Shanghai — China just lost its ranking as the world’s number two stock market.

After a slump on Thursday, Chinese equities were worth $6.09-trillion, according to data compiled by Bloomberg.

That compares with $6.17-trillion in Japan. The US has by far the world’s largest stock market, at just over $31-trillion.

China’s stock market overtook Japan’s in late 2014, then soared to a record high valuation of more than $10-trillion in June 2015.

Chinese equities and the nation’s currency have taken a beating this year amid a trade spat with the US, a government-led campaign to cut debt and a slowing economy.

"Losing the ranking to Japan is the damage caused by the trade war," said Banny Lam, head of research at CEB International Investment Corp in Hong Kong.

"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 Shanghai composite index has lost more than 16% in 2018 to be among the world’s worst performers. Industrial and tech stocks have been among China’s worst performers, with those sub-gauges on the CSI 300 index of large caps sliding more than 20% this year.

China’s Politburo, made up of the Communist Party’s 25 most senior leaders, signalled on Tuesday that policy makers would focus more on supporting economic growth amid risks from the deleveraging campaign and the trade standoff.

Still, the Shanghai composite index is headed for its worst week in more than a month.

"The market will likely continue to hover at low levels for the next couple of months," said Linus Yip, Hong Kong-based strategist with First Shanghai Securities.

"But there’s still a chance that China’s stock market will recover, with total capitalisation ascending to the world’s number two place again. After all, the economic fundamentals are still stable and growth momentum will resume after a short-term downturn."

Global role

Losing the number two spot is a reminder that China’s role in global financial markets — while large — still does not match its economic might.

Policy makers have pledged to open areas such as investment limits on industries from banking to agriculture, but foreign ownership of equities and bonds remains low.

The yuan’s share of global payments fell to 1.81% in June from 1.88% a month earlier, according to data from the Society for Worldwide Interbank Financial Telecommunication.

While Japan’s benchmark Topix index has declined about 4% this year, it remains one of the better-performing markets in Asia amid support from the Bank of Japan’s exchange-traded fund purchases and as most companies continue to report robust earnings growth. Almost 60% of companies on the gauge that have reported in the current earnings season have beaten analyst expectations.

The yuan has weakened more than 8% against the dollar in the past six months, and there are few signs the nation’s central bank has been intervening in the currency market. China’s currency is in line for an eighth weekly retreat, the longest run since the start of the country’s modern foreign-exchange rate regime in 1994.

The onshore yuan was down 0.47% at 6.8705 against the dollar in lunchtime trade in Shanghai.

The yuan’s tumble has prompted forecasters to lower their estimates for the exchange rate. Deutsche Bank was among the latest to do so, cutting its year-end prediction to 6.95 per dollar from 6.8 on Wednesday, saying trade tensions would probably put persistent pressure on China’s current account in the next few years.

The market value calculations include primary listings only, to avoid double-counting. Hong Kong’s equities are valued at $5.1-trillion.