he Chinese environment — particularly its water resource — is hugely degraded and cannot sustain the current economic model.any Chinese have little protection from labour regulations and no social safety net. A more inclusive economy appears politically essential but can only come at the expense of growth.
The study concluded that what mattered most for total equity returns was firstly real growth in dividends a share , and secondly net share buybacks or issuance . The MSCI China index grew its market capitalisation by an incredible 27.5% a year over the 20-year period, but if you adjust for the net new issuance of equity the annual price return was only 0.9%!
After-study has shown that long-term equity returns primarily depend on the initial valuation. We love buying companies at prices we believe are substantially below their intrinsic value . However, to find attractively priced opportunities in our competitive world requires us to hunt in uncrowded waters.
Given that Japan is so uncrowded, we would expect attractive valuations, especially relative to the US. This is indeed the case – the Tokyo stock price index is back at global financial crisis-level ratings. Its relative rating to the S&P 500 is currently the cheapest it has been in at least 30 years.Why is Japan ignored? There is a consensual bear case stuck on poor growth prospects from ageing demographics and persistent deflation.