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The Fear of the Bear: A Once Bullish JPMorgan Deems China 'Uninvestable.’

They Blame Ukraine and Macro Risks —But Refuse to Acknowledge the Obvious.

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To the surprise of absolutely no one, America’s biggest investment firms —your Goldmans, BlackRocks, and JPs —have been recklessly pumping trillions of dollars into the Chinese economy which is, essentially, an elaborate shell game with about as much transparency as a London fog. Last year, Will Hild, Executive Director of Consumers’ Research, released a report on the dangers of investing in China, stressing that risk and volatility are generally unknown.

“Chinese firms are not held to the same transparency standards as their western counterparts, so foreign investors are often hard pressed to appreciate the true risk profile of what they’re investing in,” Hild said. 

The Drill Down previously reported that in order to get listed on foreign stock exchanges, China will use a variable interest entity (VIE) to create offshore shell companies used to finance projects without putting the whole enterprise at risk. This shady loophole allows companies to hide certain assets, keeping them off corporate balance sheets.

But the market is too big; the spoils, vast; the siren song, irresistible. Damn the risks —damn them, we say! 

…until now, apparently.

According to the South China Morning Post, “Chinese tech stock rout deepened, slashing billions of dollars from the likes of Alibaba Group Holding and Tencent Holdings in Hong Kong, on heightened concerns about an industry crackdown, Covid-19 outbreaks, and China’s position on the Ukraine conflict.”

“Losses spiraled after JPMorgan Chase downgraded 28 Chinese internet stocks including Alibaba, Tencent Holdings and Meituan to underweight, calling them ‘uninvestable’ over the next six to 12 months due to rising geopolitical and macro risks.”

“Uninvestable?” Now? For years, American investors were willing to throw risk to the wind, navigating the uncertain and often crooked dark corners of China’s economy. But now we’re getting bearish B.S. because of Ukraine and “macro risks?”

This is a smokescreen —an escape hatch for investors who realize buddying up to China is falling out of fashion. To crib Gordon Gekko, greed is good —but it ain’t violating-human-rights-and-being-complicit-in-genocide good.

The War in Ukraine has exposed Putin’s financial reach —a vast network of tentacles that are now being severed by a slew of sanctions. How long before people start poking around into what China has their hands in?

Oh wait, that’s right —Peter Schweizer already did in his bestselling book Red-Handed: How American Elites Get Rich Helping China Win. So did Michael Pillsbury in his bestseller The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower.

This about-face feels like an attempt to bury the true narrative i.e. investing in China is empowering our greatest enemy and may blow up in our face. “It was always about Ukraine,” they’ll say. “Macro risks and the like,” will be muttered through cigar smoke and float on bourbon breath in one of those freaky “Eyes Wide Shut” clubs.

But here’s the truth for all you bulls turned bears: you knew it was wrong and you knew it was only a matter of time before Peter Schweizer or some other investigative journalist pulled your card.