China, Greece and Noise | Value Research The Chinese crash and the Greek drama deserve very little attention from Indian equity investors
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China, Greece and Noise

The Chinese crash and the Greek drama deserve very little attention from Indian equity investors

For about a month, equity investors have been unable to hear themselves think because of the deafening noise about Greece and China. To be sure, even though I'm using the word noise, there's no reason that investors should be unaware of the turmoil in the two. And although Greece took the bigger headlines, China was surely more instructive as well as interesting.

Through the month-long deflating of the Chinese stock bubble, the Chinese government and regulators seem intent on taking some truly bizarre measures to prop up the markets. The latest is that the regulator has ordered all substantial shareholders (anyone with more than 5 per cent in a stock) to not sell any stock for six months. They have been ordered to 'prevent instability' in the markets. More than a thousand of the 2,800 companies listed in Shanghai have had their trading suspended, apparently, at their own request.

That sounds like a strange thing but the Chinese markets have some strange rules. Since prices started crashing, the regulators have banned IPOs so that money doesn't flow out of existing stocks, and they've allowed retail investors to directly put up real estate as margin for trading, besides forcing major brokerages to create a 'stability fund' of about twenty billion dollars to buy stocks. Makes you realise how much of a non-market can a misguided regulator create.

However, at the end of the day, it's a lot of noise that Indian investors should just ignore. You can read erudite articles about whether China's troubles will spread to the 'real economy', and whether Grexit will also eventually lead to Porexit, Italexit, Spaxit etc, or you can just stay focussed on your own investments. If there's one thing to be learned from China, it's that when bubbles start inflating, small investors make the worst investments.


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