Is the sharp decline in US stocks really a good thing for A-shares?

Core Conclusion:

① Recently, the adjustment of US stocks and the strong performance of A-shares and Hong Kong stocks have led to an increasing discourse on the rise of the East and the decline of the West. Reviewing the 8 major declines in US stocks since 2000, both A-shares and Hong Kong stocks performed poorly. ② The US market is highly market-oriented, and a significant drop in US stocks often indicates problems in the US economy. The US economy has a high global share and significant influence, making it difficult for global equity assets to remain unaffected. ③ The best scenario is for US stocks to fluctuate while A-shares and Hong Kong stocks rise, similar to the comparison between the US and Japan from 1968 to 1982, and the comparison between the US and China from 2000 to 2011. If the AI revolution successfully aids China's transition from old to new momentum, Chinese assets are expected to see a revaluation similar to that of 20 years ago.

Since late February, US stocks have seen significant adjustments, with the S&P 500 and Nasdaq experiencing maximum declines of 10.1% and 14.3%, respectively. In contrast, A-shares and Hong Kong stocks have performed brilliantly, with the Hang Seng TECH Index rising by 48.7% and the Wind All A Index by 14.0% since the beginning of the year. Notably, on March 10, the Nasdaq dropped 4%, leading to a decline in stock markets in Europe, Japan, and South Korea, but on March 11, the Wind All A Index and the Hang Seng TECH Index opened lower and closed higher, ultimately finishing in the green. The recent disparity between the Chinese and US stock markets has reignited discussions about the rise of the East and the decline of the West, as well as foreign capital reassessing China. So, is the significant drop in US stocks truly a good thing for A-shares? This article discusses this issue.

1. Since 2000, A-shares and Hong Kong stocks have performed poorly during the 8 major declines in US stocks

The recent narrative of a US recession has been a catalyst for the decline in US stocks. At the beginning of this year, major US stock indices reached historical highs, but since late February, concerns about the US economic outlook have deepened due to factors such as the repeated implementation of Trump's tariff policies and significant layoffs by the US government. On March 3, the Atlanta Federal Reserve's GDPNow model projected a -2.8% GDP growth rate for the US in the first quarter of 2025, with a cliff-like drop in the forecasts for US Q1 personal consumption expenditures and private fixed investment growth compared to February 28. Influenced by the narrative of a US recession, major US stock indices have gradually entered a correction phase, with the S&P 500 index experiencing a maximum decline of 10.1% and the Nasdaq index 14.3%. As mentioned in the introduction, while US stocks are declining, domestic fiscal stimulus and positive macro and industrial factors such as Deepseek breakthroughs have catalyzed A-shares and Hong Kong stocks, making Chinese assets "this side of the scenery particularly beautiful," significantly outperforming US stocks. So, what impact will a further decline in US stocks have on A-shares? We will review this based on historical data.

Since 2000, when US stocks have experienced major declines, A-shares and Hong Kong stocks have performed poorly. We use the S&P 500 index to characterize this, defining a major decline as a drop of over 15%. Since 2000, there have been a total of 8 major declines in US stocks. Reviewing the background of these major declines, it can be observed that the bear market in US stocks is often accompanied by a simultaneous recession in both the macro economy and micro profits in the US. For specific data, please refer to Table 1. For example: ① In 2007, the subprime mortgage crisis spread to other markets such as bonds and stocks, leading to a sharp downturn in the US economy, with actual GDP growth dropping from 2.4% in Q3 2007 to -4.0% in Q2 2009. Under the impact of a hard landing, US stocks fell sharply, with the S&P 500 index declining by 57% from November 2007 to March 2009 In early 2020, the outbreak of the COVID-19 pandemic impacted the global economy, with preventive measures having a significant negative effect on production and consumption. The actual GDP growth rate in the United States fell from 3.4% in Q4 2019 to -7.5% in Q2 2020. During the pandemic's impact, the S&P 500 index dropped by 34% between February and March 2020.

