MSCI China's relative return has fallen to its lowest level in 25 years: Why is global capital starting to turn back?

01 Starting with that Bloomberg chart: Why has MSCI China fallen to a historic low?

A few days ago, Bloomberg reignited market discussion on the relative performance of Chinese assets with a chart: Measured by the ratio of the MSCI China Index to the MSCI World Index, the return of Chinese stocks relative to global stocks has fallen to a level rarely seen since 2001.

What makes this chart eye-catching is not that it reveals a brand-new fact, but that it presents the "temperature gap" investors have felt over the past few years in a very intuitive way — global equity markets keep hitting new highs driven by AI, semiconductors, cloud computing, and large US tech companies, while China's core assets have spent a longer period in valuation digestion, earnings repair, and risk appetite rebuilding.

But to understand this chart, we must first understand what the MSCI China Index actually is. It is not a simple A-share index, nor a China advanced manufacturing or China tech index. Rather, it is a composite index covering A-shares, H-shares, red chips, P-shares, and Chinese companies listed overseas, with a heavier offshore weighting. Internet platforms, financials, consumer staples, and some Hong Kong blue chips account for a significant proportion.

As of the end of June 2026, the top ten weightings in the MSCI China Index include Tencent, Alibaba, CCB H-shares, ICBC H-shares, Xiaomi, NetEase, Meituan, Pinduoduo ADR, Bank of China H-shares, and Ping An Insurance H-shares, together accounting for about 40% of the weight. By sector, consumer discretionary, financials, and communication services together account for more than 60%, while the information technology weighting is significantly lower than the US tech and semiconductor exposure in the MSCI World Index.

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