Chinese shares have been big outperformers this year, but this should not dazzle investors into assuming that the corporate governance of Chinese companies is similarly stellar.
In the year to September 29, the MSCI China Index posted gross returns of 43.41 per cent, better than any other country covered by MSCI’s suite of indices and markedly superior to the 17.8 per cent return on MSCI’s benchmark All Country World Index (ACWI). The MSCI China index includes 149 shares listed in Hong Kong, the US and elsewhere.
However, breaking down the China index into laggards and leaders reveals not only a vast divergence in performance between state-owned enterprises (SOEs) and non-state Chinese companies. It also shows that even some of the most turbocharged performers are subject to serious governance risks.