Rough Around the Hedges

You don't go to China's Hawaii, Hainan, for the tropical breezes. You go to see which way the wind is blowing. Specifically the financial/foreign policy winds stirred by hot air vented at the seminal Boao Forum.

This year, the chairman of China's Securities Regulatory Commission weathervaned that, when it comes to the Chinese stock market, "foreign brokers with hedge funds' backing could be our concern." Foreign mutual funds, pension funds, insurance companies? Come on in, oh providers of liquidity and stability. Ye of the naked shorts, wizards of derivatives, crashers of markets - do not pass Go. 

"China stock regulators' reluctance to create a market mirroring America's should come as no surprise to foreign players," says Edward Lehman. "The commitment to opening up will be tempered by an overarching need for stability. Naturally, controlling volatility makes for something of a rigged game. However, it's getting harder to level that term at China alone. There's a reason the bulge bracket firms are aiming largely for mutual funds and fixed income."