China’s new political risk premium

FOR THE average investor, China is the source of all sorts of uncertainty. A regulatory crackdown on social-media and education firms has sent stocks tumbling. Companies with exposure to property are suffering as a result of a clampdown on leverage and , a developer. A ban on cryptocurrency transactions briefly knocked the price of bitcoin. And a rush by provincial authorities to meet carbon-emissions targets is causing s, which could weigh on both the economy and asset prices.If investors expect policy to remain volatile, then they could start to demand a greater premium for holding Chinese assets. “The intensity of policy change has caught investors off-guard,” says Chetan Ahya of Morgan Stanley, a bank. “It’s not clear what the end game is for each sector, so there’s a lot of uncertainty, and it’s this uncertainty that adds to the risk.” Indeed, a risk premium may already be becoming apparent for some assets.