Chinese equity returns have trailed the nation’s spectacular growth since 2000, underperforming other emerging markets such as India. China H-shares – listed on foreign exchanges such as Hong Kong – have fared better than A-shares on onshore exchanges. See the chart below. Structural problems (resulting from the 2009 stimulus) and declining multiples have weighed on equity returns since the financial crisis. Earnings growth has been solid, but high levels of investment left less free cash flow to distribute to shareholders. We see these dynamics changing as policymakers press ahead with reforms, domestic and offshore valuations converge and China is admitted to global equity indexes.
When investors aren’t fully rewarded
Global equity performance versus real GDP growth, 2000-2016
Sources: BlackRock Investment Institute, MSCI, Thomson Reuters and Haver Analytics, February 2017.
Notes: Annualized, dollar-denominated equity returns are based on MSCI national indexes; annualized GDP growth percentages on countries’ national accounts.
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