Image Credit: Alex Nabaum
The trade battle between the U.S. and China hasn’t just hurt American farmers and Chinese exporters; it has also hit U.S. investors who pumped $2.8 billion into China funds in the first four months of 2019 on top of the $6.4 billion they added last year. So far this month alone, Chinese stocks are down 13%, according to MSCI.
Many U.S. investors seem to have raised their exposure to China—despite the protracted trade dispute—largely in hopes of capturing higher future returns from the country’s brisk economic growth.
Those hopes could end in heartache when expectations collide with reality. History shows that countries with faster-growing economies often produce lower—not higher—stock-market returns.
Look more closely at China.…
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This article was originally published on The Wall Street Journal.
Further reading
Benjamin Graham, The Intelligent Investor
Jason Zweig, The Devil’s Financial Dictionary
Jason Zweig, Your Money and Your Brain
Jason Zweig, The Little Book of Safe Money
Jean-Francois L’Her et al., “Net Buybacks and the Seven Dwarfs” (Financial Analysts Journal, 2018)
Jay R. Ritter, “Economic Growth and Equity Returns” (Pacific-Basin Finance Journal, 2005)
William J. Bernstein, “The Two Percent Dilution” (EfficientFrontier.com)
William J. Bernstein and Robert D. Arnott, “Earnings Growth: The Two Percent Dilution” (Financial Analysts Journal, 2002)
Elroy Dimson et al., Global Investment Returns Yearbook (Credit Suisse, 2014), pp. 17-29