Six months ago I sensed that the Chinese people proclivity to save and craze for fortune games would be channeled into the Shanghai and Shenzhen stock markets. I remembered in Kaifeng the enormous halls with hundreds of hypnotized Chinese sitting in rows and rows of wooden benches, watching the stock exchange board and monitors. That in the morning, during work time, in a nominally Communist dictatorship. I started talking to the neighbors, soon guards appeared and asked me to pay for sitting there, but I have this rule of mine never give money to strangers, (and less in a strange city), so they threw me out without ceremony. So in January 2007 I purchased a few thousand djoobot (greenery of the local variety) worth of Kesem China Index and followed with increasing self-congratulation the phenomenal rise of Chinese stock prices. I was right, as I always am: when 1,500 million Chinese met that devilish capitalist invention of the stock exchange, they all fell in love with it.
Two days ago Chinese B stocks jumped 9% in a day, but my Index holdings "jumped" only 1%. Something is wrong! I sensed and consulted my Yemenite investment advisoress. She consulted her data bank and said it was in fact linked to the Hang Seng stock exchange, that is, Hong Kong's somnolent exchange's thirty largest stocks. Of course she was wrong once again, because the fund is indexed to the FTSE XINHUA China 25 Index, which consists 25 of the largest and most liquid Chinese stocks (Red Chip and H shares) listed and trading on the Hong Kong Stock Exchange (HKSE. If I could make such a mistake, and I (like anybody else) know myself to be far above average, then the perfect market theory must be wrong. One has to make a lot of research just to discover what each paper is and how it works. People makes gross mistakes all the time, hundred million imperfect people does not make a perfect market. My Chinese index holdings rised only 12% in these six months and not 50% as they should. The pic is me at the Ming Emperor's Tomb, near Beijing.