As U.S. equities hit record highs to close out 2020, market observers pointed to the rally in shares of unprofitable new economy stocks as a potential sign of investor overexuberance. A simple portfolio made up of money-losing U.S. companies in the tech sector shot up nearly 130% from the depths of March 2020 through February 2021.
Those tracking China’s mainland stock market will naturally wonder whether one of 2020’s best performing major markets—up over 27% last year—has seen similar signs of froth. That was certainly the case in the runup to an infamous bubble in China A shares back in 2015, when a price plot of junk tech stocks went nearly vertical.
Investors will be surprised to find that the situation in 2020 was a much different one for Chinese stocks, whose recent rally has been fueled more by genuine fundamental improvement amidst a strong economic rebound from the pandemic than irrational overvaluation of unprofitable new economy shares, which rose only modestly on the year, increasing by just 14% and underperforming the broader market.
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