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Breaking Down China’s Stock Market Troubles

February 12 to 16, 2024


Breaking Down China’s Stock Market Troubles

February 12 to 16, 2024

Weekly Commentary

Market Recap

  • Equity markets were mixed this week with little in the way of major market-moving data.
  • The S&P 500 rose 1.4% to a record high, topping the 5000 level for the first time on record. Solid economic data in recent weeks, ongoing expectations that we’re on the verge of an easing cycle, and rock-solid earnings results are all supporting the market.
  • The TSX, however, was down 0.4% on the week and continues to lag its U.S. counterpart, now barely positive year-to-date (versus 5.4% for the S&P 500); and up just 2% over the past year (23% for the S&P 500).


Despite a recent rebound, China’s stock market has been undergoing a massive, years-long selloff, with about $7 trillion in value having been wiped out since 2021; as Forbes notes, this is roughly equivalent to the combined gross domestic product of Japan and France.1We’ve been giving a great deal of thought to how this will impact Emerging Markets (EM) going forward, and the first question is—what’s driving this selloff? In our view, it’s a combination of weak economic fundamentals and a collapse in investor sentiment. While the economic side is not showing much improvement, there has been a noticeable uptick in sentiment of late—flows have picked up and investors’ tone has changed as speculation around more robust government intervention has grown. We’ve already seen a bounce this month in Chinese markets, but our expectation is that it will only be short-term. That’s why our preference at this time is to gain exposure to China through the options market. Longer-term, we’re looking to make a more direct allocation to India within our EM bucket. Unlike many other emerging markets, it has relative political stability, an emerging middle class, a relatively young population entering their prime working years, and economic growth that exceeds that of China.

Bottom Line: Chinese stocks may continue their near-term rebound, but longer term, we’re beginning to tilt toward India.


Oil prices appear to have settled of late; is this just the calm before the storm? Our expectation is that markets are likely to remain range-bound around $70-$90 per barrel for the time being, but we do believe that risks are tilted to the upside. It’s an issue of both supply and demand. On the demand front, we’re seeing remarkably resilient economic growth in the U.S. while areas like Canada and Europe have managed to avoid a recession. China remains something of a wild card, but overall, demand could prove more robust than expected. On the supply side, conflict continues in the Middle East, and while the chance of a major escalation appears to be relatively low, it is still a risk. The market is likely underestimating the amount of energy coming out of Russia, which creates some downward pressure. But overall, we think the risks weigh more heavily to the upside.

Bottom Line: We expect oil prices to remain range-bound, but if they do move, it’s likely to be higher.


So far this year, we’ve already seen a number of big-name companies—including Tech giants Meta, Amazon, and Alphabet—announce major job cuts. Despite this, labour markets have proven surprisingly resilient. How can we make sense of this apparent discrepancy? A key element is that while we have seen a lot of layoffs announced, we’ve also seen a ton of hiring: for instance, total nonfarm payroll employment in the U.S. rose by 353,000 in January.2 That represented a 50%-plus upside surprise, as the expectation had been 200,000. Those hires, in our view, are what is keeping the unemployment rate stable. It’s no surprise that news reports tend to focus on negatives like job cuts rather than good news like offsetting job hires, so that also likely plays into the perception of a discrepancy. The final piece is that we expect to see a cooling-but-not-crashing labour market going forward. GDP growth estimates continue to be revised upward and now stand above 3% for this quarter, which would be above-trend growth. That’s consistent with a stable labour market. Another key indicator to watch is wages—that’s the U.S. Federal Reserve’s focus as they look for signs that inflation is approaching their 2% target and consider the timing of rate cuts.

Bottom Line: There have been more than enough new jobs to offset the widely-reported job cuts, and that’s what’s keeping the unemployment rate stable.

BMO GAM’s 2024 Market Outlook

In this one-hour video, I’m joined by six portfolio managers—specializing in Bonds, Dividends, Healthcare, Real Estate, Financials, and Technology—to share what could be in store for markets in the year ahead, including potential risks and opportunities.


The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

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