JOHN Maynard Keynes is best known as the economist who gave his name to the term Keynsianism. However, in many ways, he was most successful as a City of London fund manager.
He attributed it to understanding the psychology of the herd, rather than an understanding of the fundamentals, which are supposed to determine share prices.
Had Mr Keynes lived to observe the astonishing vision we know as the Stock Exchange of Hongkong, he would have found himself gloriously vindicated. The latest manifestation of herd psychology has been seen in the avid buying of so-called red-chip shares - counters controlled by mainland-owned companies.
A glance at the Red Chip Index, devised by Dao Heng Securities, shows that these shares have consistently outperformed the blue chip Hang Seng Index for the past two and a half months. The index does not reflect this; but it is also true that red-chip flotations have invariably been met with the sort of buying frenzy which sets world records for new issues.
The logic for this red-chip mania, is that companies controlled from the mainland benefit from the economic and political connections, which are well placed to capitalise on China's booming economy. This is not entirely to be dismissed as a way of planning investments, but is inherently dangerous.
The dangers were vividly illustrated over the past week when China's currency went into a free fall. The devaluation is by no means over, nor are the other problems associated with an overheating economy.
