Why China Is Risky For Investors

Ann Logue was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick.

Ann Logue, author of "Emerging Markets for Dummies," said that investors should be aware of the large, macro risks in Chinese equities, namely that the government has a lot of control over the economy. This is true whether investing in an ETF like the iShares FTSE/Xinhua China 25 Index FXI or specific listed shares like Alibaba Group Holding Ltd BABA or Baidu Inc BIDU.

Ultimately, Logue said that the "interests of investors are not a priority." Instead, the government is concerned with employing its workers – many of which are young men turning of age as the result of the country's one-child policy. The stock market is "low" on its list of priorities.

Since the government's interest differ from investors, it presents a large overhanging risk. Chinese companies listed here, like Baidu and Alibaba, are not safer than Chinese-listed companies, though not "enormously safer." Trading Chinese stocks may, however, present some interesting intraday opportunities with greater volatility.

The bottom line: China is one to underweight "unless you're feeling really lucky," Logue concluded.