China’s equities have faced recent challenges, including a Biden administration executive order restricting U.S. investments in certain technology companies and data showing a slowing economy. Moreover, China's long-term equity returns have lagged the overall emerging markets as the country confronts long-term challenges, including an aging population that has some economists calling for stagnant economic growth.
Hitting the skids: August has been a rough month for Chinese equities. The MSCI China index has a -11.9% return through Aug. 23, worse than the MSCI Emerging Markets ex-China’s -5%. Year to date, China’s index lost 7.8% vs. an 8.9% gain for emerging markets excluding that country.
Trailing returns: Emerging markets equities excluding China have produced higher returns with lower risk over longer periods. Over the past decade through July 31, China's equity index returned an annualized 3.7% with a 23.4% standard deviation. During that span, emerging markets excluding China had a 3.9% return and 17.5% standard deviation.
Longer-term risk and return
Momentum stalling: China's gross domestic product grew by 6.3% in the second quarter, accelerating from 4.5% for the first quarter. However, recent economic data show a weakening economy. For instance, exports and imports continued to fall in July, by 14.5% and 12.4%, respectively. Concerns have also arisen about the property sector. Consumer prices rose by only 0.1% in the second quarter and fell by 0.3% in July.
Real GDP growth and CPI
Aging population: With declining birth rates, China's population is aging, leading some economists to compare the situation to Japan. The segment of the population aged up to 14 years old numbered about 239 million last year, down from 317 million in 1990. Over the same three decades, the population 65 and older grew to 210 million from 64 million. The old-age dependency ratio, which measures the 65-plus population vs. those 15 to 64, has continued to rise, reaching 21.8% last year vs. 8.3% in 1990.
China's population demographics
*As of Aug. 23. Sources: Bloomberg LP, MSCI Inc., World Bank, National Bureau of Statistics of China