Tuesday, October 26, 2010

Thinking of Investing in China? Don’t Ignore the Past

Many people are inclined to think that the rise of China’s stock markets is happening for the first time. This isn’t true. As Jason Zweig explains, China has had temporarily successful stock markets a few times in the last 150 years.

Personally, I consider the risk of the communist party choosing to just shut down their stock markets too great to make any serious investment with my money in China. Bulls will explain why maintaining markets is in the communist party’s interests, but who is to say that the small number of people who run the country will behave rationally? And who is to say that the communist party is even competent to run a capitalist economy?

Zweig’s warnings are more nuanced than mine, but I’m content to avoid investments I don’t understand.

4 comments:

  1. I don't trust the Chinese Government (or any other Government) to make rational asset allocation decisions. Earning a decent profit will be way down on a Government's list of priorities. We won't trust Stephen Harper to run Canadian companies, why should we trust the Politburo?

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  2. @CC: I agree with you. The bull side of this argument contends that the Chinese government does not control Chinese companies, but I am skeptical. I think there is too much risk of government interference.

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  3. I don't understand everything "at home" let alone the other side of the world.

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  4. @Financial Cents: I'm sometimes not quite up-to-speed on the "economy" within my own house :-)

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