Japan pushes the Chinese aside for the first time since China became the world's second-biggest stock market in 2014. It is a sign of the escalating trade tensions with the US and a general slowing of growth.
China's stock market has been overtaken as the world's second biggest by Japan, having been hit this year by the threat of an ever-growing trade war with America and slowing economic growth.
Data from Bloomberg News in intra-day trading on Friday showed the value of equities in mainland China had slipped behind those of their tiny neighbor for the first time since China took its coveted second place spot in 2014.
Recently there has been a string of data indicating that Chinese economic growth in general is slowing, while Beijing has embarked on a drive to cut a worryingly large debt mountain as well as reduce pollution.
Friday's figures showed Chinese stocks were worth $6.09 trillion (€5.26 trillion), compared with $6.17 trillion in Japan. The US market by comparison is worth $31 trillion and as of Thursday $1 trillion of that belonged to Apple alone.
Who's to blame?
While global markets have been broadly hit by fears of escalating trade tensions between the world's top two economies, Chinese equities are among the worst performers this year, with the benchmark Shanghai Composite Index slumping more than 16 percent since the start of this year.
"Losing the ranking to Japan is the damage caused by the trade war," Banny Lam, head of research at CEB International Investment in Hong Kong, told Bloomberg.
And indeed the pressure was up this week after the White House said it was considering more than doubling threatened tariffs on a range of Chinese imports worth $200 billion from 10 percent up to 25 percent.
Washington has already imposed tariffs on $34 billion worth of goods and is considering hitting another $16 billion in the coming weeks.
Investors are worried about the yuan's recent losses, with the currency at its lowest level against the dollar for more than a year, irking the American president and stoking his anxieties of currency manipulation. While traders have been mostly unmoved by Chinese government measures and promises to support the economy.
At the same time, Japanese corporate results have been broadly upbeat, providing some support to markets there, though the Nikkei is still slightly down this year.
"Investors are paying attention to government policies as the US-China trade war will remain uncertain for now," Yoshihiro Okumura, general manager at Chibagin Asset Management, told AFP news agency in Tokyo.
"On the other hand, Japanese companies are showing strong results in general, sustaining share prices on the Tokyo Stock Exchange," said Okumura, adding the caveat: "The Tokyo market is not in top form. The country is also subject to the trade war as it is heavily relying on global trade.
Chinese stocks have been on a rollercoaster since taking the second spot in 2014. Fueled by risky investing by individual investors looking for a quick profit, the market surged through early 2015 to hit a high of $10 trillion, but then that bubble burst and it went into a downward spiral, with the Shanghai composite crashing about 40 percent.
tr/kd (AFP, Handelsblatt)