China’s stock markets have been remarkably resilient. As the world’s second-largest economy emerged first from the virus-induced shock, corporate earnings downgrades were relatively contained while government stimulus was preserved for future use.

By May 14, the MSCI China Index, including onshore and offshore Chinese stocks, had fallen 4.8% since the beginning of the year (Display, left, upper bars). The MSCI China A Onshore Index was down by only 2.9% over the same period. Chinese stocks have outperformed developed and emerging markets for three reasons.

1. First Out, First Back

Since China was hit by the virus first, its economy has also recovered earlier. Of course, there’s a real risk of another wave of infections. Still, the earlier exit from the lockdown means businesses are getting back online and the economy is starting to rev up.

2. Industry Recoveries Curb Earnings Hit

Key industries are recovering sharply. Auto and smartphone sales have rebounded, while restaurants are filling tables again. To be sure, some sectors are still struggling, such as travel and leisure. However, as a whole, Chinese corporate fundamentals haven’t been hit as hard as other countries. As a result, earnings revisions in China have been relatively modest (Display, left, lower bars).

3. More Stimulus Potential

Chinese policymakers have introduced measures to support the hardest-hit parts of the economy. Yet the level of fiscal and monetary stimulus versus GDP is much lower in China than elsewhere (Display, right).