Things got so bad for China stocks listed in the US in 2021 that Goldman Sachs clients started asking whether the China market was uninvestable.
The tech-heavy Invesco Golden Dragon China ETF, which tracks China stocks listed on US exchanges, plunged almost 43% last year, while the Invesco Nasdaq 100 ETF rose almost 29%.
But now China’s back. As the Chart of the Day, below, shows, the Invesco Golden Dragon China gauge has climbed 11% since May 27 while the Nasdaq 100 ETF is down almost 7%.
A slew of factors drove the turnaround. China’s eased up on the sweeping tech crackdown that prompted investors to ask Goldman if China’s stocks were uninvestable. It’s also made noises that suggest a desire to ease the standoff over a US plan to delist China companies from US markets for failing to comply with audit requirements.
Monetary policies in the two nations also have diverged. While the US is deep into tightening mode, China is easing policy to offset the drag on growth of Covid lockdowns and a steep downturn in its property market.
So is China set to continue outperforming? It does have a more favourable policy backdrop and that suggests, all other things being equal, that it may be the better bet.
But there are caveats. Its zero-Covid policy may cause more swingeing lockdowns that undermine growth while its on-again, off-gain crackdown on tech companies may yet come back to haunt investors.
“Some argued the regulatory crackdown on these stocks is over, pushing their prices up in the past couple of months,” says Arthur Budaghyan, Chief Strategist, Emerging Markets Strategy with BCA Research. “But when Beijing imposed penalties on Alibaba and Tencent early this week, it reminded investors about regulatory risks.’’
- By Richa Gandhi