Strategy Note /

China: Curious outperformance during Coronavirus

  • China equities are flat month to date and down 6% year to date; US down 8% mtd and 16% ytd

  • Explanations could be fundamental (decline in new China infections) or geopolitical (state support of equities)...

  • ...Or mean reversion (US price/book was at a historic premium versus China prior to the recent sell-off)

Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
15 March 2020
Published byTellimer Research

China equities (Shanghai Composite index) are flat month to date and down 6% year to date (in total US$ return terms). US equities (S&P 500 index), by contrast, are down 8% mtd and 16% ytd. That seems odd given that China was the epicentre of Coronavirus and that there is likely little differentiation in negative economic impact as the pandemic plays out.

Candidate explanations are as follows:

(1) Fundamental: new infections in China have tailed off and a public show has been made of the completion of work by emergency medical staff.

(2) Geopolitical: there may have been state support of equities in the context of an increasingly defiant tone taken by Chinese foreign ministry officials in response to some of the rhetoric that previously emanated from countries now seeing an escalation of new infections. 

(3) Mean reversion: the premium valuation of US versus China equities (on trailing price/book) was at a 10-year high prior to the recent sell-off and, on a 10-year view, the outperformance of US equities remains massive (over 150 percentage points in aggregate).