WASHINGTON (AP) – Chinese e-commerce giant Alibaba is about to launch what may prove the biggest initial public stock offering ever. Yet anyone who expects to get rich from buying into China’s high-growth story will be betting against history.
China’s explosive economic rise has delivered virtually nothing to most stock investors. When Chinese companies have listed stocks on American markets, their shares have lost an average 1 percent a year for the next three years, compared with an average 7 percent annual gain for other U.S. IPOs, according to research by Jay Ritter, a finance professor at the University of Florida.
Most Chinese stocks trade in China, of course. And those stocks have burned investors, too. From 1993 to 2013, when China’s economy grew nearly seven-fold from No. 9 to No. 2 in the world, stocks on Chinese markets returned a cumulative total of just 7.9 percent – even if shareholders had reinvested dividends. Over the same time, U.S. stocks jumped 555 percent, German stocks 458 percent and Spanish stocks more than 1,000 percent, according to Credit Suisse.
“It’s probably one of the biggest disconnects in the history of stock markets,” says Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.
Chinese stock gains didn’t even keep up with inflation, says Elroy Dimson, emeritus professor of finance at the London Business School, who helped compile the Credit Suisse numbers. Adjusted for inflation, Chinese stocks lost 3.8 percent a year from 1993 to 2013.