The United States and China stand as the world’s largest economies and wield considerable influence in the stock markets. However, in recent years, there has been a significant divergence in the performance of their respective stock markets.
According to data compiled by Bloomberg as of January 23, 2024, the market value of the U.S. stock market soared to $54.6 trillion, while the combined market value of mainland China and Hong Kong’s stock markets amounted to only $16.7 trillion. This staggering gap reached a historic high of $38 trillion.
This disparity sets a new record and reflects the distinct economic and market conditions in the two countries. The U.S. stock market, driven by the technology sector, continues to reach new highs, benefiting from the Federal Reserve’s accommodative policies and expectations of a soft economic landing. In contrast, the Chinese stock market has been on a continuous decline due to deflationary pressures, a real estate crisis, and policy uncertainties, leading to low investor confidence.
Li Jiang, Chief Investment Officer at Bond Asset Management, stated, “The Chinese market has value but currently lacks catalysts… Meanwhile, the U.S. market possesses momentum and economic advantages.” He believes that the Chinese market needs more reforms and innovations to enhance corporate profitability and competitiveness, attracting more capital inflow.
Some analysts suggest that the correction in the Chinese stock market may have gone too far, and the current valuations are quite cheap, potentially leading to a technical rebound. According to Bloomberg data, the MSCI China Index has a forward 12-month expected earnings multiple of 8 times, while the same indicator for the S&P 500 Index is 20 times, resulting in a 60% gap between the two.
However, as of now, there is no sign of an end to the lackluster start of the Chinese stock market in 2024. In less than a month into the new year, the China stock index listed in Hong Kong has fallen by 13%, becoming the worst-performing major benchmark globally. Meanwhile, the U.S. stock market continues to maintain a strong momentum under the shadow of the COVID-19 pandemic, highlighting the stark contrast between the U.S. and Chinese stock markets.