Last week's post on the relative performance of China's and US shares so far this century, showing an investor would in dollar terms have lost 6% on the Dow Jones Industrial Average, lost 44% on the NASDAQ, and gained 186% on the Shanghai Composite, attracted a certain amount of correspondence. One was from Yan Wang, chief China strategist at BCA Research, a respected independent macro research team based in Montreal, Canada.
I had used share prices in my article because it was clear that the 11.1% annual increase over the last decade years in China could not have been offset in terms of total return, i.e. including reinvested dividends, paid on US shares so it was sufficient to establish the key point - that the market judged China's economy and companies far outperformed US ones in that period. Investment in US shares was, to use a terminology usually utilised elsewhere, 'misallocated' compared to investment in China's shares.
Yan Wang, however, sent the graph below showing the total return on Shanghai A shares and the S&P 500 over the same period. In each case the base equal to 100 is the first day of trading in 2000. Two things are evident from this. First taking total returns instead of share prices makes no difference to the picture - the return on China's shares continues to be well over 150%. Second the loss on the S&P 500 in total returns is even larger than the measure I had taken of prices on the Dow Jones Industrial Average.
The pattern is clear. US shares this century have not only been a bad investment, yielding a negative return, but China's shares have been an extremely good investment yielding, in price terms, an annual 11.1%.
The evident conclusion which flows from the statistical data sent by Yan Wang, which is of course added by the present author, is to reinforce that share markets confirm, from a different angle, what the econometric studies on total factor productivity show - that capital is allocated far more efficiently in China than in the US. Those who, without evidence except statistically entirely irrelevant anecdotes, claim the opposite are not only engaging in very bad economics they are simply losing their clients money.
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