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Sayonara Japan………..ni hao China?

In addition to striking fear into the hearts of the organisers of the London 2012 Olympics, the invention of silk and having a really, really long wall, China has a new accolade to add to its name.

This week, Japanese officials admitted defeat and handed the second-largest-economy-in-the-world crown to China.

Following an unexpectedly poor economic performance and the absence of any decent growth in the first or second quarter of 2010, Japan has slipped to third place in the economic world rankings.

• China’s Q2 GDP - $1.337 trillion
• Japan’s Q2 GDP - $1.288 trillion
• Chinese economy grew by 11.9% and 10.3% in Q1 and Q2
  
  

The news gets worse for Japan. Far from being a blip, economists predict that China will go on to secure this position over the next half of the year.

Although some experts feel this week’s events are more important from a symbolical standpoint than an economic one (for one, the International Monetary Fund marks 2001 as the time when China overtook Japan), the news is certainly interesting for investors considering China.

Proof is in the pudding

While this is interesting news, the landmark event will not necessarily come as a huge surprise to Barclays Stockbrokers clients, who have been voting with their feet (or rather their wallets) on this topic for some time.

The appetite for investment in China has been boosted over recent years by general economic sentiment and as a result, the nation is typically seen as the front runner of the emerging markets. Conversely, investment feeling on Japan has been more conservative. ‘The lost decade’ of the 1990s, where Japanese economic growth lagged the other global developed economies, still casts a shadow over investor optimism.

In the world of funds, the regional frontrunners for Barclays Stockbrokers clients are Gartmore China Opportunities and Invesco Perpetual Japan, and the figures speak for themselves. Gartmore’s China offering has three times as many clients invested and five and a half times the amount of money.

The difference is not quite as pronounced when it comes to Exchange Traded Funds that track the two markets, but the preference of Barclays Stockbrokers clients is still plain to see. The iShares FTSE/Xinhua 25 (FXC), hailing from China, attracts 36% more investors than the iShares MSCI Japan (IJPN), and has 63% more assets invested.

1 Telegraph.co.uk, 17 August 2010