Why the world was (again) wrong on China - the WTO column

(Apartly revamp for Chinabiz of an article I did here before )

The Tuesday dip on the Shanghai stock exchange has brought China yet again in the middle of the world's attention, and yet again for all the wrong reasons.

For some small investors I'm doing some research into the best way to invest a bit of capital, and Tuesday and especially Wednesday and later in the weekthe Shanghai stock market (SSE) showed itself from its best side in trying to confuse the international financial world.
Some people, including those who have asked me to help them in investing some capital, have already publicly declared that they have serious doubts about my mental health. But for the time being, I stick to my guns, and maintain that there has really nothing seriously happened. Doing business in China and especially working on the stock exchange - even if it is through mutual funds - is not for the fainthearted.
First, some fundamentals. China's financial system, including the stock markets are - not yet - part of the international financial system. Its currency cannot be exchanged freely and foreign investors cannot invest at the Chinese stock market, unless they have a Chinese partner - I mean in terms of marriage or joint venture. China's financial exposure is still marginal.
So, when the Chinese stock market went down 9 percent on Tuesday, there was no reason for the international stockmarkets to follow. The international stockmarkets do not drop when the pope in Rome breaks a leg, do they? Or maybe they do but both China or the pope cannot be blamed for that.
Some analysts thought they could get away with they ludricious actions by saying that it might mean that the Chinese economy as a whole would be in danger. Statements of that level only indicate that those people are in need for an early retirement. Do not put them at a guard at the front door. Send them home, now.
Historical insight is of course not an asset that counts in an industry that is reported like a soccer game, but it does make sense to go a few years back. From the beginning of this century the Chinese stockmarkets have been extremely boring from an investors point of view. They only went down. Last year, they went up of course in a rather fast way, but the stockmarkets did not marginally reflect the excitement of the exchanges in Shanghai and to a letter degree in Shenzhen for the investors in the 1990s. Not only behaved the market fully out of line with the international markets, every sense of logic was absent. Nobody knew what was going to happen next, you only knew you needed a strong stomach.
I was not really shocked when the stock market dropped 9 percent on Tuesday. Even for Chinese standards that was stiff, but - hey - the investors in Shanghai had been missing their favorite rollarcoaster movements for over seven years. We will see more, much more of that.
The government has not started a serious crackdown, the fundamentals are still in place for an upward direction in the next six months, although it will not be a straight line, no sir.
So, I will check, which mutual funds and other financial institutions kept a straight spine on Tuesday and did not sell off their Chinese stock. That shows they might have a clue how China works and might be worth mine and perhaps your investment.

Fons Tuinstra