World Economy

China Overtakes Japan as Second-Largest Stock Market

China Overtakes Japan as Second-Largest Stock MarketChina Overtakes Japan as Second-Largest Stock Market

China surpassed Japan as the world’s second-largest stock market for the first time in three years amid growing investor confidence that policy makers in Beijing will revive the economy with monetary stimulus.

China’s market capitalization climbed to $4.48 trillion after a 33 percent increase this year, according to data compiled by Bloomberg. Japan’s slipped to $4.46 trillion and has dropped 3.2 percent since the end of December. China was briefly the second-biggest market, behind the US in March 2011 after an earthquake in Japan sent shares tumbling in Tokyo.

While the weakening yen played a role in Japan’s shrinking market value in dollar terms, the Shanghai Composite Index has climbed three times as much as Tokyo’s Topix this year. China cut interest rates for the first time since 2012 last week and economists predict authorities will take more steps to support an economy headed for its slowest annual expansion since 1990. The Shanghai gauge still has a price-to-earnings ratio 21 percent lower than its Japanese counterpart. The growth in China’s market value, helped by the resumption of initial public offerings in January after a more than yearlong freeze, marks a turnaround for an equity market that was among the world’s worst performers from late 2010 through the middle of last year.

It comes as authorities give foreign investors unprecedented access to mainland shares through the Shanghai-Hong Kong exchange link.

China’s stocks rose for a seventh day today, sending the Shanghai gauge to a three-year high on record turnover, amid speculation the central bank may continue to loosen monetary policy.

The People’s Bank of China yesterday refrained from selling repurchase agreements for the first time since July. That follows the Nov. 21 announcememt that lending and deposit rates would be cut.

The Shanghai measure rose 2 percent to 2,682.84 at today’s close. It’s up 27 percent this year, set for its steepest annual advance since 2009. The index trades at 12.8 times reported earnings, compared with 16.2 for Japan’s Topix index.

Banks dominate China’s biggest companies. Industrial & Commercial Bank of China Ltd. is the largest mainland-listed company with a market value of $223.1 billion, according to data compiled by Bloomberg. Agricultural Bank of China Ltd. (601288) and China Merchants Bank Co. were ranked second and third. ICBC has advanced 13 percent in Shanghai in 2014, while Agribank gained 15 percent and China Merchants Bank climbed 12 percent.