Global equity performance has diverged sharply in recent years, with U.S. shares substantially outperforming Chinese equities. A Yardeni Research note cited investment tied to artificial intelligence infrastructure and firmer industrial output in the United States as important supports for American stocks, while soft domestic demand remains a drag on Chinese markets.
The research highlighted long-term index trends to illustrate the split. The MSCI China index has largely moved sideways since 2010, whereas the MSCI U.S. index has climbed to about seven times its level over the same span. A similar disparity exists within technology equities: the Invesco China Technology ETF has been broadly flat since the global financial crisis, while the Invesco QQQ ETF has increased roughly seventeenfold.
Yardeni identified several domestic challenges facing China. The country is contending with a property sector downturn and weak consumer confidence, with household sentiment not yet returned to pre-pandemic norms. In April, real retail sales contracted 1.2% year-over-year, the first negative reading outside pandemic-related periods. In contrast, industrial production expanded 4.1% over the same month.
The coexistence of weak consumption and rising factory output has fostered excess industrial capacity, prompting manufacturers to rely more on exports to absorb production. In addition, bank loan growth slowed to 5.5% in May, the weakest pace since 2001, reinforcing signs of subdued domestic demand.
By comparison, industrial production in the United States has been on an upward trend since mid-2024. Output rose 0.1% in May, and technology-related manufacturing continued to be a key contributor to growth. Semiconductors and other high-tech manufacturing sectors were among the strongest contributors to U.S. industrial output.
The Yardeni note also underscored artificial intelligence infrastructure as a material source of capital investment. Technology production has accelerated since the launch of ChatGPT in late 2022, and the resulting increase in electricity demand from AI data centers was identified as a long-term growth driver for utilities and power producers.
Finally, the outlook for industrial activity could receive additional support from elevated defense spending. The note observed that the Trump administration is seeking to raise military expenditures next year, a development that could lift industrial demand in relevant sectors.
Key points
- AI-related investment and rising high-tech manufacturing have helped propel U.S. equities and industrial output - sectors impacted include technology, utilities and power producers, and semiconductor manufacturing.
- China faces persistent headwinds from a property downturn, weak consumer confidence and slowing bank lending, which are weighing on domestic demand and equity performance - sectors impacted include real estate, consumer retail, and banking.
- Manufacturers in China are increasingly reliant on exports to absorb production amid excess capacity, linking industrial and trade sectors to global demand conditions.
Risks and uncertainties
- China's economic recovery is clouded by weak household sentiment and a property sector downturn, creating downside risk for domestic-focused sectors such as retail and real estate.
- Slowing bank loan growth in China - at 5.5% in May, the weakest since 2001 - suggests persistent subdued domestic demand and could limit financing for investment and consumption.
- The U.S. industrial and market outlook is tied in part to continued AI infrastructure investment and potential increases in defense spending; shifts in these flows would affect technology, utilities, and defense-related manufacturing.