China overtakes Japan as the world’s second largest stock market
Why China must resolve ties with Hong Kong and Taiwan (Part 4 of 9)
China’s stock market overtakes Japan’s
On November 27, China’s stock market capitalization overtook Japan’s stock market, making it the second largest stock market in the world, behind the US.
So far in 2014, the capitalization of the Chinese stock market has already increased by 33% to $4.48 trillion. In contrast, the Japanese stock market declined 3.2% to $4.46 trillion. The Shanghai Composite Index has climbed three times as much as Tokyo’s Topix this year.
The American stock market continues to be the world leader with $24.4 trillion market capitalization. The SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 (IVV) track the broad market performance of the US stock market, just as the FXI does for China, the EWH does for Hong Kong, and the EWJ does for Japan.
Japan’s stock market dip
To an extent, the falling market capitalization in the land of the rising sun is the result of the weakening of the yen against the dollar. Under Shinzo Abe’s tight monetary policy, the yen has seen a 10% decline in the last ten months. Read, Overview: Shinzo Abe’s Abenomics for more information.
China’s stock market surge
The prominent reasons for the recent surge in China’s stock market capitalization are:
On November 21, the People’s Bank of China reduced its key interest rate for the first time in two years. Growing investor confidence as policy makers in China strive to revive the economy with monetary stimulus has spurred investment flows into the region. Read, as monetary stimulus ends in the US, it begins in China, for more.
On November 17, China gave foreign investors unprecedented access to mainland shares through the merger of the Shanghai and Hong Kong stock exchanges. See part 3 of this series for more information.
The growth in China’s market value has also been helped by the resumption of initial public offerings in January. In late 2012, the China Securities Regulatory Commission (or CSRC) had put an unofficial freeze on IPOs in China, in an attempt to shore up weak domestic markets. The freeze was later relaxed in early 2014 when it allowed a batch of previously approved companies to list in January and February.
While China’s financial market may have gotten a big boost, its geopolitical situation remains tense, which if unresolved, could potentially impact your investment in the area. Read on to the next part of this series to find out more.
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