China’s post-pandemic lesson for the world: as stimulus slows, the party winds down for stock markets
- China’s post-pandemic experience holds lessons for investors elsewhere: after monetary stimulus peaks, a squeeze on stocks’ multiples is likely to play out in developed markets too
Economic activity across the country is, according to our real-time indicators, largely back to where it was before the outbreak. China’s stocks have enjoyed a big re-rating in the process.
Investors in developed-market stocks could be forgiven for seeing these trends in a positive light. If economies such as the United States, Europe and Japan – where economic activity is currently 10 to 20 per cent below pre-crises levels – eventually catch up with China, then surely global equity markets could add to their gains.
However, all is not as rosy as it seems. To understand why, it’s important to analyse China’s experience more closely, particularly the relationship between the country’s level of liquidity and its equity valuations.
As the crisis unfolded in early 2020, China’s monetary authorities launched an extensive set of stimulus measures to counter the economic shock from the coronavirus outbreak.
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