Investing China's Stock Seems Logical

Hello everyone! Today i want to share some macro analysis with you!

China’s GDP has grown 13 times since 2001

Since China joined the World Trade Organization in 2001, its GDP has increased 13-fold (Chart 2). However, the Shanghai Composite Index has grown by only 1-fold (Chart 3). In contrast, during this same period, U.S. GDP has grown 2.6-fold (Chart 1), while the Dow Jones has increased more than 4- fold. Will China’s stock market eventually catch up with its GDP growth?

Chart 1

Source: TradingView

Chart 2

Source: TradingView

China’s GDP grew the most when the world entered the Covid lockdown

While the rest of the world was in lockdown, with most of us working from home and shopping online, China’s manufacturers were supplying global demand. As shown in Chart 2, China’s GDP experienced its largest increase during COVID and has remained at this elevated level.

Is China’s stimulus going to work?

When China intensified its efforts to clean up its property sector around 2020, the CSI 300 peaked in February 2021. This was part of a broader strategy to address systemic risks in the real estate market, including high levels of debt among developers.

On September 24, 2024, China rolled out a series of stimulus measures, and it appears they are prepared to implement additional support if necessary. This stimulus may prove effective, as they have achieved relative success in addressing two longstanding core issues—corruption and irresponsible leverage.

Chart 3

Will China’s stock market eventually catch up with its GDP growth?

Assuming GDP continues to maintain an annual positive growth rate, I hope that, in time, the pricing of its stock markets will better align with the economy. As with all long-term investment strategies, it's essential to focus on selecting the cream of the crop. Both stock indexes have shown gradual growth since their inception, with the CSI 300 outperforming the Shanghai Composite Index.

The Shanghai Composite Index tracks all A-share and B-share stocks listed on the Shanghai Stock Exchange, making it one of the most comprehensive indices for China's stock market. In contrast, the CSI 300 Index comprises the 300 largest and most liquid A-shares listed in Shanghai and Shenzhen, and it is often used as a benchmark for the Chinese stock market.

Alternatively, consider selecting the best from the Hang Seng China Enterprises Index, which covers major Chinese companies listed in Hong Kong and is commonly referred to as the H-shares index. $HSI(HSI)$ $SSE Comp(000001.SH)$

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