The MSCI China Index has tumbled 15% in 2026, marking the worst global performance after Indonesia. According to reports from NDTV, the Chinese gauge last week traded at the lowest level relative to MSCI's world index since the immediate aftermath of the Sept. 11, 2001 attacks, when US markets closed for four days. The poor performance is particularly surprising given earlier optimistic forecasts from financial institutions. As reported by The Economic Times, Goldman Sachs Group Inc. was predicting a 20% rally for the MSCI China at the start of the year, which had just posted its best advance since 2017. The two biggest weightings — tech firms Tencent and Alibaba — have plunged more than 29%, wiping out a combined $337 billion in market value. As per Bloomberg, Chinese stocks were supposed to ride the artificial intelligence wave but instead are like a runner who fell behind at the starting gun while rivals sprinted ahead.
The poor performance is particularly striking given the strong gains in neighboring markets. As reported by NDTV, benchmark indices in South Korea, Taiwan and Japan have gained between 17% and 99%, highlighting the divergence in regional investment flows. According to Bloomberg, China missed the big tech boom that lifted markets in South Korea, Taiwan, and Japan. "From a technology point of view, the Chinese equity market today doesn't have the very significant beneficiaries of AI capex that South Korean and Taiwanese equity markets have," said Sam Konrad, a portfolio manager at Jupiter Asset Management in Singapore. Gerald Gan, chief investment officer at Reed Capital, noted that "Chinese equities have been a major drag on our portfolio year-to-date," with the performance divergence across major economies being "wide and utterly disappointing."
Despite the stock market decline, China's manufacturing sector shows signs of strength. As reported by The Economic Times, factory activity expanded in June, buoyed by strong demand for AI-related products and robust export orders. The data suggest that global AI investment is providing an important cushion for manufacturers in China's $20 trillion economy. This economic resilience contrasts with the stock market's poor performance, indicating that while investors may be pessimistic about tech stocks, the underlying AI-related manufacturing sector continues to benefit from the global AI boom. Larry Hu, Macquaire Group's head of China economics, expects second-quarter GDP growth to slide to around 4.4% this year, which is under the official full-year growth goal.
Major Chinese tech companies are reporting concerning financial results that reflect the broader market challenges. As reported by NDTV, Tencent last month reported its slowest revenue growth in six quarters, fueling concern over how the company will monetize AI at a time when its core businesses such as games and advertising are losing impact. Alibaba recorded its first quarterly operating loss since 2021 in its most recent results, adding to investor concerns about the sector's performance. Chauwei Yak, CEO at GAO Capital Pte in Singapore, expressed disappointment saying he is "quite sad" because he owns Alibaba, noting it's extra sad that the only worse country is Indonesia. "China is so high-tech and yet the only country it can beat is a relatively lower tech country with a lot more problems."
Additional pressures include Beijing's recent crackdown on cross-border flows, leading to increased scrutiny of Hong Kong investments. According to NDTV, new measures announced last month include about $330 million in penalties imposed on three prominent brokerages often used by mainland Chinese to invest offshore. The government has fined Futu Holdings, Tiger Brokers, and Long Bridge Securities a total of $330 million for illegal capital outflows. As per Bloomberg, "Since the crackdown on cross-border illegal trading, the pressure on the Hong Kong indices is palpable." The Hang Seng Index's performance relative to the global MSCI All-Country World Index has fallen to its lowest level since 1990 - when China's economy was only 2% of its current size. Despite the challenges, Hong Kong has raised almost $44 billion through IPOs and other stock sales this year, up 29% from last year.
