The evolution of the Chinese market

As they open their doors to foreign investors, Chinese capital markets are entering the next stage of their evolution.

蔡俊傑, CFA 24 July, 2018 | 5:00PM
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In "The evolution of emerging markets," we discussed the past, present, and future of the composition and drivers of emerging-markets stocks. One of the more noteworthy developments that we highlighted was China's rise to prominence among emerging stock markets. When Chinese stocks were first included in the MSCI Emerging Markets Index in September 1996, they accounted for just 0.46% of the benchmark's value. As of March 2018, Chinese stocks made up 29.9% of the index's total market cap. Here, I will explore how the Chinese market has changed in the past 20-plus years.

Strong performance, gut-wrenching volatility

The MSCI China Index was launched on Oct. 31, 1995, some seven years after the launch of the MSCI Emerging Markets Index. From March 2001 through the end of March 2018, the MSCI China Index generated annualized total returns of 12.2% versus 6.0% for the MSCI World Index -- a measure of the performance of developed-markets stocks. During that same span, the MSCI Emerging Markets Index gained 10.7% annually. As illustrated in Exhibit 1, beginning in mid-2003, the performance of the MSCI China Index started to deviate positively from the MSCI World Index. Chinese stocks' cumulative relative returns versus developed-markets stocks peaked in 2007, just prior to the global financial crisis. This was followed by a sharp drawdown and, subsequently, an extended period of underperformance that ended around mid-2014. More recently, Chinese stocks have been strong relative performers. In 2017, the MSCI China Index surged 54.1% while the MSCI World Index advanced 22.4%.

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About Author

蔡俊傑, CFA

蔡俊傑, CFA  蔡俊傑為晨星的亞洲交易所買賣基金研究總監,負責管理亞洲地區的ETF研究。

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