China Stocks Have Rallied 16% This Year, Yet It Is 22% Away From Record Highs
The performance of the Chinese stock market after the 2008 Global Financial Crisis is complex and distinct from the recovery seen in many other developed and emerging markets.
China's stock market has surged this year, on the back of foreign institutional flows, global tech rally, resilient export growth and despite trade frictions with the United States.
The benchmark CSI 300 index, composed of big Chinese companies traded in Shanghai or Shenzhen, is up 16% year-to-date. Comparatively, Hong Kong's Hang Seng index has gained 24% during this period. MSCI Asia Pacific Index, the broadest gauge for the region, is up 28%.
Overseas funds invested a net $8.3 billion in the June quarter in Chinese stocks, compared with an increase of $29 billion in the previous quarter, according to latest CEIC Data.
Analysts at Goldman Sachs expects Chinese equities to gain 30% by end-2027, supported by pro-market policies, rising profits and strong money flows, as per a Bloomberg News report.
Further demand-side stimulus, profit growth driven partly by AI development and robust flows from both domestic and foreign investors are among factors helping to boost Chinese shares, according to a note. Earnings may increase 12% in the next three years, while equity multiples could jump 5%-10% from current levels.
Still, a cyclical macro slowdown in the fourth quarter and resurgent tariff risks "could be taken as profit-taking excuses", the analysts said. Unless those issues intensify, "we would stay invested and accumulate on corrections".
Gainers And Losers
Among the 10 sectors on the CSI 300, telecom has gained the most this year, up 79%, followed by materials (53%) and IT (28%). Industrial, financials and healthcare sectors are the other ones in green.
The CSI Consumer Staples is down 6.4%, energy 6% and utilities 5.5%. Notably, consumer discretionary is just over 1% up year-to-date. This reflects the deflationary hangover over consumption-linked sectors that has marred China since the property bust of 2021.
Downhill
The CSI 300 index is still 22% down from its life high 18 years ago. The CSI 300 hit an all-time high of 5,877 points on Oct. 16, 2007. The index fell to its lowest point during the global financial crisis to 1,623 on Nov. 4, 2008.
The performance of the Chinese stock market after the 2008 Global Financial Crisis is complex and distinct from the recovery seen in many other developed and emerging markets. While China's overall economy weathered the great recession relatively well, its stock market has faced unique challenges that have prevented a sustained, strong recovery to previous highs.
The most significant factor was the major stock market bubble that formed between 2014 and mid-2015, followed by a dramatic crash. When the bubble burst, the subsequent crash wiped out trillions in market value and was met with heavy-handed government intervention which severely damaged investor confidence in the market's stability and fairness.
China's economic growth was already decelerating from its double-digit growth rates leading up to the great recession.
