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Can economic growth hurt investors?

Brian Sturgess - July 2013

Speed Read
  • Fast growing countries sound attractive to investors, but may not produce good returns.
  • In China despite real GDP per capita growth of 9.4% per annum between 1993 and 2011 investors earned a negative annual return of 5.5%.
  • Evidence across a large sample of 36 developed and emerging countries finds that the average relationship between equity returns and real GDP per capita growth is consistently negative.
  • Cross-country studies suffer by mixing rich and poor countries. There are major differences between largely developed and undeveloped markets which affect stock market returns.

Why investors seek growth

In theory a fast growing countries like China should produce good equity market returns for investors. In practice, they do not seem to do this consistently. In China, for example, whose stock market only opened in 1990, despite average annual real growth in GDP per capita of 9.4% between 1993 and 2011 equity market investors earned a mean negative return of minus 5.5%. Similarly, in Russia over a slightly shorter period 1995-2011 mean equity returns were minus 2.2% despite positive real growth in GDP per capita of 3.6% per annum.

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