Wednesday, July 08, 2015
Trust And Chinese Stocks
The Chinese stock market continues its sell-off, and novice investors have been burned badly. One could have predicted the fall. Many Chinese companies have obscure accounting and earnings that are not credible. Many are carrying huge debt loads, which they will have difficult paying off. Some are keeping two sets of books -- one for the outside world and one internally, which is more accurate. The Chinese are still learning the need for fiscal transparency. The reputation of the stock market is at risk because of that. If the US with its regulatory oversight of the markets can still have a major meltdown, how much more can the Chinese suffer through sharp falls in the value of equities. It is a public relations problem at its core. The Chinese markets need to capture and maintain the trust of investors for the long term. If that doesn't happen, investors will stay away and the funding needs of exchange companies will need to be procured in other ways.
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