiled by Bloomberg. The last time Japan recorded a higher value than China was in early 2019.
Investors are betting that Japan is finally emerging from deflation, and Japanese stocks could extend their gains. Meanwhile, China is rapidly losing its status as an essential part of the world's portfolio as it fails to resolve several issues that have persistently weighed down domestic demand and confidence.
Persistent buying by Chinese investors pushed Japan's Nikkei Stock Average and TOPIX index to 34-year highs this week. In contrast, China's CSI300 index has fallen about 6% since the beginning of the year, ending Wednesday at its lowest level since January 2019.
The Nikkei 225 and Topix have been the world's best-performing major national stock indexes over the past 12 months, each rising more than 25%.
The Tokyo Stock Exchange has already regained its position as Asia's largest stock market, with its market capitalization surpassing that of the Shanghai Stock Exchange, thanks to strong gains since the beginning of the year.
A recent survey of Bank of America fund managers found that while 59% of respondents named Japan as their “favorite market” in Asia, they reduced their allocation to China by 12 percentage points, resulting in a net We are 20% underweight, the lowest in over a year.
Read: The Japanese market is revitalized and old-school companies take the lead
Even after a strong start to 2024, Japan's return expectations are bolder than in the rest of Asia-Pacific, with “over a quarter expecting double-digit returns over the next 12 months.” ,” BofA strategists including Ritesh Samadhyay wrote in an article. Memo dated January 16th.
Despite expectations for further gains, there is little concern that Japan's stock market will overheat. TOPIX is trading at about 15 times expected earnings, in line with the average over the past 10 years, making it relatively cheaper than global stocks.
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