Unmasking the Asian Giant
By Frank Holmes
NEW YORK (TheStreet) -- Chinese operas have been keeping audiences enthralled for hundreds of years with mythical characters, enchanting stories and elaborate masks that add drama and mystery.
While this fantastical treatment is appreciated in the theater, it isn't in global markets. Investors don't like mystery. Think of how uncertainty has spooked markets in recent years.
Global investors are rarely privy to every detail about the economy; that's why it's necessary to rely on multiple data and research to make decisions and be cautious of extreme views that unnecessarily arouse suspicion, skepticism, and criticism. These opinions may grab headlines, but rarely do they help investors' portfolios.A recent article in The New York Times raised doubts about the quality of China's macroeconomic reporting. The Times pointed to evidence from "prominent corporate executives in China and Western economists" who say that "local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles." The author alarmed many of our readers, so we immediately contacted numerous analysts -- many of whom have front row seats to Chinese economic data -- to get their reaction. Some analysts preempted our request by independently sending out a rebuttal, including CLSA's China Macro Strategist Andy Rothman in his Sinology report titled, "Lies, Damned Lies..." Since 2006, global investors have come to rely on this company's coverage of China because of its ability to "independently monitor mainland economic activity." Don Straszheim from ISI also emailed his view on the veracity of Chinese data. (We note that Don was correct on a recent call on China. When he visited our office at the beginning of June, he correctly predicted the interest rate cut, which China made two days after his visit.) We're all influenced by emotions, of course, and when used to our advantage, can help guide how we invest. However, we need to be aware of how outside biases can influence our judgment. In "Thinking, Fast and Slow," Daniel Kahneman writes about a mechanism through which biases flow called an "availability cascade," a term coined by Cass Sunstein and Timur Kuran. Kahneman says the availability cascade is a "self-sustaining chain of events, which may start from media reports of a relatively minor event and lead up to public panic and large-scale government action."
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