Here’s What China’s Stock Market is Signaling

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Here’s What China’s Stock Market Is Signaling

Well, here I think the stock market is telling you all you need to know. In fact, I'm going to steal a line from our founder and Executive Chairman, Ken Fisher, who says that: "The stock market is a truth teller."

So if you just look at how Chinese stocks have been performing recently relative to US stocks, what you're seeing is the Chinese stock market is doing quite well. US stocks are doing just fine so far this year. US stocks are up mid-single digits, which isn't a gangbusters year but it's a pretty good year. Chinese stocks though are up much more. So far this year, Chinese stocks are up in the mid-teens, and in fact, if you go back a full year into mid-2024 up until now, what you see is that Chinese stocks are up about twice as much as US stocks are.

And so I think that's the stock market telling you that despite a lot of the trade tensions we're seeing this year, a lot of the tariff announcements—many of those that are focused on China, that the Chinese economy and the stock market is holding up just fine.

And you'd expect that because these issues aren't new for China. In fact, a lot of these trade tensions go back years. Now, going back to President Trump's first term in office in 2018 and 2019 especially, we really saw a ramping up of trade tensions between the US and China.

And so China has had a long time to deal with increasing trade tension with the US. And what they've done over that timeframe is they've diversified their supply chains. They set up our operations in lots of different parts of the world, just like all economies do and all companies do. They figured out a way to lessen the impact of these tariffs.

One of the reasons that we say that ultimately the impact of tariffs—although tariffs might not be a great thing, they are an economic tool that can get used in various ways. But just the pure economic effects of them we would say are bad, not good, but they tend to be less bad than people worry about because there are lots of ways to lessen the impacts of tariffs. And China, as you'd expect, has figured out lots of ways to do that.

And so ultimately, the impact of these trade tensions and these tariffs on the Chinese economy has proven to be much more modest than people have feared. And that's what the stock market is telling you today. The fact that Chinese stocks are performing as well as they are—especially relative to the US—tells you that despite what seems to be another round of increasing trade tension between the US and China, it's really not sinking the Chinese economy.

Now, I think there's an important distinction to make here between how we feel about the Chinese economy, and how we feel about investing in China. I do think there are lots of good opportunities in Chinese equity markets, but there are risks that go along with that as well. There are added political risks and regulatory risks and so forth. And so we have to weigh those opportunities versus the risks.

What that means is that sometimes we will invest in Chinese equities, sometimes not. But today, from a purely economic standpoint, we think that the Chinese economy will weather these increasing and decreasing trade tensions depending on the day. It'll likely weather that just fine.

Hi, this is Ken Fisher. Subscribe to the Fisher Investments' YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.