MARCHASIA BUSINESS OUTLOOK9According to a report by Rhodium Group, Chinese outbound foreign direct investment along the electric vehicle value chain is expected to set a new record in 2023 as western economies increase their scrutiny of China's production-focused, debt-driven development model. Washington's import tariffs in 2018 marked the beginning of the West's trade war with Beijing. Growing concern over Chinese industrial overcapacity flooding the European Union with low-cost products, particularly electric vehicles, is opening a new front in this conflict.Chinese companies invested $28.2 billion in EV-related industries in 2018, according to the report. This amount is less than the $29.7 billion invested in 2022, but it does not include a number of expensive projects with unknown costs, like the BYD plant in Hungary and Gotion's 25 percent ownership of a battery manufacturer in Slovakia.According to consulting firm Automobility, China may be producing 10 million extra cars annually, or two thirds of all cars produced in North America in 2022.Brussels' trade strategy is currently becoming more defensive towards China. In September, the 27-member trade bloc began looking into possible unfair subsidies that China's automakers receive from the government. Additionally, the White House disclosed intentions in December to exclude China from its battery supply chain."These regulatory dynamics have spurred more investment by Chinese producers, who realise that an export-only strategy could create severe political push back in host economies and cut them out of lucrative markets," the organisation said. Japanese investors are displaying hesitancy towards domestic stock markets despite the Nikkei's recent surge beyond bubble-era peaks. Uncertainty about sustained corporate returns and memories of the 1990s market crash are leading investors to allocate more funds to foreign equities. The promising outlook for U.S. stocks, particularly in the tech sector, and opportunities in emerging economies like India are drawing Japanese investors away from their home markets.According to Morningstar, Japanese equity funds focused on domestic markets received only $1.2 billion in January, while funds with a foreign investment focus saw an inflow of $7.8 billion. Among these, U.S.-focused equity funds received $3.8 billion, global equity funds secured $3.1 billion, and Indian equity-focused funds saw an influx of $763 million during the same period.Despite a strong rally fueled by foreign investors, the local market requires a domestic bid to sustain its upward trend. Japanese households hold approximately $7.7 trillion in cash and deposits, representing a substantial potential impact on the Nikkei. Currently, they allocate just 13 percent of their assets to equities, significantly lower than 40 percent in the U.S. and 21 percent in Europe.After a year-long rally driven by factors like cheap valuations and corporate reforms, the Nikkei index is slowly retreating from recent record highs. To boost positive momentum, Japanese individual investors need to participate actively in their own market. The Nippon Individual Savings Account (NISA) program, a Japanese government tax-free stock investment initiative, aims to encourage individuals to shift trillions of yen from cash holdings to investments in the stock market. This shift is seen as crucial for sustaining positive momentum in the Japanese market. CHINESE OUTBOUND FDI SETS NEW RECORDSJAPANESE INVESTORS SEEN TO BE BULLISH IN FOREIGN EQUITIESNEWSROOM
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