Good to see bromion back. It’s been a poorer place without him.
Sorry, nobody rational can really argue that. P/E ratios from Bloomberg…
S&P 500 18.53X
CSI 300 17.11X
CN is fairly valued at the index level, with 7% vs 2% GDP growth it ought to be 24X.
If we think about it, during this 24-yr period, CN outperforms US, UK and JP, by a massive distance. And this during a time when those developed societies were still on the up. But now? Those countries need to dangerously stimulate just to barely see any returns, and that comes at a price, eventually. Base case; US/UK/JP stall out, CN continues full-steam (or slightly down), and thus the outperformance widens.
Why would that not be base case?
haha yea its true. small cap value china id assume could do better. but many chinese smaller chinese companies prolyl go bust due to lack of regulation. so hard to say really. a survivorship bias maybe. in any case bottom line. people with a lot of money will not invest in a place with a lot of fraud. so the returns you put out are meaningless.
24 year price return on S&P 500 - 439%
24 year total return on S&P 500 - 770%
Call me a sucker for details, but I like my additional 331% return. It’s ok if you don’t, I have some structured products I’d love to sell you.
okay. did a little fact finding. one final final thing to say. here you go. nobody outside of china could buy chinese stocks until May 2003. The SSE was at ~1500 at that time and is now at ~3700 for a price return of 147%. The S&P 500 had a price return of 83%. The Russell 2000 returned 197% over that time period. Thus, for its level of risk, the SSE has performed very well but relatively poor since foreign investors, like us if we’re QFIIs, were able to invest.
again. you cannot include a time period in which the market was effectively private and effectively owned by state pension funds and state owned banks and insurance companies.
I also enjoy investing with 20/20 hindsight. So much easier to load up on winners.
I think you made some sort of basic thinking error in your post. Shanghai stocks also have dividends, rather large ones. Where are the analytical skills on this forum? You need to calc total return for both the SSE and S&P. Hint: it won’t make a difference, but please do the calcs and post back if you are obsessed with nailing this down.
If we are only going to look at mid-term returns a better comparison would be the S&P500 vs CSI-300 (biggest caps in each country). We can also add NASDAQ Comp.
CSI-300 since inception (April 8, 2005)
CSI-300 292%
S&P500 77%
NASDAQ 155%
Chart (toggle the “zoom” buttons, it loads kinda buggy sometimes)
CN large caps sprint ahead from the start, and the distance only narrows when CN crashes to 8X forward P/E, and EVEN THEN they are destroying the competition. The fact is that no matter how you slice it, CN has outperformed every major market in the world for 24 years (and they don’t even brag about it)…and now it is investable. Of course people are always behind knowing what’s up, that’s how they underperform.
I’ve been in and out of CN since 2006, and it’s a large part of my 10YR outperformance, so we can’t call it 20/20 hindsight. It was foresight then, just as it is now!
On a risk adjusted basis the SP comparison is closer (and Nasdaq likely outperforms). IMO it’s also not a valid comparison to look at point in time comparisons since the CSI is dominated by two periods of dramatic outperformance.
The average risk adjusted return of the SP is better than the CSI. The CSI suffers significantly longer periods of time in drawdown. The historical probability of earning a positive return on your investment over a 12mth period is dramatically higher for the SP.
This means for the average investor the SP is more likely to create future wealth and has likely benefitted a wider sample of the population than those invested in the CSI.
…this ignores the fact that you may end up in jail if you sell your long holdings (not even short sales) in China.
^ Sounds like a bunch of techobabble, explaining away the facts, zero real numbers, zero real logic, zero objectivity.
The real thing you guys got to ask yourselves – why are you so intent on making up these desperate rationalizations? That’s the question.
Lol, didn’t know risk adjusted returns were considered technobabble.
CSI sharpe = .6
SP = .38
NAS = .76
…average sharpe of SP is .75 compared to .69 for CSI. SP has positive returns 81% of the time over 12mth periods, the CSI is only 58%. I’ve run the numbers, you haven’t.
They are, so now you know.
Returns are returns, cash in the pocket is real. If you blow away “the market”, then that happened, there isn’t risk, because that is now the past. It’s just the people who missed out posting on the internet talking about sharpe ratio acting smart, when actually they underperformed. “Oh oh, but on a risk-adjusted basis…”.
Save it for the chumps, kiddo.
