Investors have been dumping A- and H-shares connected to Japanese companies, while defense-related stocks have shot up. (Photo/Xinhua)

The escalating tension over the Diaoyutai islands in the East China Sea is greatly affecting the decisions taken by China's A-share investors.

With the dispute over the East China Sea islands between China and Japan growing heated, there have been calls across China for a boycott of Japanese goods and demonstrations which have seen Japanese brand cars set on fire and Japanese restaurants and companies attacked.

Sales of Japanese cars in China have fallen abruptly as a result. The effect of this has been seen in the A-share market, with some investors avoiding Japan-related stocks.

The shares of Guangzhou Automobile Industry Group, a Chinese partner of Honda and Toyota, dropped in the A-share and H-share markets on Sept. 17, with its A-shares falling nearly 8% to a new low of 5.41 yuan (US$0.86) since April.

The online edition of Guangzhou's 21st Century Business Herald reported that investors were dumping shares of Guangzhou Auto in a panic. The group has sold 680,000 Japanese brand cars this year, accounting for 94.6% of its sales of passenger vehicles.

Meanwhile, the shares of Guangzhou Guangri Group, which owns Guangri Elevator Industry Co and Hitachi Elevator (China) Co, also fell 6%.

On Sept. 5, the dispute over the islands caused shipbuilding and defense stocks to surge sharply with Japan's announcement of a plan to buy the uninhabited islands and nationalize them, which it duly did on Sept. 11.

Investors began speculating on such stocks on that day, which was also a day after the Chinese government announced the baselines of its territorial waters around the islands and their affiliated islets to try to pre-empt Japan's move.

As a result, share prices of a number of Chinese defense-related companies rose by the day's limit on several trading days.

The report said Chinese enterprises have usurped the market share of Japanese home electronics brands in the domestic market, as the anti-Japanese sentiment has negatively impacted their sales. This helped explain why traders were speculating on the shares of appliance brands with large sums of money.

However, the escalation of tension has also caused some investors to dump certain stocks, mainly those of China-Japan joint ventures and companies related to Japan. These included listed companies in which Japanese companies had stakes, and companies with Chinese names containing "Japan," according to the report.

The islands are known as Diaoyu by China and Senkaku by Japan, which controls them. They are known as the Diaoyutai by Taiwan, which also claims them.