Greater China Surpasses Japan in Market Size (Russell.com)

Greater China Surpasses Japan in Market Size

Tacoma, WA — August 22, 2007 — For the first time the combined market capitalization of companies that trade on stock exchanges within Greater China has surpassed the market capitalization of companies traded on Japanese exchanges. This change in position occurred in the second quarter of 2007 and the gap continues to widen. The combined total for Greater China at the end of May equaled $5.6 trillion while the number for Japan sat just below $5 trillion.

Greater China refers collectively to the People's Republic of China, Taiwan and Hong Kong. It also includes company stocks listed on the Chinese A share market that generally are not available to foreign investors. If Taiwan was removed from the equation, Greater China and Japan still would be virtually even in terms of company market capitalization of companies in the respective countries. As of May 31, Taiwan accounted for $684 billion of Greater China's total of $5.6 trillion.

"The primary driver in China's leap upward was a greater than 100% return for the Chinese A share market during the first five months of 2007," said Pradeep Velvadapu, index analyst, Russell Investment Group. "The Chinese A Share market represents about 40% of Greater China's market size and, even though it generally isn't available to foreign investors, it's a key aspect of China's overall economic growth."

At the beginning of 2007, the market capitalization of companies in Japan equaled $4.9 trillion, while the combined total in Greater China lagged at $4.2 trillion. During the first five months of 2007, the number for Japan remained relatively consistent between $4.9 trillion and $5 trillion, but the number for Greater China increased by nearly $1.5 trillion.

"The frenzied rate of initial public offerings contributed to the extraordinary growth of the Greater China market," said Velvadapu. "Fifty IPOs raised more than $15.5 billion during the second quarter of 2007 alone, closely matching the $15.7 billion raised by IPOs in the United States during the same period."

Velvadapu added that about 20% of Greater China's market capitalization is unlisted on any exchange and is held mostly by the Chinese government, insiders and other strategic holders of a company's shares. For example, PetroChina, which ranks as the largest company in the Russell Emerging Markets Index, has more than 90% of its market capitalization, representing about $200 billion, unavailable to investors.

"Perhaps a more compelling fact about China is the generally acknowledged undervaluation of the Yuan," said Velvadapu. "If that's the case, and the market capitalization of China was adjusted according to some industry estimates, the gap between Greater China and Japan would widen significantly."

Companies based in China and Taiwan with shares available for foreign investors are reflected in the Russell Emerging Markets Index and Russell Emerging Asia Index among others; while those in Hong Kong and Japan are reflected in the Russell Developed Index and Russell Developed Pacific Basin Index among others. These companies in all four countries are reflected in the Russell Asia Pacific Index and, of course, the Russell Global Index.

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