China's market value overtakes Japan as world's No. 2

The Shanghai Composite Index rose 1.4 percent yesterday, sending the value of China's domestic stock market to US$3.21 trillion, compared with Japan's US$3.20 trillion, according to data compiled by Bloomberg. The Shanghai index has gained 75 percent this year, the best-performing major market, against a 7 percent advance in the Nikkei 225 Stock Average. The U.S. has the biggest equities market worth US$10.8 trillion.

"China is just entering its stride and is still very much in a growth phase, while Japan is already a developed economy," said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about US$14 billion.

China last surpassed Japan in stock-market capitalization from Jan. 4 to Jan. 24, 2008, data compiled by Bloomberg show. The Shanghai Composite tripled in the two years leading to its record on Oct. 16, 2007, before tumbling 72 percent to its trough the following November.

The Shanghai Composite added 0.1 percent to 3,191.80 as of 10:01 a.m. local time, while the Nikkei 225 advanced 2.2 percent to 9,475.04.

Government Stimulus

A government-led 4 trillion yuan (US$585 billion) stimulus package and record bank lending has shielded the Chinese economy against a plunge in exports. Foreign-exchange reserves topped US$2 trillion for the first time, while money supply rose a record 28.5 percent in June, the central bank said July 15. The economy expanded 7.9 percent in the second quarter, the statistics bureau said in Beijing today, more than the 7.8 percent median estimate of 20 economists surveyed by Bloomberg News.

New loans rose fivefold in June from a year earlier to 1.53 trillion yuan, increasing concern that attempts to revive the world's third-largest economy will lead to bad debts and asset bubbles. Rapid credit growth poses risks for lenders and the financial system, Wang Huaqing, the disciplinary secretary of the China Banking Regulatory Commission, said on July 7.

BNP Paribas Securities (Asia) Ltd. last month cut its rating on China to "neutral" from "overweight," citing valuations. Stocks on the benchmark index are trading at 33.2 times earnings, almost triple the 12.9 multiple on Nov. 4, when the measure dropped to its lowest since the financial crisis. Earnings per share declined 7 percent last year and will probably remain "flat" this year, the brokerage said.

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