(Bloomberg) -- A bull run in Japanese stocks has boosted the nation’s weight on an Asian benchmark versus Chinese peers to levels last seen in late 2018, underscoring a shift in investors’ preference between the two giant markets.

The weight of Japan’s equities on the MSCI Asia Pacific Index stood at nearly 35% as of end-March, compared with about 14% for China-domiciled companies, according to data compiled by Bloomberg. 

The widening gap is in stark contrast to 2021, when the difference narrowed to a mere five percentage points and sparked expectations of China overtaking Japan as the index’s most heavily-represented market.  

The divergence has been fueled by a rally of more than 16% in Japan’s Topix index this year. The gauge is near a record high as overseas and retail investors pile into domestic equities amid an exit from negative interest rates. 

Meanwhile, the CSI 300 Index of mainland shares has advanced about 3% over the same period despite a recent rebound, and remains nearly 40% below its 2021 peak. 

China’s weight could pick up if the market’s recent gains continue, fueled by state purchases and tactical inflows from global funds as the economy shows further signs of recovery. 

“Japan remains a market that will be competitive to the S&P 500,” Kelly Chia, deputy head of research in Asia at Bank Julius Baer & Co., wrote in a note. “Near-term risks are if there is a turnaround in the China story, there could be profit-taking in Japan to shift back to China for a bounce.”

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