Is China Investable Again?

What would it take for the recent rally in China's stock market to become sustainable and one of the biggest bull markets for China of the past 20 years? A lot—but it's not impossible.

A new bull market

During the past few years, we've written about the need for China to deliver much more powerful stimulus and been repeatedly disappointed. China's stock market was near the low end of its 15-year range as of mid-September, trading at a forward price-to-earnings ratio of less than 9, near its lowest levels of the past 20 years. As the biggest weight in the MSCI Emerging Market Index, China had been dragging down the performance of the emerging market (EM) stocks asset class. From the end of 2020 until the day before China's announcement of new stimulus on September 25, 2024, the total return of the MSCI Emerging Market Index was a loss of -3%, while the MSCI Emerging Market Ex-China Index produced a 21% gain.

China acted as a drag on EM stocks from the end of 2020 until late September

China acted as a drag on EM stocks from the end of 2020 until late September

September's announcement brought a surprise and emerging market stocks, as measured by the MSCI Emerging Market Index, ended the third quarter having outperformed the S&P 500 Index. The press release of a major Chinese stimulus program lifted China's stocks into a new bull market from their mid-September low, just ahead of the weeklong market closure for the Golden Week holiday that started October 1.