Chinese stock markets have surged since the beginning of 2025, prompting analysts to predict that they will outperform their U.S. counterparts. This shift signals that attractive valuations are outweighing the long-held notion of American exceptionalism.
Chinese Stocks Rally While U.S. Markets Correct
Last week, the S&P 500 officially entered correction territory for the first time since 2023. Meanwhile, the MSCI China Index has climbed 19% year-to-date as of March 9, according to Goldman Sachs, marking its strongest start to a year in history.
This dramatic reversal contrasts with just a few months ago when U.S. markets were seen as uniquely resilient amid global economic uncertainty, while Chinese equities struggled due to regulatory concerns and economic instability.
Key Factors Driving the Market Shift
Trump’s Tariff Policy and U.S. Slowdown
The economic landscape in the U.S. has changed as President Donald Trump’s tariff policies have raised fears of an economic slowdown. Increased trade tensions have weighed on investor sentiment, adding to concerns that U.S. economic growth could dip below 2% this year.
Chris Wood, global head of equity strategy at Jefferies Hong Kong Global, noted that the U.S. stock market capitalization peaked at the end of 2024 during peak “American exceptionalism” sentiment. “That narrative has now shifted,” Wood said.
China’s AI Boom and Market Optimism
China’s artificial intelligence sector has seen rapid advancements, fueling optimism among investors. The introduction of DeepSeek’s R1 model earlier this year has reinforced confidence in China’s technological future, leading to a significant rise in technology stocks.
“China has had a rough few years, but it appears to be on the path to recovery,” said Richard Harris, CEO of Port Shelter Investment Management. “The U.S., on the other hand, is facing a tougher road ahead due to policies that are less friendly to economic growth.”
The Nasdaq’s Struggles and Chinese Tech Surge
The tech-heavy Nasdaq Composite has also entered correction territory, with the Magnificent Seven—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—experiencing a downturn due to recession fears and trade policy concerns.
Meanwhile, the Hang Seng Tech Index, tracking some of China’s largest technology companies, has soared over 30% since the start of the year, according to LSEG data. Increased government support for the tech sector has provided a further boost to Chinese markets.
Wall Street Analysts Predict Further Declines
Deutsche Bank analysts expect continued volatility in U.S. markets, forecasting the S&P 500 to drop to 5,250—representing a more than 7% decline from its recent high.
“The selloff in U.S. equities likely has further to go,” Deutsche Bank noted in a weekend report, pointing to uncertainty surrounding U.S. trade policy as a key factor.
Chinese Valuations Remain Attractive
JPMorgan’s head of Asia Pacific equity research, James Sullivan, emphasized that Chinese stocks remain undervalued compared to global counterparts. The MSCI China Index currently trades at 13.38 times projected one-year earnings, compared to the S&P 500’s 20.72 times earnings.
“China’s market is positioned to outperform U.S. markets over the next four years, and this is not just about Trump’s policies,” said Michael Gayed, publisher of The Lead-Lag Report. “It has more to do with extremely low investor positioning in China, making it ripe for growth.”
China’s Market Momentum Versus U.S. Challenges
While China’s A-shares have been under pressure for years, recent stimulus efforts are showing results. Richard Harris pointed out that China’s government interventions have been instrumental in stabilizing markets and fostering growth.
“Valuations are important, but momentum is the real driver here,” Harris said. “China is gaining momentum, while the U.S. is losing it.”
In line with this perspective, Citi Research recently upgraded China to “overweight” while downgrading U.S. equities to “neutral,” citing expected weaker U.S. economic data in the coming months. However, the bank maintained that the U.S. remains a leader in AI and technological innovation.
With China’s stock markets outperforming U.S. equities amid shifting global economic dynamics, investors are reassessing their portfolios. As U.S. markets navigate trade policy uncertainties and slowing growth, China’s market momentum continues to build.
