Last week’s news that China’s economy is set to overtake the U.S. economy in size by the end of this year was greeted with a collective yawn by the U.S. financial press.
It’s easy to see why. China bulls have had a rough five years.
The Shanghai Composite Index closed yesterday at 2028. That’s almost a 67% drop from its Oct. 16 peak of 6,124 in 2007. It’s also 21.7% below the 2592 level it closed at exactly five years ago.
U.S. investors don’t care about the size of China’s economy because, well… it hasn’t made them any money.
“The China Miracle” now has underperformed the U.S. S&P 500 by more than 120% over the course of the past five years.
The China Obsession Recalled
Exactly six years ago this week, I sat on a panel on “global investments” at the Las Vegas Money Show.
The panel consisted of four members. Three of them were either China newsletter writers or Chinese fund managers. As a “non-China” specialist, I was a politically correct afterthought.
When I pointed out that there were other investment opportunities out there — I mentioned Brazil — one (now bankrupt) China guru shook his head knowingly. With no hint of irony, the guru said that Brazil was actually a “China story,” as were Apple, Pizza Hut and Starbucks.
To a man with a China hammer, everything was a nail.
The reality is that the future is never as certain as we think it is.
I pointed out that had our panel convened in 1908, we’d have been telling investors about the remarkable opportunities in Russian railroad bonds; the fast-growth economies of Austria-Hungary; the dynamism of Argentina; and the new behemoth of the global economy, the United States.
And we’d all have been wrong.
Twenty years later, in 1928, both Russia and Austria-Hungary had been wiped off of the map; Argentina was an economic basket case; and even the United States — the only long-term winner among the group — was about to enter the Great Depression.
Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.