To The Moon

Investors have been concerned about China stock performances, citing that one wouldn't have made money even if held the investments for years.

But my view is that almost every market can have very bad returns for a stretch of time. Just that humans tend to be myopic, basing our judgement on recent performances (recency bias).

As such, I went to dig some data to see the rolling 10-year returns on 3 indices - S&P 500, CSI 300 and STI.

I would have preferred to use MSCI China index because it is a better representation of the overall Chinese enterprises but the historical data is lacking so I chose CSI 300 instead. But you should note that it involves only the A shares (listed in Shanghai and Shenzhen) and excludes the H-Shares and USD ADRs like Alibaba. Even for CSI 300 I could only get data since 1998, but good enough for a quick comparison.

See the image for the results.

The first observation is that an investor who bought CSI 300 10 years ago would still be sitting on a 114% gain at the start of 2022. It isn't as bad as what others have perceived, probably because they focused more on the tech stocks that were beaten down.

The investor would be worse off than a S&P 500 investor (+276%) but better off than a STI investor (17%) over the same period. Note that forex has not been accounted for - assuming investors invest in the base currencies.

The second observation is that S&P 500 is a better index than STI. The reason is that it has more triple digit 10y returns than what STI has achieved. The relative returns from S&P 500 is higher.

CSI 300 return profile is similar to S&P 500 even with its limited datapoints. Both CSI 300 and S&P 500 achieved more than 100% average 10y returns while STI only managed to achieve 38%.

The most important observation is that all indices had experienced negative returns over a 10-year period. Yes, even the S&P 500 was not spared. If you have invested in S&P 500 in 1999, you will be sitting on a 24% loss after 10 years. Ditto if you have invested in 2000 and 2001, you will still lose money over a 10-year period.

To rub salt in the wound, a STI investor would have beaten a S&P 500 investor in 3 instances over a 10-year period. 10 years are long enough and even the most patient investors could have given up on US during the bad years.

After the string of bad 10-year performances, the S&P 500 went on to stage one of the strongest bull runs in history. Investors who gave up would have missed the great returns. The markets are that wicked.

Investors who have invested in stocks between 2000 and 2011 are likelier to be more open to Asian stocks. While investors who came in 2013 and beyond are likelier to buy US stocks. This is normal because of the recency and extrapolation biases in humans - we invest in what have done well in the recent past even if we do it unknowingly.

What we can learn from this is that an index with a negative 10-year return is likely to rebound strongly. CSI 300 just has its worst 10y run between 2008 and 2018 while the STI had a negative 10y return between 2011 and 2021. Contrast this with the S&P 500's triple digit 10y return in the past 4 years. If the historical statistics still hold, Asian equities are more likely to outperform in the near future.

$SPDR S&P 500 ETF Trust(SPY)$

$CAM CSI300(03188)$

$STI ETF(ES3.SI)$