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China's economy has had a decent growth rate even post-2008 however, the stock market indices appear to be weak and stuck at more or less the same level since long time as shown below for Shanghai, Shenzhen and Hong Kong stock market indices:

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Comparing this to US S&P or Dow Jones:

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There has been much better growth despite US economy not growing even at half of China's rate. As per conventional understanding, in long run stock markets performance is correlated with economic growth, by this reasoning why China's performance in stock market is so dismal, more like Nikkei index?

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  • $\begingroup$ One key factor here is that stock markets are forward looking. So even though China might be doing well now, if investors worry that it might not do well in the future, that would be one reason for weaker performance. In the short term a multitude of factors can be at play, take for example worries about China's property market. $\endgroup$
    – BrsG
    Commented Sep 20, 2022 at 12:49
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    $\begingroup$ Do you have evidence for Chinese economy being strong right now as far as I understand they are having huge issues with real estate bubble and Covid lockdowns are depressing output $\endgroup$
    – 1muflon1 ♦
    Commented Sep 20, 2022 at 16:57
  • $\begingroup$ Hypothesis: An economy where much productivity is being diverted from Main Street to Wall Street is not a strong one. $\endgroup$
    – user20574
    Commented Sep 20, 2022 at 18:57
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    $\begingroup$ One implication is that realized nominal growth since 2008 was anticipated in 2008 so without a need to revise expectations there is no need to revise prices upward by much. In 2008 people expected China to grow faster than the global average over the next 14 years and it did. $\endgroup$
    – H2ONaCl
    Commented Sep 27, 2022 at 19:07
  • $\begingroup$ @ 1muflon1, not strong right now, but the trend is same since 2008 in the graphs, also one thing I discovered now is we have to correct for exchange rate as returns in $ have to be compared to returns in CNY. CNY has appreciated by around 15-30% over these years, those have to be included in the returns $\endgroup$
    – Kutsit
    Commented Sep 28, 2022 at 7:56

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Well for one, the stock market doesn't inherently represent the real economy, while they do of course tend to be correlated, it is entirely possible (though usually somewhat unlikely) to have a stellar stock market with a subpar economy or subpar stock market with a stellar economy. (Look at the US stock market during COVID for instance, by April the market was rebounding despite continued lockdowns and high unemployment) Additionally, the stock market prices in additional factors like risk, which aren't inherently mapped 1:1 with the actual economy and data.

Secondly, it can be any number of reasons and impacts such as government treatment and regulation of businesses, capital controls, or general political or economic headwinds or tailwinds. Or again things like risk and reward for investing in those markets. If there is a more favorable investment, people will also invest more in that region or class.

Finally, as others have mentioned stock markets are forward looking, and thus it's not just a matter of present economic performance, but can also be concerns of future economic growth, risks, and/or performance.

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