When U.S. stocks experience significant declines, A-shares and Hong Kong stocks typically perform poorly as well, with substantial drops. We use the Wind All A Index to represent A-shares and the Hang Seng Index to represent Hong Kong stocks. Since 2000, during 8 major declines in U.S. stocks, A-shares and Hong Kong stocks also fell during the same period. The average decline in A-shares during these 8 drops was 25.3%, while Hong Kong stocks saw an average decline of 28.7%, which is not much different from the average decline of 29.0% in U.S. stocks. Notably, during the decline from October to December 2018, the drop in U.S. stocks was significantly greater than that of A-shares and Hong Kong stocks. However, from January 2018 to January 2019, A-shares and Hong Kong stocks had already experienced noticeable declines due to the impacts of U.S.-China trade tensions and the Federal Reserve's interest rate hikes, with declines of 32.5% and 24.4%, respectively.

2. The Earth is Round; When U.S. Stocks Plummet, Other Markets Struggle to Remain Unscathed

The Earth is round. The wave of economic globalization that began in the 1980s has led to a deeply integrated organic economic entity formed through international trade, capital flows, and technology transfers among countries, especially since the 21st century, where the characteristics of global integration have become more pronounced. Although in recent years, trade protectionism has risen and geopolitical conflicts have intensified, posing new challenges to global integration, the overall pattern of global economic integration has not changed. From an economic influence perspective, the United States still occupies a core position The United States has a high proportion of the global economy and significant global influence. As the world's largest economy, in 2023, its GDP accounted for 26.1% of the global total. In addition to its economic size, the U.S. also has substantial global influence in consumer markets, technological innovation, and financial systems. On one hand, the U.S. is the largest single consumer market globally, with final consumption expenditure accounting for 26.5% of the global total in 2023; on the other hand, the U.S. capital market is a global benchmark, with the total market capitalization of U.S. stocks reaching USD 62.2 trillion by the end of 2024, accounting for nearly half of the global stock market.

The U.S. is the world's largest consumer country, while China is the largest manufacturing country. The high-end demand of the U.S. consumer market complements China's scale advantages in manufacturing, thus tightening the economic ties between the two countries. According to trade dependency data, in 2024, China's exports to the U.S. accounted for 14.7% of total exports, and the trade volume between China and the U.S. accounted for 11.2% of China's total trade, making the U.S. China's third-largest trading partner after the European Union and ASEAN. Although the trade dependency between China and the U.S. has decreased since the trade friction in 2018, imports of Chinese goods from other major trading partners of the U.S. (such as the EU, Mexico, Canada, Vietnam, etc.) have increased. According to research from Fudan University's Belt and Road and Global Governance Research Institute, after considering import transfers, the trade structure between China and the U.S. remains highly complementary and interdependent.

A significant drop in U.S. stocks indicates a weak U.S. economy, making it difficult for global equity assets to remain unaffected. According to the DDM model, asset prices reflect the market's pricing of future cash flows, and stock market trends reflect investors' economic expectations, serving as a barometer for the economy. The U.S. stock market, which has a higher degree of institutionalization and lower historical volatility, is generally considered a relatively mature and efficient market, with its trends closely related to the U.S. economic fundamentals. As mentioned above, if the U.S. stock market experiences a sustained decline, it often indicates a recession in both the U.S. macroeconomy and micro profits. Given the global importance of the U.S. economy and its high correlation with China, a recession in the U.S. economy and turmoil in the stock market will transmit through international trade and financial markets to the rest of the world, leading to negative impacts on the global economy and stock markets. Historically, when the U.S. market has declined significantly, stock markets in Europe, the U.S., and the Asia-Pacific region have also struggled to remain unaffected, as detailed in Table 1 above.


3. The Stronger Ones Win: The Best Scenario is for US Stocks to Fluctuate While A-shares and Hong Kong Stocks Rise

Historically, when US stocks experience a significant decline, both the macro and micro fundamentals of the US tend to head towards recession, which can negatively impact the global economy. Therefore, when US stocks fall, global equity assets, including A-shares, find it difficult to remain unaffected. So, what is the best scenario for A-shares and Hong Kong stocks? We may refer to the historical experience from 1968-1982 and 2000-2011 when US stocks fluctuated and leveled off, while Japanese stocks, A-shares, and Hong Kong stocks outperformed US stocks. The core driving force behind this is the rise of the Japanese economy in the 1970s and the Chinese economy in the 2000s, as the saying goes, "the stronger ones win."

