Investors pivot to Japan amid geopolitical tensions

Investors are shifting from China to Japan amid economic and geopolitical concerns, leading to a surge in the benchmark Nikkei index to record highs, according to Reuters on Tuesday.

Many investors who have historically owned Chinese stocks but are now keeping a distance for fear of U.S. sanctions say owning a Japanese firm that either sells to China or is based in Japan is becoming the more politically palatable option.

About $6.59 billion has flowed out of China offshore funds since April 2023, while Japanese offshore funds received $6.3 billion worth of inflows last month, adding to inflows of $7.84 billion last year.

Japan’s chip-sector giants have helped to fuel the Nikkei’s 17 per cent gains this year, with Tokyo Electron and chip-testing equipment maker Advantest ranking among top performers.

While the countries may be intertwined economically, their financial markets could not present a greater contrast. China’s blue-chip CSI300 index hit five-year lows this month, and is down 18 per cent in about a year, while Japanese equities are at record highs.

Whether investors come to Japan seeking China proxies or complete disconnection, the shadows cast over China have given the Nikkei an undeniable boost, the statement added.