Chinese Stock Market - The Unlikely Safe Haven
In twist, China stock market is haven amid storm
by Adam Shell
When you think of safe-haven investments, Chinese stocks (FXI) don't normally come to mind. But shares listed in Shanghai have been soaring recently at a time when most stock markets around the globe have been sliding.
Last week, global markets shuddered, with every U.S. stock index losing between 2% and 3%, and virtually every other global stock exchange finishing in the red.
Except for stocks in China, where the Shanghai Composite Index rose 3.7%. (Hong Kong shares also finished in the black last week.)
Chinese stocks also have posted better returns than U.S. shares in July and so far in August. U.S. shares have been hit amid nervousness related to debt problems in Argentina and a troubled bank in Portugal, fear of an earlier-than-expected interest rate hike by the Federal Reserve and ongoing geopolitical risk in places like Ukraine and Gaza.
In July, the Shanghai Composite Index rallied 7.5%, outpacing the Standard & Poor's 500, the benchmark U.S. stock index, by 9 percentage points. And the outperformance of Chinese stocks have persisted so far in August, with China shares up 1% after two days of trading, while the S&P 500 (SPY) (SPX) is virtually flat in early trading in its second session of the new month.
So why are Chinese shares holding up better - and even thriving - while the U.S. market and other global stock markets are undergoing a pullback?
Oddly, China stocks are somewhat insulated from geopolitical factors, such as the Ukraine/Russia crisis and the Israeli/Hamas conflict, which have been hobbling other global markets, says Donald Straszheim, head of China research at ISI Group (International Strategy & Investment).
"The Shanghai market," he told USA TODAY, "is largely closed to overseas investors. It is rallying on improving domestic economic performance and investor sentiment. Overseas conditions and geopolitical worries are a minor factor."
Chinese stocks have another advantage for the moment, adds Russ Koesterich, BlackRock's chief investment strategist: "Cheap valuations. Chinese equities, particularly the banks, are one of the last segments of the equity market where valuations are significantly below their long-term average."
Courtesy of usatoday.com