Robust fundamentals helping Chinese stocks outperform peers

Equity markets on the Chinese mainland have been among the best-performing in the world over the past year and indeed over longer time horizons. Yet, many foreign institutional investors have been underweight on China versus benchmark weightings in global equity indexes, such as those provided by MSCI Inc or FTSE/Xinhua.

It is important to recognize that for the longer-term investor, the key driver of performance for any equity market is growth in earnings and dividends. Here, China has a strong story to tell.

The MSCI China index, which covers China-based companies listed in Hong Kong or the United States, has recorded a compound annual growth rate of 13 percent in earnings per share over the past 10 years, expressed in dollar terms. When it comes to dividends per share, the CAGR was 11 percent, also in dollar terms. These numbers were far in excess of the averages recorded in emerging markets overall (5 percent and 6 percent, respectively).