– Correspondent Stephen Evans on BBC Radio 4’s ‘Today’ programme, 7 January 2016, discussing the second closure of the Chinese stock market that week.
“For [our investment process] to work we have consistently needed the following criteria to be met:
• Access to transparent and truthfully compiled data at both a macro and a company specific level..
• Logical decision making by macro-economic policy makers..
..China also presents further problems.. than just a weakening growth profile. This is the problem of the predictability (or rather lack of) of policy making. As its growth rate has slowed and as China – due to its sheer size – has become more important to the functioning of the rest of the global economy, so external scrutiny has increased. Unfortunately, instead of responding with greater transparency, which would reduce the level of enquiry, the Chinese government has responded by drawing in on itself and hiding behind a welter of official statistics that quite frankly no longer add up..”
– Nevsky Capital in a letter to investors explaining why it is closing the $1.5 billion Nevsky Fund.
Chaos theory studies the behaviour of dynamic systems that are highly sensitive to initial conditions. In a chaotic system, tiny changes in initial conditions lead to wildly divergent outcomes further down the line. Under chaos, short term prediction may yield certain benefits, but long term prediction is impossible.