ZH: Chinese stocks decouple from world most since 2001

22/12/2022

ZERO HEDGE reports:

(By Ye Xie, Bloomberg markets live reporter and strategist)

This year marks another turbulent period for Chinese markets. It also highlights a striking feature: Chinese stocks are more isolated from the rest of the world than they’ve been for more than two decades.

For some investors, that underscores the diversification benefit of investing in China. For others, the unique risks strengthen the argument for carving out China from the rest of emerging markets.

Even with a rally over the past month, Chinese stocks remain among global underperformers this year. The MSCI China Index has lost 26%, compared with a decline of 19% of the MSCI all-country index.

Plus, volatility has been high throughout the year, punctuated by the Shanghai lockdown, tension around Taiwan and skepticism toward China’s new leadership following the Party Congress. Adding to these local market drivers, China is the only major economy that lowered borrowing costs.

With these idiosyncratic risks, it’s not surprising that the Chinese markets are increasingly out of sync with the rest of the world. The annual correlation between the MSCI China Index and MSCI’s global benchmark has dropped to 0.22, a level last seen in 2001 when China joined the World Trade Organization. In the bond market, 10-year bond government yields rose only 12 basis points, while US Treasury notes with same maturity jumped more than 200 basis points…

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