Gavekal Capital: Is the Surge in Chinese Stocks All But Over?

Thursday, September 18, 2014

Is the Surge in Chinese Stocks All But Over?

MSCI China has outperformed the developed market stock index (the MSCI World Index) by about 11% since the middle of March. Over that period the percent of stocks outperforming the World Index increased from a paltry 14% to an elevated 79% (blue line in the chart below). In the past, when the percent of stocks in the MSCI China outperforming the MSCI World Index reached around 80% the relative outperformance was all but over and a new downtrend resumed. We are careful not to call for a renewed downtrend in Chinese stocks, but perhaps they are ready for a breather.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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