China’s stocks have underperformed this year as questions linger on durability of economic rebound
2 min
One mystery in global markets this year is that while China’s economy appears to be rebounding strongly, its stock market hasn’t been doing as well.
The MSCI China index has risen only 1.8% so far this year, underperforming many of the major markets. The S&P 500 index, for example, has gained 7.7%. Stocks listed in Shanghai and Shenzhen have done a bit better—the CSI 300 index has gone up 4.9% in 2023. That seems to be in contrast to the rebounding economy, after China scrapped its strict “zero-Covid” pandemic restrictions in December and scaled back its regulatory crackdown on its technology companies.
China’s gross domestic product grew 4.5% from a year earlier in the first quarter and, more significantly, consumption has also come back strongly: retail sales jumped more than 10% in March from a year earlier. Crowds were everywhere in Chinese scenic spots in the recent five-day “Golden Week” holiday. Total domestic trips during the holiday rose 19% from the same period in 2019, according to official figures. Tourism revenue also recovered to pre pandemic levels.
Of course, the rally in Chinese stocks late last year already priced in a big part of the recovery. The MSCI China index surged 34% in the last two months in 2022, after rumours of reopening started to circulate.
Yet earnings growth so far has been disappointing. For nearly 80% of Chinese listed companies that have reported their first-quarter results, profits only grew an average 1% year on year, with around 69% of them having missed consensus earnings estimates, according to Goldman Sachs. About 77% of A-share shares—companies listed in Shanghai and Shenzhen—revised down their earnings guidance for 2023, according to Bank of America.
Earnings growth will likely improve ahead, especially against a lower base last year, when lockdowns across the country battered the economy. The struggling housing sector also seems to have stabilised. But a big question that remains is how long the consumption bounce could last. The export sector may suffer with a potential recession looming in the U.S. and Europe. China’s job market, especially for younger workers, is still quite weak. That partly explains why investors have jumped back into shares of state-owned enterprises—a more stable choice in an uncertain time.
Chinese stocks have rebounded substantially from their lows last year, but are still way off their peaks in early 2021, when China appeared to have avoided the worst of the pandemic. A more sustained market recovery would require a more broad-based revival of earnings growth.
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The US housing market remains under pressure as high mortgage rates continue to weigh on affordability and demand. Industry leaders say 2026 has been one of the toughest years for home sales, with slower price growth, weaker mortgage activity, and fewer buyers entering the market. However, experts say reduced competition and more price cuts could create opportunities for well-prepared buyers.
2 min
The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.
