China’s Stock Market Should Rebound as Economy Recovers

Investors have a multitude of concerns, but short-term problems shouldn’t be overinterpreted

On Jan. 22, an investor in China browses through stock market information on their phone. Photo: VCG

In 2023, China’s stock market was hit by a double whammy of diminishing corporate profits and a sharp drop in valuations. The slump in valuations was attributed by many to the persistent ascent of U.S. bond yields, which led to significant outflows of foreign capital through the stock connect program that allows overseas investors to trade stocks on the Chinese mainland through Hong Kong.

However, despite the decline in U.S. bond yields since the fourth quarter of 2023 and a slowdown in capital outflows through the program, the Chinese stock market has yet to witness a rebound. This suggests that what’s driving the market’s malaise is not short-term shifts in China’s economic fundamentals or corporate profits, but rather investors’ concerns about long-term risks.