Investors show preference for Japan’s ascension over China’s decline, states McGever’s column.

Japan and China represent contrasting fortunes in Asia’s economic and financial markets. While Japan’s growth has accelerated, China’s economy is rapidly losing momentum, with investor appetite for its assets cooling accordingly. Diverging economic indicators are highlighting the problem, with Chinese investment and retail sales falling in April, and industrial production growth being just half of what economists expected. Conversely, Japan’s economy has grown more than double the world’s rate, and its stock markets have hit or surpassed 33-year highs. Foreign investors have been net buyers of Japanese stocks for five weeks, but over a longer period, they have sold Japanese stocks by a considerable margin. 

Bank of America’s latest survey of fund managers shows most underweight Japanese equities. Still, foreign investors’ net purchases of Chinese stocks earlier this year approached $30 billion, but most of that came in January when Covid-19 restrictions were lifted. Non-residents sold nearly $4 billion in Chinese stocks in April, the first outflow in six months. If the Bank of Japan soon begins to remove its ‘yield curve control’ policy to keep inflation down, the yen could rise. Attracting investors to China is a more difficult task given the fragile growth situation and geopolitical tensions surrounding Taiwan, Ukraine, tech espionage, and sanctions.

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