Japan has pipped China as the world's number two stock market, a Bloomberg report said today. After Thursday's slide, the Chinese market was worth $6.09 trillion next to Japan's $6.17 trillion.
Both markets are ranked after the US which is the world's largest at just over $31 trillion.
China lost to Japan after Chinese stocks and currency fell this year amid a trade spat with the US.
"Losing the ranking to Japan is the damage caused by the trade war," Banny Lam, head of research at CEB International Investment Corp. in Hong Kong told Bloomberg. "The Japan equity gauge is relatively more stable around the current level but China's market cap has slumped from its peak this year."
The Chinese stock market soared to an all-time high of more than $10 trillion in June 2015 after overtaking Japan in late 2014.
But this year has been bad. The Shanghai Composite index is the world's second-worst-performing major stock index this year, having fallen 16.3 percent year-to-date. The CSI300, the world's worst-performing index, has lost 16.4 percent.
Indeed, the forward price/earnings ratio of the Shanghai index, based on earnings expectations for 2018, is around 10, the lowest level since panic selling in early 2016 when the market was still dealing with the hangover from the 2015 financial crisis. They are also 40 percent lower than forward PE ratios in US stocks.
The drop in Chinese shares this year has been driven by concerns about a slowdown in the world's second-biggest economy and that China would be worse off in a trade war with the United States.
US President Donald Trump, who has taken a hard line on trade with several countries around the world, has applied tariffs to some goods imported from China and threatened taxes on the remaining imports.
These factors have prompted an overly pessimistic view on the corporate earnings outlook for 2019, says Societe Generale.
"The market is discounting a 5 percent decline in next year's earnings," the bank said in a research note, when analysts' consensus forecast is for a rise of 13 percent.
"Further downside would only be consistent with a hard landing scenario, whereby profit momentum turns negative and earnings do not grow in the next two years".
(With inputs from Reuters)
Written and edited by Aseem Thapliyal