Macroscope | China’s economic loss is not necessarily Japan’s gain

Tokyo has overtaken Shanghai to become Asia’s largest stock exchange, driven by investors keen to get exposure to the region while mitigating risks in China

However, China is an important source of revenue for Japanese firms in crucial industries, which would be hard hit by a deeper downturn in the world’s second-largest economy

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A person walks in front of an electronic stock board showing Japan’s Nikkei 225 index at a securities firm on January 22, in Tokyo. Photo: AP

Published: 5:30am, 26 Jan 2024Updated: 6:06am, 26 Jan 2024

It looks like 2024 is shaping up to be the year of milestones in Asia’s equity markets. On January 23, India’s stock market capitalisation surpassed Hong Kong’s in US dollar terms for the first time, making Asia’s third-largest economy the world’s fourth-biggest equity market.

Earlier this month, the Hang Seng Index again fell below the symbolically important level at which it stood on July 1, 1997, when the city returned to China’s rule. Since its peak in January 2018, the Hang Seng has lost 50 per cent. India’s benchmark BSE Sensex index, by contrast, has soared 200 per cent since February 2016.

However, the defining moment came on January 11 when the market capitalisation of the Tokyo Stock Exchange overtook that of the Shanghai bourse, allowing Tokyo to regain its position as Asia’s largest stock exchange.

The starkly diverging fortunes of the region’s two biggest equity markets are redrawing the investment landscape in Asia. By the end of last week, a staggering US$6.3 trillion – about the current market capitalisation of the Shanghai bourse – had been wiped off the value of Chinese and Hong Kong shares since early 2021, data from Bloomberg shows.

Sentiment towards China is so bleak that investors are at a loss as to what needs to happen – both domestically and externally – for a meaningful and durable rally to take hold. Even the prospect of a package of more forceful measures to shore up the stock market has been met with scepticism given the deep-seated structural problems in China’s economy and the increasing appeal of other markets in the region.

According to the results of Bank of America’s latest Asia fund manager survey, published on January 16, only 4 per cent of respondents expected a stronger Chinese economy this year, while a net 20 per cent were underweight Chinese shares, far and away the biggest underweight position in the region.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | China’s economic loss is not necessarily Japan’s gain

Macroscope | China’s economic loss is not necessarily Japan’s gain