The miracle of China's disappearing dividend
The drop was puzzling to many. How could an economy that more than quadrupled in size in a decade, bringing prosperity to many of China's citizens in the process, have produced such poor returns for investors? Resolving this paradox is central to explaining the country's extraordinary economic development-and to understanding whether it can continue.
On one level, the poor stock market returns can be explained quite easily: Share prices reflect expectations of future growth, and these projections are often wrong, so the performance of markets does not necessarily track the underlying economy. This is particularly true of the Shanghai index, which is dominated by domestic investors. Over the past 12 years, it has slumped as low as 1,000 and peaked at 6,000 before reaching its current, relatively subdued level.
But a different benchmark and a different timespan tell a very different story. Take the MSCI China index, a more broad-based measure that includes Chinese companies listed in Hong Kong and the United States: An investor who bought the stocks in the index on the day Hu Jintao was announced as China's new leader in November 2002 and sold on the day Xi Jinping took the stage a decade later would have earned a return of 392 percent-a reasonable reflection of
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