U.S. investors returned to their desks on the first trading day of the year to see that the Shanghai Composite Index had fallen 6.9%. The resulting stateside selloff was swift and heavy.
Less than two months later, U.S. traders got in Thursday morning to see the same thing: a6.4% selloff in Chinese stocks amid concerns about market liquidity. The moves barely made a dent in U.S. benchmarks, with the S&P 500 up 0.6% on the day.
The shift is a sign that investors increasingly realize Chinese stocks aren’t a particularly good gauge of the health of the world’s second-largest economy. Investors are clamoring for any signals about China’s economic growth, given that its slowing pace of expansion is likely to have effects globally, but many see economic data and moves in the currency markets as better indicators.
“I think the movements in the Chinese equity markets are being increasingly viewed as idiosyncratic,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “Investors realize it’s a casino and the activity is largely retail-driven speculation and clumsily handled intervention.”
When Chinese President Xi Jinping took office in 2013, he trumpeted stock market gains as a sign of the country’s economic health, Mr. Luschini said. That pushed global investors to focus more heavily on moves in China’s stocks, which rose 32% in the first six months of last year alone.
The index has fallen 23% so far this year. China’s central bank has sought to reassure investors in recent weeks through stimulus measures. That’s helped stabilize markets, but also obscured the market’s signaling mechanism further.
The Chinese economy, “is a concern, just not right now,” said Adam Sarhan, chief executive officer at Sarhan Capital, suggesting the country’s government is, “kicking the can further down the road” on its structural problems.
The use of liquidity injections, combined with the prevalence of retail investors has made Chinese stocks more volatile than their U.S. counterparts. The Shanghai Composite has had 13 daily moves of more than 2% so far this year. The S&P 500, which has endured a particularly volatile start to the year, has had five such moves.
For U.S. stocks, it would be a tall order to follow every move in China. So when positive U.S. durable-goods data and a raft of upbeat earnings set the market up for a different tone on Thursday, investors were happy to take the bait.
“At some point, fundamentals matter. And that’s what we’re seeing in today’s market,” said Quincy Krosby, markets strategist at Prudential Financial.