1968-1982: US Stocks Fluctuated While Japanese Stocks Soared. During the 1970s, crises such as the food crisis and oil crisis affected the US economy, leading to a slowdown in growth. The S&P 500 peaked at 108 points in November 1968 and dropped to a low of 106 points in July 1982, resulting in a 14-year period of fluctuation. In contrast, Japan formally established an industrial development policy framework centered on heavy and chemical industries, improved trade liberalization, and continuously introduced advanced technology, allowing the Japanese economy to develop rapidly, with a real GDP growth rate averaging 5.4% from 1968 to 1981. As a result, Japan's GDP share of the US increased from 17% in 1968 to 39% in 1981, making it the world's second-largest economy. The relative changes in economic fundamentals were also reflected in the stock market, where the better fundamentals supported a bull market in Japanese stocks, which achieved significant excess returns compared to the fluctuating US stocks. From 1968 to 1982, the excess return of the Nikkei 225 compared to the S&P 500 index was 311 percentage points.

2000-2011: US Stocks Fluctuated While A-shares and Hong Kong Stocks Rose. Similar to Japan's accelerated catch-up with the US in the 1970s, after China joined the WTO in 2001, it gradually integrated into the global industrial chain, with rapid development in capital-intensive heavy industries becoming an important driving force for economic growth. From 2000 to 2011, China's real GDP growth rate averaged 10.3%, while the US only achieved 2.0%. During this period, the gap in economic scale between China and the US rapidly narrowed, with China's GDP share of the US increasing from 12% in 2000 to 48% in 2011, surpassing Japan to become the world's second-largest economy. A-shares and Hong Kong stocks also significantly outperformed the fluctuating US stocks, with the S&P 500 peaking at 1552 points in March 2000 and reaching a maximum of 1370 points in May 2011. During this period, the excess return of the Wind All A index compared to the S&P 500 index was 94 percentage points, and the excess return of the Hang Seng Index compared to the S&P 500 index was 49 percentage points.


From 2011 to 2024, China's growth center has shifted downward, while U.S. stock earnings have seen significant growth, leading to U.S. stocks outperforming A-shares. After a certain stage of economic development, the capital-driven model can no longer support rapid economic growth. Since 2011, China's economic growth center has gradually declined, with GDP growth rate center falling from 10.4% during 2000-2011 to 7.4% during 2011-2019, and further dropping to 5.0% during 2020-2024. Although the U.S. GDP growth rate center has been 2.4% since 2011, which is lower than China's, the advantages of the U.S. technology and consumer industries have allowed U.S. companies' earnings to continue to rise. Therefore, from 2011 to 2024, U.S. stocks have significantly outperformed A-shares.

Now, the AI revolution is aiding the transformation of new and old driving forces in China, and a revaluation similar to 20 years ago may occur again. During the industrial restructuring period from 1998 to 2000, China faced supply-demand imbalances and fell into deflation. Starting in 2001, China emerged from deflation through urbanization and joining the WTO, upgrading from light industry to heavy industry, with the cost advantage being the demographic dividend of industrial workers and the demand-side driving force being urbanization and exports. In 2023-2024, China is once again facing deflation, and the 20th National Congress proposed building a modern industrial system. As the AI revolution enters the application phase, the demographic dividend of Chinese engineers is emerging, showing comparative advantages in intelligent manufacturing, and the real estate cycle has adjusted sufficiently. If the global economy remains stable, China's fundamentals may resemble those of 2001-2005, gradually bottoming out and recovering, with Chinese assets expected to be revalued again.

The domestically produced DeepSeek-R1 large model released in January this year, with its low cost and high performance, may accelerate the process of AI parity and application between China and the U.S. China is expected to provide fertile ground for application innovation in the AI field due to its vast market and user base. The AI revolution will become an important force driving the transformation of new and old economic drivers, and in the future, more internationally influential technology giants are expected to emerge in fields such as AI applications, semiconductors, and high-end manufacturing, potentially pushing the revaluation of Chinese assets from grand narratives to reality.

This article is authored by Haitong Xun Yugen, Wu Xinkun, et al., source: Haitong Research Strategy, original title: "Is the sharp decline in US stocks really a good thing for A-shares?"

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