China investing has become strikingly bipolar, with the strategies of many fund managers set by the answer to one overriding question: “Is the Communist party strong enough to resolve the economy’s chronic debt addiction?”
Those who answer No see the Chinese sky falling, and tailor their investments accordingly. Those who answer Yes are free to gorge themselves on high-yielding domestic bonds and a bargain basement of Chinese bank equities.
Others, though, are cloven in uncomfortable ambiguity. They see potential dire consequences from China’s debt problem, but are obliged by the country’s strong presence in benchmark indices — a 27 per cent weight in the MSCI emerging markets equity index — to hold Chinese assets.
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