China’s stock market overtook Japan’s in late 2014, then soared to an all-time high of more than $10 trillion in June 2015. Chinese equities and the nation’s currency have taken a beating this year amid a trade spat with the US, a government-led campaign to cut debt and a slowing economy.
"Losing the ranking to Japan is the damage caused by the trade war," said Banny Lam, head of research at CEB International
Investment Corp. in Hong Kong. "The Japan equity gauge is relatively more stable around the current level but China’s market cap has slumped from its peak this year."
The Shanghai Composite Index has lost more than 16 per cent in 2018 to be among the world’s worst performers, while the yuan has fallen 5.3 per cent against the dollar.
"The market will likely continue to hover at low levels for the next couple of months," said Linus Yip, Hong Kong-based strategist with First Shanghai Securities Ltd. "But there’s still a chance that China’s stock market will recover with total capitalisation ascending to the world’s No. 2 place again. After all, the economic fundamentals are still stable and growth momentum will resume after a short-term downturn."
While Japan’s benchmark Topix index has declined 3.9 per cent this year, it remains one of the better-performing markets
in Asia amid support from the Bank of Japan’s ETF purchases and as most companies continue to report robust earnings growth. Almost 60 per cent of firms on the gauge that have already reported in the current earnings season has beat analyst expectations.
The market value calculations include primary listings only, to avoid double-counting. Hong Kong’s equities are valued at $5.1 trillion.