China's Yo-Yo Economy

The Chinese are said to have invented the yo-yo over 2,500 years ago and this year, China's economy and stock market seem to be imitating one. The plunge in economic activity during the COVID lockdowns that took place from March through May of this year (the first provincial lockdowns since Wuhan and Hubei in January 2020) resulted in the GDP of the world's second-largest economy falling by -2.6% in the second quarter. But a rebound began in June, according to government and private sector data. China's stocks have also acted like a yo-yo this year with a bear market rebounding into a bull market.

COVID lockdowns are still possible in the months ahead. Although they may not be as severe as in March and April, they may still act as a drag on growth. Meanwhile, fiscal and monetary stimulus could accelerate growth in the second half of the year. The continued back-and-forth of lockdown and rebound means China's economy—and stock market—could remain volatile.