S&P 500 could hit 8,000 in 2026 on more easing from Fed: JPMorgan
Investing.com -- Chinese equities may continue to outperform their U.S. counterparts if the current market downturn intensifies, according to Capital Economics, which said China’s stock market has shown “relative resilience to the AI nerves” even as the sell-off that began in the United States has rippled through Asia.
The firm’s head of markets for Asia Pacific, Thomas Matthews, noted that while “the tech-heavy markets of Taiwan and Korea… had been hit at least as hard as that of the US,” China’s market, though lower, “has been noticeably less affected than the others, including the US.”
Capital Economics added that the pattern was not isolated to the latest decline, saying “it was the case during last week’s wobble as well.”
The outperformance comes despite China’s tech-heavy market structure. Matthews wrote that “tech sectors… have a greater weight in, for example, the MSCI China Index than they do in the MSCI USA Index,” and that Chinese equities had also benefited from the earlier AI-driven rally.
“Tech stocks in China have, in aggregate, outperformed those in the US this year,” they said.
Capital Economics pointed to three explanations. First, part of the sell-off may reflect “discount rates and monetary policy,” with U.S. yields rising as investors scaled back expectations for Federal Reserve rate cuts, while Chinese yields were “little changed.”
The firm expects “that divergence to continue,” forecasting fewer Fed cuts than investors anticipate and further PBOC-led yield declines.
However, it cautioned against overstating this factor, noting that Chinese tech firms are heavily tied to domestic demand and that global discount rates have moved their stock prices before.
Second, China’s tech valuations are “much less stretched,” with U.S. price-to-forward earnings ratios near dot-com-era highs.
Third, Capital Economics said Chinese big-tech firms appear “less vulnerable… to concerns about excessive capital expenditures,” as they have funded less of the recent capex surge from internal cash flows compared with U.S. peers.