Investor Beware! Don't Invest in Chinese Stocks Until You've Read This Article
How many times have you seen financial advice that echoes ideas like the tweet in the video above? A common statement today, a single definitive statement that implies both correlation and causation.
But should we as investors take this information at face value?
As someone who has been in the market for over 18 years, I want to warn you about misunderstanding the relationship between GDP growth and stock market performance.
It is far more complicated than a one-line statement.
For example, in Asia the GDP and stock correlation works quite differently than in the west, as governments have more control on what can be reported, including economic figures, political developments, and other indicators.
Take a look at this simple chart about the relationship between China’s GDP growth and the Shanghai Composite Stock Market Index.
In the ten-year period between 2008 and 2019, China’s GDP has appreciated three-fold, growing from $4 trillion to a whopping $12 trillion, while the Shanghai Composite Stock Market Index has gained 88% in the same period.
However, there is something that many financial experts, such as the author of the tweet in the video adove, do not tell you.
While GDP in China grew in a quite linear fashion, the stock market went through four extreme peaks and troughs.
At one point, the SSE lost 50% of its value in less than four years. A $100,000 investment in 2015 would be worth $50,000 in 2019, and this is not accounting for exchange rate and inflation.
In other words, to make money in such a market, you must close your eyes and be immune to, or blissfully unaware of, all the emotional turbulence caused by the volatility of Chinese stock markets.
Unfortunately, comfortably watching our hard-earned money losing half of its value is a very difficult thing to achieve, despite the potential payoffs that have been indicated before.
So I created a useful tool to help provide real, trustworthy indicators that will allow you to locate bull and bear market more accurately.
The Capital Deployment Index, or CDI.
Rather than relying GDP and these ambiguous macro indicators, CDI allows you to track liquidity flow, which is the fuel that ignite economic boom.
Are you interested in learning more?
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