Investors Leaving China... Making Money in Japan

Nikkei 225 Up 9% This Year... Hang Seng Index Down 12%

Foreign investors leaving China are recently turning their attention to the 'bull market' in Japan.

On the 22nd (local time), The Wall Street Journal (WSJ) reported that foreign investors who had been investing in China are eyeing Japan as an alternative overseas investment destination.

Japan's representative stock index, the Nikkei 225, has already risen about 9% this year, soaring day by day. This figure is about 6% lower than the peak in October 1989 during Japan's largest boom period, the bubble economy. Just a year ago, it was around the 26,000 level, but on the 22nd, it temporarily reached 36,500 during trading. Meanwhile, China's CSI 300 index fell by 6%. The Hang Seng Index in Hong Kong, which includes Chinese tech giants such as Alibaba and Tencent, is in even worse shape, having dropped 12% since the beginning of this year.

Although the overall Chinese stock market situation is bleak, China's exchange-traded funds (ETFs) tracking the Japanese stock market are performing well. For example, the Chinese AMC Nomura Nikkei 225 ETF is traded at a premium of over 10% relative to its net asset value, so much so that it has been warned for its popularity. On the 22nd, while the Nikkei index rose only 1.6%, the ETF surged 6.3%. Other Japanese ETFs listed in China show similar trends.

The WSJ stated, "Chinese individual investors are known for following trends, but this reflects a larger flow," adding, "Investors exiting China are seeking opportunities in Japan."

In the second week of January, foreign investors net purchased 956 billion yen (approximately 8.65 trillion KRW) worth of Japanese stocks. The net purchase amount for the entire year of 2023 was about 3.1 trillion yen (approximately 28.05 trillion KRW), so they bought about one-third of that amount in just one week.

Foreign investors are selling Chinese stocks they had been actively buying early last year. Since the beginning of this year, they have net sold stocks worth 30 billion yuan (approximately 5.59 trillion KRW) listed in Shanghai and Shenzhen. Since August last year, they have sold about 220 billion yuan (approximately 40.97 trillion KRW). Morgan Stanley also recently released a report stating that funds in Europe, the United States, and Hong Kong have sold about 1.6 billion dollars (approximately 2.14 trillion KRW) worth of Chinese stocks this year.

Recently, due to the Japanese government's efforts to improve corporate governance, Japanese companies are expanding dividends and share buybacks. The influence of activist investors is increasing. One of the major factors stimulating investment sentiment is Warren Buffett, CEO of Berkshire Hathaway and known as the 'investment genius,' continuously increasing his stake in Japan's five major general trading companies. Other positive factors include improved earnings of export companies due to the weak yen effect, expectations for the Bank of Japan's (BOJ) monetary policy, and signals of the end of interest rate hikes by the U.S. Federal Reserve (Fed).

The sluggish Chinese stock market is also a major reason investors are turning to the Japanese market. Investors need to find a large market to reinvest the money withdrawn from the Chinese market, and the Japanese market is suitable. The WSJ explained, "Especially if you want to diversify investments beyond the U.S., the $6 trillion Japanese stock market is a perfect new home."