Despite several days of rioting in Tibet, investors in China and Hong Kong have taken little notice of the unrest, and market observers don't appear to be expecting that to change substantially any time soon.

Since Saturday, violence prompted by antigovernment protestors has largely been overshadowed by news of surging energy prices and the $2-a-share sale of Bear Stearns ( BSC) to JPMorgan Chase ( JPM). Few investors in Hong Kong think the Tibetan riots are significant, and most say that if any selling appears as a result of them, investors should view the cheaper stocks as a bargain.

"Tibet is too small a part of the Chinese economy for this to matter much," says Michael Spencer, chief Asia economist for Deutsche Bank in Hong Kong. "This is a political disruption in a very, very small and insignificant economic part of China."

Others generally concur. "From the point of view of Hong Kong investors, people don't really bother to look at it. They'd rather focus on the U.S. fundamentals," says Andy Lam, associate director of Harris Fraser in Hong Kong.

China Watch: Play It Safe, Play to Win

It may be a sign of the shifts globalization has brought that few investors care much about the news of fighting, prompted by locals whom the Chinese government claims are trying to undermine the Beijing Olympics, in their own backyard.

Most of the selling that has been seen has been limited to Tibet-related companies that international investors usually can't buy. Tour operator Tibet Shendi, for example, plunged the maximum daily allowed limit of 10% Tuesday to 12.42 yuan, while pharmaceutical firm Tibet Rhodiola dropped 9.7% to 11.39 yuan. Whether the selling will spill over to more prominent stocks in the Chinese market is a subject of much contention.

"There will probably be two or three days of political unrest, and then the situation will calm down," says Andrew To, head of research at Tai Fook Securities in Hong Kong. "The whole area will suffer a lot, and it's sad, but there will be no impact on the financial market."

A contrarian minority, however, suggests that the disquiet could lead to a wider negative impact on the Olympic games, and hence stocks that benefit from their ties to them.

Martin Marnick, a director at Helmsman Global Trading in Hong Kong, says the riots, when combined with factors such as China's pollution and income disparity, might sour the Olympics. That, in turn, would be a minus for China's already beaten-down stock market.

"The closer you look at something, the more obvious are the imperfections," he wrote in a research note. "After a month of intense scrutiny, China may be better understood by the world, and no longer perceived as some distant, all-powerful economic rock -- instead, it may be viewed like every other country, a mix of some good and bad and with its fair share of challenges ahead."

In other words, it may be worth at least monitoring what takes place in Tibet alongside other potential blows to China's image on the world stage.

Stocks that are traditionally associated with deriving benefits from the Olympic games include airlines such as Air China ( AIRYY) and China Eastern Airlines ( CEA) and sportswear retailers such as Li Ning ( LNNGF).

Baidu.com ( BIDU) and Alibaba.com ( ALBCF) also rose last year as a result of investors' excitement over the games, since they foresee strong growth in domestic consumption prompted by the influx of tourists. These shares have already taken a beating in 2008 due to early-year snowstorms and concerns over inflation, and few investors have shown a willingness to pick them up, with most counting on the summer games to provide the catalyst.

In short, while the argument can be made that China's woes represent a chance to buy shares at beaten-down prices, the counterpoint is that there is a danger in becoming too opportunistic, too soon. The safest bet, then, may be to factor in the political risk and decide from there.

Amid the ongoing debate, others argue this is unnecessary conservatism. Serdar Kucukakin, an emerging markets economist for ABN Amro, maintains investors should feel safe investing in Chinese companies. "The big policy aim of Beijing is to maintain social stability and to fight inflation," he says. "Officials will do anything in their power to achieve these objectives."
Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.

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