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Digging Into SPX Performance After Spikes in China Stocks

U.S. stocks have tended to underperform in these instances

Senior Quantitative Analyst
Oct 2, 2024 at 8:00 AM
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China’s government recently announced new economic measures aimed at boosting their struggling domestic economy, which, along with lower interest rates, caused China-based stocks to surge last week. The iShares China Large-Cap ETF (FXI) jumped 18% for its best week since its inception in 2004, and is now up over 20% in the past two weeks.

This week, I’m breaking down the potential effects of these short-term spikes in the Chinese stock market. I'll also explore how the FXI has performed in the past following similar surges, and how the U.S. stock market reacted.

IOTW 01

The FXI and Outsized 2-Week Spikes 

Just twice has the FXI gained 20% over a two-week period: last week and then in August 2007. After the 2007 signal, the FXI gained almost 25% over the next three months, but it proceeded to collapse and was down 16% one year later.

The table below shows all the two-week gains of 15% or more. Chinese stocks performed well in the short-term after these spikes, with an average three-month return of 8%.

The longer-term results aren’t as good, with the FXI gaining about 2% the next year after these signals. This, however, beats its typical 52-week return, which comes in just below breakeven. The FXI, in general, has performed poorly since 2007. These spikes have led to better-than-usual returns for the index. 

IOTW 02

 

The table below lists the same dates as above, but it shows the subsequent S&P 500 Index (SPX) returns instead of FXI. U.S. stocks have tended to underperform after these instances. The SPX has averaged a modest loss in the next six months, with just 38% of the returns positive. The 52-week returns average just a 1.7% gain and 50% positive.

Most of the FXI spikes, however, occurred in late 2007 to early 2009, when the Great Recession on China's economy was also unfolding. In a post-financial crisis era, there are only two signals. The SPX did not fare well after the signal in April 2015, declining about 2.5% in the next year. There was another occurrence in November 2022, which brought about a 1.5% loss over the next four weeks, but ended in a roughly 10% gain over the next year.

IOTW 03

 

AI has exploded ever since ChatGPT set the world on fire near the end of 2022.

Numerous companies with connections to artificial intelligence have seen their stocks soar.

That includes Nvidia, the poster boy of AI.

Its stock has skyrocketed 716% since ChatGPT’s debut. But here’s the thing …

While everyone’s still counting their money from this first AI boom … Nvidia and countless others have moved on to the next stage.

That includes Big Tech, which is currently making a series of peculiar investments in a few strange companies. This has nothing to do with tech. At least on the surface …

Yet, these strange investments could be the early ripples of a massive wave …Without them, ChatGPT could stop operating … Amazon, Google, Microsoft and more could see profits drop drastically.

In fact, Elon Musk says these investments are critical when it comes to solving the number one problem facing AI.

Now, Silicon Valley legend Michael Robinson has identified two companies that could play a significant role in the solution.

Their stocks just may be the key to AI 2.0.

Find out more about these two companies today.
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