Quick Fact: GDP growth no guarantee for High Returns

Please take a look at the graph below. Since the start of the great recovery in stock markets worldwide in March of 2009, China has not been able to keep up. Quite the contrary! Where US stocks, for example, have risen by almost 180%, the Chinese stock market has fallen by 40%. Again a strong indication that high GDP growth, even over a prolonged period of time, is no guarantee for solid returns on equities.


The relationship between GDP growth and equity returns remains foggy at best. The graph below shows the correlation between US GDP growth and US real equity returns over different time horizons, starting in 1929. While there seems to be some tendency towards a positive correlation, the outcomes are very mixed. Perhaps slower, and not higher, Chinese GDP growth will be of more help to Chinese equity markets going forward.


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