China stocks slide, US stocks glide – will reform work to stem the tide?
- While China’s stock markets have been hit by massive losses, the US’ have crested to record highs, prompting calls for introspection by analysts
- Resolving problems weighing down country’s fundamentals cited as necessary precondition for sustained recovery and a restoration of confidence
US stocks are hitting record highs, with tech giants such as the “magnificent seven” continuing to stand out, but the bonanza has fuelled debate over the relationship between the markets and the real economy.
“Magnificent seven” refers to an informal grouping of US technology behemoths, used as a metric for the sector as well as the economy at large. The companies involved are Nvidia, Tesla, Meta Platforms, Apple, Amazon, Microsoft and Alphabet.
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At US$13 trillion, their combined market capitalisation is nearly half of the United States’ US$27.4 trillion gross domestic product (GDP), and nearly 75 per cent of China’s US$17.5 trillion.
Riding the new wave of demand for artificial intelligence, cloud computing and upbeat expectations for the US economy, the seven stocks accounted for 45 per cent of the S&P 500’s SPX return in January, and a more striking 71 per cent when Tesla is excluded and shares are slashed, said Michael Hartnett, Bank of America’s chief market strategist, in a note last week.
It may be difficult to rely on robust economic growth … to drive a recovery in the stock market
Beijing has ramped up efforts to prevent a downturn in recent weeks after mainland stocks fell to a five-year low. But analysts said the measures could only lead to a temporary rebound, and a sustained rally must be backed by improving economic fundamentals.