The compass of investment funds is shifting from China to Japan

Japan has overtaken China in the race of Asia’s two largest stock markets for venture capital, while Beijing is clouded by long-standing concerns about economic growth and geopolitical tension with the West.

Foreigners buying Japanese stocks exceeded their Chinese counterparts for the first time since 2017, according to the report of “Goldman Sachs”, which cited data for the first six months of the year. Strategic analysts at Morgan Stanley wrote in a report last week that long-term capital managers continued to sell stocks in China and Hong Kong on a net basis in July with a sharp rise, while they turned to buy Japanese stocks”.

The tide has turned in Japan’s favour as global funds flock to a market once shunned over fears of weak earnings growth. Optimism is even rising after the Bank of Japan revised its stance on quantitative easing, as investors look for alternatives to Chinese stocks amid lack of conviction that Beijing’s pledges to support faltering economic growth will bear fruit.

Frank Benzimra, head of Asian equity strategy at Societe Generale bank, said: “there were two major policy-related events in Asia in the last week of July, the meeting of the Bank of Japan and the meeting of the Politburo (of the Communist Party of China), neither of which changed our view on the outperformance of Japanese stocks over Chinese. The reason is that we are getting increasing signals that the normalization of monetary policy in Japan will be very gradual, which means that the yen will not quickly regain its value,”he said.