Investment in the Japanese stock market is overheating. On the Shanghai Stock Exchange in China, trading in Japenese exchange-traded funds (ETF) based on the Nikkei index in Japan was temporarily suspended.
Japan’s Nikkei Asian Review reported that trading on the Japanese ETF was temporarily suspended on the Shanghai Stock Exchange for two consecutive days from the 17th to the 18th. Investors flocked to the Japanese ETF in anticipation of the Japanese stock market, which has been on the rise every day.
“The trading was suspended as the ETF’s transaction price was designated as a warning item for overheating transactions because it was much higher than the basic price (net asset price per unit),” the Nikkei explained. Currently, the net assets of Japanese ETFs listed on the Shanghai Exchange are only tens of billions of yen, but the possibility of a significant increase in the future has increased, Nikkei predicted.
The reason why Japanese ETFs are overheating in China is that the Chinese stock market has been weak in the new year, while Japan continues its best rise in 34 years. In China, the Shanghai Composite Index, the leading stock index, fell to its lowest level in three and a half years since May 2020 due to growing risks such as the real estate recession and the U.S.-China conflict.
Nikkei said, “It is unusual for Japanese ETFs to soar even though individuals cannot freely invest abroad due to strict capital controls in China,” adding, “It is also a hot topic in China.”
On the other hand, the Japanese stock market has been on the rise since the beginning of the year. The Nikkei 225 Average, the main stock index of the Japanese stock market, has already gone up 6.02% this year alone. It is the first time in 34 years that the Nikkei index has surpassed 35,000 since February 1990 when the economy was in a bubble. This is due to the weakening yen and the rapid inflow of funds into the stock market as the Bank of Japan (BOJ) predicts a rate hike this year.
“Chinese individual investors who gave up the sluggish mainland Chinese stock market are moving funds to the Japanese stock market, where the index is rapidly rising,” Nikkei interpreted.