The View | Investing between the lines in China
Despite policy uncertainty and a high equity risk premium, investors in Chinese assets who accurately interpret the sector can reap large rewards
Except for lawbreakers, most investors around the world analyse the same information when they make asset allocation calls.
In the West, policy transparency has improved to the point where some now argue that the United States Federal Reserve should revert to a murkier decision-making process because investors are taking on too much risk, thanks to Fed promises of long-term low interest rates.
Then we have China, where sometimes no one is sure what is going on.
[Uncertainty] makes for a more exciting investment environment
This has many downsides - including a high risk premium - but we have to admit it also makes for a more exciting investment environment.
Take the report broken last week by state-owned CCTV. The television station reported alleged violations of foreign exchange rules by another state behemoth - Bank of China.
According to the report, which included secret filming and a fake wealthy client, BOC is helping to "launder" money for rich clients who want to send abroad more money than allowed under the mainland's capital control rules.
So what is going on? The fact is, we do not know for sure. So we also do not know the investment implications.
A few possible interpretations are listed below: