China’s Stock Market Is Trailing the U.S. by the Widest Margin in History
The gap between U.S. and Chinese stocks just broke a record stretching back decades, and Beijing's state-backed funds are still sitting on their hands while blue-chip shares slide into bear market territory.
When trading ended on Thursday, October 22, the S&P 500 closed at 2.095 times the Shanghai Composite. By our calculation from daily closes, that is the highest ratio in the data going back to 1997, exceeding the 2.088 record set on September 19, 2024.
The S&P 500’s ratio to Hong Kong’s Hang Seng also closed at a record 0.334, in data back to 1990. Both ratios fell Friday to 2.066 and 0.330 as Shanghai rallied. Even so, the gap hit the widest margin on record during the week ended October 23.
The ETF also hit a record. Measured in dollars with dividends included, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) did so against the iShares MSCI China ETF (NASDAQ:MCHI) on October 22, in data back to 2011. The index ratios compare price levels in local currency. The fund comparison shows what a U.S. investor actually earned.
Investors must judge whether China is a value trap. It could be a market that looks cheap but keeps falling, or a deep discount that Beijing’s state funds have only started to buy.
Through October 23, the S&P 500 has gained 11.4% in 2026. Over the same stretch, the Shanghai Composite fell 7.0%, and the Hang Seng fell 9.9%.
By our calculation, the S&P 500 is ahead of Shanghai by about 18 percentage points and ahead of MCHI by about 30 points, since MCHI is down 18.4%. The record shows up in the cumulative ratio, which captures years of difference, rather than in any single year.
Thursday’s Selloff Pushed the CSI 300 Into a Bear Market
The CSI 300, China’s blue-chip index, fell 1.8% to 4,036.30, its lowest close since July 2025. It entered a bear market Thursday, finishing 20.2% below its June 22 closing peak. The Shanghai Composite dropped 1.5% to its lowest level in more than a year, and the Hang Seng Tech index hit a two-year low.
Alibaba Group (NYSE:BABA | BABA Price Prediction) fell more than 6% and Tencent fell 2.9%. Investors doubted that AI growth and valuations could last. They were let down by Beijing’s incremental stimulus and pulled back after Beijing moved to tax offshore trusts held by shareholders of Hong Kong-listed Chinese companies.
“The market is in the dump,” said Hao Hong, CIO at Lotus Asset Management. He added that the National Team, the state-backed funds that buy shares to steady prices, “has been rather hesitant to make a move.”
State-Backed Buying Produced Only a Partial Rebound
On Friday, heavy trading in ETFs preferred by state-backed investors lifted the CSI 300 1.7% and the Shanghai Composite 0.9%. The CSI 300 still lost 1.6% for the week. That was its 11th straight weekly decline, the longest losing streak since the index was created in 2005, and it ended about 19% below its June peak.
Morgan Stanley analysts spoke. They said, “weak domestic demand and liquidity headwinds persist, while valuations have yet to reach an outright bottom.” The S&P 500 dropped 0.52% Friday, which means the record gap came from China falling while U.S. stocks also dropped.
Internet Stocks Took the Heaviest Losses
The KraneShares CSI China Internet ETF (NYSEARCA:KWEB) fell 0.30% Friday to $23.14 and lost about 5.2% for the week. It is down 32.0% in 2026, and its one-year total return is -37.79%, because a fund made up only of internet stocks takes the most damage when AI and tech valuations are the worry.
The iShares China Large-Cap ETF (NYSEARCA:FXI), which holds $3.78 billion in assets, fell 0.43% to $32.31. It is down 15.6% in 2026, with a one-year return of -17.20%, because its big banks offset part of the tech losses. MCHI, the widest of the three funds, dropped 0.04% to $49.00, just above its 52-week low of $48.65, and its one-year return is -20.79%.
Bull and Bear Cases for Chinese Stocks at a Record Discount
The bull case rests on price: Chinese shares trade at a record discount to U.S. stocks, and Friday showed that state money will step in when selling turns chaotic.
The bear case rests on earnings, because domestic demand is weak, stimulus keeps arriving in small pieces, and the offshore trust tax adds new policy risk. The National Team also held off until the CSI 300 had already dropped into a bear market.
We side with the bears. A market that keeps getting cheaper stays a value trap until earnings turn, and among the three funds, FXI’s bank-heavy portfolio has held up far better than KWEB.
Two signals would test this view: if the CSI 300 ends its losing streak with a weekly gain and Beijing announces a real fiscal package, the bull case gets stronger. If MCHI closes below $48.65, the bear case is confirmed.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
