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  • Ernie Diaz

Shell Game

Compliance often means spelling things out for the aggressively uninformed, e.g. "This coffee may be very hot," or "investing your money with us does not guarantee a return."


Now, in order to shield the clueless retail trader from his own resistance towards due diligence, SEC Chairman Gensler has halted U.S. listings of China IPOs until, ostensibly, all related prospectii bear "WARNING: YOU ARE INVESTING IN A SHELL COMPANY WHICH IN NO WAY CONTROLS THE OPERATION OF THE CHINESE COMPANY WHOSE SHARES IT HOLDS", in block letters.


Gensler would also have them disclose that future actions by the Chinese government could significantly affect the performance of the underlying company. Very fair: not all countries' policies are first and foremost dedicated to ensuring Wall Street's outperformance.


"This is obviously not the best time to be allocating to public VIEs representing Chinese companies, without a long term horizon," says Edward Lehman. "Potential SEC risk must now be added to Chinese regulatory risk, and sentiment is at a low. In the meantime, however, China's A-shares market is a bonanza of opportunity. It's largely uncorrelated to western markets, and there are a plethora of sectors: emerging tech, defense, clean energy, and others, whose development and growth is a top government priority. Unfortunately, the opportunity is limited to institutional investors, but we're guiding interested parties to some great solutions, including SMAs (single managed accounts)."

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