SINGAPORE – The value of China’s stock market has never been this far behind that of the United States as the losses continue to pile up in a seemingly relentless equity rout.
The market capitalisation of the US stock market is now US$38 trillion (S$51 trillion) greater than that of Hong Kong and China put together, a fresh record, according to data compiled by Bloomberg.
“China offers value, but catalysts are just not there,” said Mr Michael Liang, chief investment officer at Foundation Asset Management in Hong Kong. “Meanwhile, the US market has momentum and economy on its side.”
The growing divergence comes as steep losses paint a troubling picture of global investor sentiment towards the world’s No. 2 economy. At the same time, US stocks have hit record highs, powered by a mega-cap technology rally amid optimism that the Federal Reserve will cut interest rates in 2024 and navigate a soft economic landing.
Chinese stocks have lost more than US$6.3 trillion in market value from a peak in February 2021. Over the same period, US equities have gained some US$5.3 trillion.
Investors have been underwhelmed by Beijing’s efforts to revive a economy struggling with deflation and an ongoing property crisis. But what began as a performance-driven exodus now risks becoming a structural shift due to doubts over Beijing’s long-term economic agenda and strategic competition with the US.
Bloomberg strategists wrote in a note that while China’s correction may seem overdone, “our simulations suggest the pain can continue”. They estimated that there is a 51 per cent probability of the MSCI China Index trading below its peak for an average of 35 months.
The rout has run for so long that some investors see potential for a technical rebound, given that valuations are now cheap. The sell-off has made the MSCI China Index 60 per cent cheaper than the US equity benchmark on earnings-based valuations, according to data compiled by Bloomberg.
MSCI’s key gauge for Chinese equities is trading at about eight times of 12-month forward estimated earnings, while the same metric for the S&P 500 Index stands at 20 times.
For now, however, there is little end in sight to the dismal start to 2024 for Chinese equities. Less than a month into the new year, a gauge of Chinese stocks listed in Hong Kong has already lost 13 per cent, making it the worst-performing major benchmark global index. BLOOMBERG
