China is a tricky place in which to invest.
China stocks are especially tricky and among the various classes (NASDAQ/NYSE listed, red-chips, p-chips, H-shares, A-shares) the onshore A-shares* are, in my opinion, the trickiest. [As part of my secret-sauce is knowing why this should be so no full argument here. A quiet word over coffee will have me animated on the subject though!]
Part of my reticence to engage are the almost-arbitrary rules that govern how, when, and for what duration A-shares can be suspended. The paper highlighted today from independent researcher Eddie Pong of Rivermap Quantitative Research sheds some useful light on the process.
In recent years suspension frequency and duration have increased and he reminds how serious this issue is taking us back to July 2015 when a whopping 53% of the market was, de-facto, shut. Even now over 5% of the market is regularly suspended and average terms exceed 60-days. Not helpful if you’re attempting a smart-beta [What is that, exactly? Ed.] or index tracking strategy, he points out.
The paper shows stocks most likely to be suspended (surprise!) are those of the shabbier variety. Typically these will have a smaller market capitalization, low valuation, high volatility and past form in regards suspension.
What he doesn’t discuss is how this, highly prejudicial to investors situation, is likely to change? Perhaps, in part, because he knows it isn’t going to? Consider yourself warned.
You can access the paper in full via the following link The Suspension World of the China A-Shares Market.
Happy Sunday.
[* It’s a delicious irony, to me at least, the most recent fund-creation-fad has been for A-shares. Rube investors have thus been herded into what, year to date at least, is the world’s worst performing major stock market. Fools, their money and all that…]