Between the U.S. S&P 500 and China's CSI 300, which major stock index would you guess is up 20% in the past year, and which one fell by 20%?
Answer: The CSI 300 has lost more than a third of its value since 2020 and is entering its fourth consecutive year in the red. Meanwhile, Hong Kong's Hang Seng Index, which lists shares of major Chinese companies, is now Asia’s worst-performing major stock index.
- To add salt to the wound, the situation is running in direct contrast to U.S. market performance, where strong consumer demand has kept the economy growing.
Why it’s happening: According to The Wall Street Journal, China’s post-pandemic recovery has been marred by deflation, weak consumer confidence, and a prolonged slump in the real estate market, a sector that once accounted for around a quarter of the country’s economic output.
- Chinese officials have rolled out solutions ranging from cutting a stock-trading tax and making it easier for foreign investors to buy stocks through new index funds.
- This week, China voluntold a group of stake-linked firms to pour money into Chinese assets. And next month, it’s cutting the amount of cash banks need to have on hand.
Why it matters: Troubles in Chinese markets paint a concerning picture as it relates to the country’s economic stability and health. As the government tries to shift reliance away from real estate, China has tried to rebrand itself as an economic hub for technology investments.
Yes, but: Foreign investors aren’t buying it. With uncertainty still looming in one of the world’s biggest economies, all eyes are on whether policy interventions will help — though small recent jumps in the CSI 300 and Hang Seng Index are offering a tiny bit of hope.—SB