Japan’s rising stocks attract investors from China
Additional inflow to Japanese market made Nikkei soar
TOKYO (Reuters) — As economic and geopolitical woes spur an exodus of investors from China, many have been redirecting money into Japan, giving the benchmark Nikkei an extra boost as it rockets to all-time highs.
While some investors just want to say goodbye to Japan’s troubled neighbor in embracing the land of the rising sun, paradoxically, those seeking to harness the two countries’ close economic ties at a cozy distance are winning handsomely.
Nikkei heavyweights with a significant presence in China, such as chip giant Tokyo Electron and Uniqlo parent company Fast Retailing are soaring, having gained 126 percent and 63 percent, respectively, over the last 12 months.
ASICS Corp, which has subsidiaries in countries including China, is up about 91 percent, while Japanese restaurant chain Seizeriya, a popular chain that has made a mark in China, has climbed 62 percent.
Investors who have historically owned Chinese stocks but are now keeping a distance for fear of U.S. sanctions say owning a Japanese firm that either sells to China or is based there is becoming the more politically palatable option.
Others are betting on China’s eventual recovery, either driven by its quest for self-sufficiency or improved spending by its 1.4 billion consumers.
Buying Japanese stocks is “less controversial in the U.S. political environment right now,” said Liqian Ren, director of Modern Alpha at WisdomTree Asset Management in Philadelphia.
“If a client owns Japan, even though the exposure is China’s kind of proxy, your client is much less likely to ask you a political question if the portfolio didn’t perform as well,” she said.
Japan’s largest trade partner, China accounts for a fifth of trade and is also the third largest destination for Japanese investment, after the United States and Australia.
While the countries may be intertwined economically, their financial markets could not present a greater contrast.
China’s blue-chip CSI300 index hit five-year lows this month, and is down 18 percent in about a year, pummeled by property market troubles and a lack of large-scale stimulus.
Japanese equities, on the other hand, are at record highs, and seem set to rise on the back of a brighter outlook for its economy and corporate governance reforms.
About $6.59 billion has flowed out of China offshore funds since April 2023, while Japanese offshore funds received $6.3 billion worth of inflows last month, adding to inflows of $7.84 billion last year, according to LSEG data.