China increasingly wants to attract foreign investment in its financial markets, but few are stepping up to take their capital to its markets. One reason may be that the rules of its markets aren't well understood, and in many cases, changing rules make it impossible for institutions to feel safe about their investment.
In this segment of Industry Focus: Financials, The Motley Fool's Gaby Lapera and Jordan Wathen discuss some of the reasons Chinese stocks are still off limits for many international investors, particularly large institutional investors.
Continue Reading Below
A full transcript follows the video.
10 stocks we like better than Apple When investing geniuses David and TomGardner have a stock tip, it can pay to listen. After all, the newsletter theyhave run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*
David and Tomjust revealed what they believe are theten best stocksfor investors to buy right now... and Apple wasn't one of them! That's right -- theythink these 10 stocks are even better buys.
Click hereto learn about these picks!
*StockAdvisor returns as of December 12, 2016The author(s) may have a position in any stocks mentioned. The Motley Fool owns and recommends shares of Apple.
This podcast was recorded on Dec. 12, 2016.
Jordan Wathen: What's happened recently is that China has been limiting the amount of money that companies and individuals and basically everyone can take out of China. This has gone on for a long time, but more recently, there was a change to where companies can only withdraw something like $5 million a day from China in dollars, versus $50 million a day previously. So as far as business goes, that'scertainly a limitation. When you look back more, broader,when you think about China and markets, especially as it relates to stock and bond markets, is that last year, during a crash in the stock markets in China, they put somepretty strict limitations on how you could invest or whether you could even buy or sell.
Gaby Lapera:Yeah,absolutely. I don't know if you guys remember this after all the financial craziness that'salready happened this year, but China had a little bit of a roller-coaster ride, and they locked down investors' abilities to sell bondswhen the Chinese market was crashing. Afterwards, they released a statement saying, "Wedon't understand why people don't want to invest in our bonds, but we'reincentivizing them in XYZ ways." But it seems like there's a little bit of a gap between them realizing, "Ah,yes, we have blocked people's ability to allow the market to function as it should.This is why people don't want to come to our bond party."
Wathen:Right.I think one of the things, too,as individuals, it's kind of hard to understand maybe the needs of institutionalinvestors. But one of the things they limited,first of all, they limited short-sellingunder the threat of arrest. So you can't run asophisticated long-short strategy, which turns off all the hedge fund managers in the world. And then, you have a matter where, if you own more than 5% of a company, you'rerestricted on your ability to sell. So yourhighest-conviction ideas, you had better have a whole lot of conviction in them, because you could potentially end up holding them for a long time. Basically,you could end up holding them into perpetuity or until China decides, "OK, fine, we'll let you sell."
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.