Chinese equities better than US equities?
Compared to US equity markets, Chinese equities have made an interesting recovery in recent weeks in terms of strength ratio.
The CSI 300 has gained almost 20 percentage points over the last six months. Over the same period, the S&P500 has gained just over 4%. There is a mix of factors supporting the recovery in Chinese equity markets. There is certainly government intervention, both through market purchases and stimulus measures. But there is also the return of foreign investors, inspired by the recovery in corporate earnings and the discount multiples of Chinese equities.
The chart above shows the trend in the ratio of China’s main index (CSI 300) to the MSCI Asia. You can see the ongoing recovery since late summer last year. It is also worth noting how the Chinese index has regained strength in recent weeks.
The relationship between Chinese and US equities is also interesting. If we compare the CSI 300 with the Russell 3000, we can see that the strength ratio is testing the resistance represented by the long-term moving average. Breaking through this could signal a trend reversal. A move, it should be noted, that comes just as the United States announces a new round of tariffs on Chinese goods.
