Global fund funds are flowing out of China to Japan as the U.S.-China conflict intensifies and the Chinese economy recovers slower than expected. Citing a report by global investment bank Goldman Sachs, Bloomberg reported on the 6th (local time) that foreign investors’ purchases of Japanese stocks exceeded Chinese stocks for the first time since 2017. Last week, Morgan Stanley long position fund managers also said they would sell Chinese and Hong Kong stocks and stick to their policy of buying large amounts of Japanese stocks.
Bloomberg said, “Investors who distrust China’s commitment to economic reconstruction have found alternatives,” explaining that Japan, which is mentioned as a possibility of adjusting its financial policy, is drawing attention. In fact, Allianz Oriental Income, an Asian-focused fund, raised its share of Japanese stocks to 40 percent as of the end of June, five times that of China. Compared to China and Japan’s 25% and 16%, respectively, at the end of last year, it is a clear reversal.
Long-term concerns about geopolitical tensions between China and the West were also cited as factors that encouraged global financial escape. On the other hand, asset management company East Spring Investment said, “(Japan) is in a good position to benefit from geopolitical tensions in Asia due to supply chain diversification,” considering that Japanese companies are competitive in manufacturing and automation.
China is also at a disadvantage in economic fundamentals. Despite large-scale economic stimulus policies, China’s reopening effect is sluggish, with its second-quarter economic growth rate (6.3%) falling below market expectations and growing concerns over deflation (price drop). On the other hand, the Japanese economy is showing signs of a rebound, with the support of the U.S. to revitalize the semiconductor industry. In addition, it is analyzed that Japan’s momentum for corporate governance reform and Warren Buffett’s expansion of investment in Japan’s top five general trading companies also gained strength. As a result, the Morgan Stanley Capital International (MSCI) index related to Japanese stocks surged 21% this year, while China rose only 0.5%.
