Cumulative growth of GDP and corporate profits (2011-2022)

^{1 S&P 500}

^{2 MSCI Europe Index}

^{3 MSCI China Index}

^{* Earnings per share before extraordinary items}

^{Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 8/22/23}

Although one might find some structural reasons why profits can grow faster than GDP for some period of time, this development cannot go on forever. Not least, because large parts of the population might become dissatisfied if the gap between capital income and earned income grows further. The figures for Europe look comparatively unexciting in this respect.

What is to be made of the gulf between GDP and corporate profit figures in China? First, perhaps stock investors should put less reliance on Chinese GDP figures as a sign of the country’s economic health, however quickly and seemingly accurately Beijing provides these figures. Secondly, especially China is, in our view, a country in which active selection can create additional value. "Ignoring China as a shareholder would be a simple solution but it’s one that throws the baby out with the bathwater – individual sectors and stocks can be very attractive, despite everything," says Sebastian Kahlfeld, DWS Senior Portfolio Manager Emerging Markets.