Don’t even know why I bothered - I must be a chump. You’re right, you win. China is awesome.
again, you continue to benchmark chinese indices against the wrong set, therefore greatly exxagerating the benefit of chinese securites to the point in which it gives you the opposite answer.
the average market cap of securities on the CSI 300 is about US$8B. the average market cap of securities in the S&P 500 is about US$70B. the average market cap of the securities that make up the bulk of the Nasdaq’s market cap is about US$30B. a much more comparable benchmark is 50% Russell 1000 and 50% Russell 2000. i believe with a start date of 2005, the CSI is better but over most time periods, it is not. considering you don’t know if today looks more like 2005 or 2007, there is less risk in buying a basket of small to mid cap U.S. stocks than the CSI 300 based on past data alone.
if you’re going to keep posting on AF, at least post things that seem to have some thought to them, such as using appropriate benchmarks and citing the possible issues with your analysis. i admit that U.S. stocks are not better than Chinese stocks over all time periods, just most periods, and that plenty of caution must be taken when choosing start dates and maximum drawdowns over all start dates should be a key concern.
To review 1) CN is the best performing major market in the world judged from inception, and from other long-term holding periods, 2) it is now open to everyone, 3) base case it will be the best performing market in the world over the foreseeable future. I was right in 2006, was right in 2014, and I’m calling it again now.
Market Cap / GDP Ratio of largest markets:
US 125% JP 155% UK 120% CN 88% CN is way undervalued by the common sense “Buffet Method”, especially given their projected GDP growth. Market cap could double over the next two years, with say 7% GDP growth per year, and the resulting ratio wouldn’t even be that big of a deal. That fact is this metric hit 300% in 2007, and 580% in 1993, and is currently below the historic average of 158%. There is no market in the world in the last 20 years that has hit those crazy overvaluations, but in CN it is one possible outcome…some might even say a likely outcome in the next 10 years. Volatility is our friend here, Poulin. Currently undervalued, gov support on the downside, great upside, and possible excessive upside. We take the long-term view , but opportunistically take profits if things get unreal. Lots of win scenarios with high probabilities, limited downside with low probabilities. Basic math.
any good china ETFs?
gof o large cap or small cap?
Oh and let’s talk about the fundamentals, American love to ignore those…
IMF GDP growth numbers:
US 2.4% in 2014, expected 2.5% in 2015.
CN 7.4% in 2014, expect 6.8% in 2015.
Let’s say earnings growth rides 2% lower than GDP growth into perpetuity. Even after desperate attempts by the FOMC to pump up the economy, earnings are basically zero growth in the US going forward. While in CN they are starting at 5%, and come down slowly over the decades.
S&P500 earnings growth for 2014 2%, in CN 7%. In Q1 S&P earnings growth -1.6%, Q2 -1.3%, meanwhile CN is still forecasted to hit 4%.
The fact is US/JP/UK are basically over, it’s just denial stage now.
I was genuinely interested so I ran the numbers using 3 sets of daily prices.
Set #1: Data Since 6/1/1991
Average annual return: Shanghai (15.3%), S&P 500 (10.3%)
Downside Deviation: Shanghai (14.3%), S&P 500 (9.1%)
Sortino: Shanghai (0.935), S&P 500 (0.909)
% of negative monthly returns: Shanghai (48%), S&P 500 (19%)
Max Drawdown: Shanghai (75%), S&P 500 (54%)
Set #2: Data Since 1/1/1993
Average Annual Return: Shanghai (7.1%), S&P 500 (9.5%)
Downside Deviation: Shanghai (14.5%), S&P 500 (9.4%)
Sortino: Shanghai (0.348), S&P 500 (0.793)
% of negative monthly returns: Shanghai (50%), S&P 500 (20%)
Max Drawdown: Shanghai (71%), S&P 500 (54%)
Set #3: Data Since 1/1/2008
Average Annual Return: Shanghai: (Negative 4.6%), S&P 500 (7.8%)
Downside Deviation: Shanghai (13.6%), S&P 500 (10.6%)
Sortino: Shanghai has a negative sortino so the comparison shouldn’t be made
% of negative monthly returns: Shanghai (56%), S&P 500 (13%)
Max Drawdown: Shanghai (67%), S&P 500 (49%)
Any investor who had access to the Shanghai markets in June of '91 has enjoyed higher returns than those invested in the S&P 500. These returns outweigh the volatility as demonstrated by a slightly higher sortino ratio. Provided the investor has a long enough time horizon to ignore the volatility, as well as the higher and longer duration of drawdown periods, the investor has come out ahead. This obviously doesn’t take currency into effect. In addition, a leveraged position in the S&P 500 that produced roughly the same level of risk as the Shanghai market would produce comparable results.
If we are talking about the second or third period, the results are drastically different… The S&P 500 outperforms significantly on both return and risk.
Shanghai, like every investment, has a bull and bear scenario and the likely result will fall somewhere in-between. The market is volatile and inconsistant. It deserves a place in every emerging market portfolio, but the returns don’t justify any significant overweighting. Any portfolio that was overweight Shanghai post 1992 would have underperformed the majority of the time and had short periods of significant outperformance.
Last statistic. Rolling 10 year returns since 6/1/1991 produce a nearly 50/50 split between these two indicies. So an investor that could have chosen either would have come out in the same position on average. Given Shanghai’s higher volatility the choice isn’t actually very difficult to make.